Alibaba.com CEO and COO resign after fraud investigation

The company said claims of fraud by its suppliers increased from 2009 to 2010

The head of Alibaba.com, a top e-commerce operator in China, has resigned following an internal investigation that found an increase in fraudulent transactions at the company.

CEO David Wei has resigned from Alibaba.com, a business-to-business trading platform part of Chinese e-commerce giant Alibaba Group. Wei's replacement will be Jonathan Lu, the CEO of Alibaba's Taobao.com, China's largest online retailer. Alibaba.com chief operating officer Elvis Lee has also resigned.

The investigation found that Wei and Lee were not involved in any of the fraudulent activities.

By resigning, Wei and Lee wished to take responsibility for fraudulent activity conducted by users on the site.

On Monday, Alibaba released a statement saying that senior management at the company had noticed an increase of fraud claims from buyers against its China Gold Supplier customers.

The fraud had begun in late 2009 and continued throughout last year. The number of suppliers engaging in the fraud included 1,219 who had signed up in 2009 and 1,107 who had signed up in 2010. The company has taken action by terminating the virtual storefronts of the suppliers.

"In general, the sites offered high-demand consumer electronics at very attractive prices, a low minimum order quantity and less reliable payment transfer methods." Alibaba said in a statement. "The average value per claim by buyers against fraudulent suppliers was less than US$1,200."

About 100 sales people, a number of supervisors and sales managers, had allowed the fraud to evade the company's verification measures either intentionally or out of negligence, Alibaba added. The fraudulent activities had no "material financial impact" on the company.

Under Wei's leadership, Alibaba.com had been working to expand its services globally. Last year the company had made acquisitions of two e-commerce companies in the U.S. The goal was to use them to help pave the way for U.S. small businesses to source their products via Alibaba's e-commerce resources.

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