Alibaba CEO Resigns: It’s All About E-Commerce Trust

Written by Frank Hayes
February 24th, 2011

Trust is at the center of E-Commerce. In a physical store, the customer can see the product and walk out with goods in hand; online, it’s all a matter of trust until the merchandise finally arrives. So when the CEO and COO of—China’s giant business-to-business E-Commerce player—resigned on Monday (Feb. 21) in a fraud scandal, it certainly didn’t feel like a move that would increase the level of trust anyone would have in doing business online. But that may be exactly wrong.

After all, Alibaba CEO David Wei and COO Elvis Lee quit after an investigation said they weren’t involved in the fraud that cost Alibaba customers $1.7 million. That’s right, $1.7 million, not billion. And Alibaba is in China, not Japan; top Chinese execs don’t routinely leave as “the honorable thing to do” when they’re not personally guilty. Assuming they really are clean, why make that extraordinary gesture? Could it be that they want to demonstrate to customers that Alibaba has skin in the game—all the way to the top?

The rough details of the fraud are pretty clear: Starting in late 2009, about 100 sales employees “‘willfully or negligently’ helped organize Chinese criminal rings establish ‘Gold Supplier’ storefronts so they could pose as legitimate businesses in order to defraud buyers,” according to an Alibaba statement on the fraud investigation.

The statement continued: “ requires would-be vendors to provide business registration documents to set up storefronts on the site. But fraudsters subverted the Web site’s verification process by submitting fake papers, sometimes with the help of sales staff, the investigation found. Once established on the site, the phony suppliers, usually offering small lots of consumer electronics at very low prices, went on to take orders from several thousand overseas consumers and small businesses who paid up front but never received any merchandise.”

Alibaba founder Jack Ma called the mess a systemic breakdown of the company’s “culture of integrity.”

But wait a minute: The average fraud was less than $1,200. About 1 percent of suppliers and less than 2 percent of Alibaba’s salesforce was involved in the fraud. That’s the scandal that caused CEO Wei and COO Lee to walk the plank?

To U.S. E-Commerce players, that sounds crazy. CEOs don’t resign over a fraud unless they’re caught at it. A sex scandal, sure. Terrible financial performance, probably. But a mere $1.7 million in fraud? C’mon, who cares?


Comments are closed.


StorefrontBacktalk delivers the latest retail technology news & analysis. Join more than 60,000 retail IT leaders who subscribe to our free weekly email. Sign up today!

Most Recent Comments

Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

Our apologies. Due to legal and security copyright issues, we can't facilitate the printing of Premium Content. If you absolutely need a hard copy, please contact customer service.