U.S. regulators investigating Alibaba’s accounting practices

Critics claim Chinese firm’s structure creates risks for investors

WASHINGTON — Chinese e-commerce giant Alibaba wowed investors when it went public in the U.S. in September 2014, and its profits have bucked Wall Street expectations amid the Chinese economy’s slowdown. Yet its unorthodox business structure has raised eyebrows, it’s been suspended from an anti-counterfeiting group, and now U.S. regulators are investigating its accounting practices.

Alibaba disclosed in a regulatory filing that the Securities and Exchange Commission has requested documents and information related to the way it adds together earnings from its various divisions, and how it reports transactions with other companies it has a stake in, among other things.

“I think it’s a moment of truth for the company,” said Anant Sundaram, a finance professor at Tuck School of Business at Dartmouth College. “If I’m buying into that stock, what am I buying into?”

U.S.-traded shares in Alibaba tumbled almost 7 percent in heavy trading Wednesday after news surfaced of the SEC investigation. They are down 20 percent in the past year.

The company said it is cooperating with the inquiry. An SEC spokesman declined to comment.

Alibaba is the world’s biggest e-commerce platform, with more than 420 million people buying $485 billion worth of goods last year on its sites. Its digital platforms, including Taobao and Tmall, make up 80 percent of Chinese e-commerce.

Disclosure of the SEC probe comes less than two weeks after the company’s membership in the International Anti-Counterfeiting Coalition was suspended.

Some U.S. retailers that are members of the group, which lobbies U.S. officials and testifies before Congress, view Alibaba as a huge marketplace for fakes. Michael Kors, Gucci America and Tiffany quit the group in protest after Alibaba was made a member in April.

Led by self-made billionaire and founder Jack Ma, Alibaba has put a huge footprint on the Chinese economy and made unorthodox moves, such as spinning off its payment service into a company Ma controlled without telling Yahoo, a major investor in Alibaba.

To get around Chinese government restrictions on foreign investment in Internet companies, Alibaba deploys an unusual structure that gives foreign investors a stake in profits but keeps management control in China. That arrangement magnifies risks for investors.