Alibaba Settles Class-Action Lawsuit for Nearly $500 Million

Alibaba Settles Class-Action Lawsuit for Nearly $500 Million

Introduction

Alibaba Group Holding has agreed to a USD 433.5 million settlement in a longstanding securities fraud lawsuit in a Manhattan federal court.

This class-action case, which accused the Chinese e-commerce powerhouse of misleading investors about its competitive practices and the failed IPO of its affiliate Ant Group, has been active for nearly four years. With final approval pending in the US District Court for the Southern District of New York, this settlement would rank among the 50 largest securities fraud settlements in the U.S. since 1995 if it proceeds.

The shareholder lawsuit dates back to 2020, following the unexpected cancellation of Ant Group’s USD 34.5 billion IPO by Chinese regulators. Investors argued that Alibaba and two of its executives made materially misleading statements about the likelihood of the IPO's success and Ant Group’s growth potential. Shareholders also claimed that Alibaba hid information about monopolistic practices, alleging that the company restricted merchants to selling exclusively on its platform. This anticompetitive behavior eventually led to a USD 2.8 billion fine imposed by Chinese regulators.

Initially, the case involved both claims related to the Ant Group IPO and antitrust issues tied to Alibaba’s business practices. However, in a significant decision last year, the presiding judge narrowed the scope of the lawsuit, dismissing the allegations related to the Ant Group IPO but allowing claims related to monopolistic practices to move forward.

Although Alibaba has not admitted any wrongdoing or liability in the settlement, the company explained in a regulatory filing that the decision was made to avoid the financial costs and complexities of prolonged litigation.

This settlement is not Alibaba’s first encounter with high-stakes securities litigation in the U.S. Southern District of New York. In 2015, Alibaba resolved another major lawsuit related to its 2014 IPO, agreeing to a USD 250 million settlement. That case stemmed from claims that Alibaba had misled investors by not disclosing key discussions with Chinese regulators regarding counterfeit goods sold on its platforms, particularly Taobao, a popular e-commerce site. Just two months before the USD 25 billion IPO—a then-record-setting offering—the company reportedly had discussions with China’s State Administration for Industry and Commerce (SAIC) concerning counterfeit merchandise on Taobao. The SAIC allegedly warned Alibaba of severe penalties unless it improved its counterfeit oversight.

In early 2015, the SAIC released a report stating that less than 40% of goods on Taobao were authentic, leading to a drop in Alibaba's share price and sparking investor claims that the report’s publication had been deliberately delayed to prevent it from affecting the IPO. Like the current settlement, this earlier one also included no admission of liability from Alibaba but concluded the claims brought by investors who held American Depositary Shares and options prior to the report’s release.

The current USD 433.5 million settlement aims to compensate shareholders for financial losses they allege were caused by Alibaba’s monopolistic practices. By agreeing to this settlement, Alibaba moves to close yet another chapter of legal challenges over its competitive practices and transparency issues that have repeatedly troubled its relationship with global investors.