Alibaba disclosure of SEC probe unnecessary?

A China legal expert has suggested that Alibaba Group’s recent disclosure in its annual report that it is being investigated by the US Securities and Exchange Commission (SEC) over its accounting practices may have been unnecessary.

The e-commerce giant was asked by the regulator to provide details of its Singles’ Day promotion, and how it consolidates results from affiliated companies, including logistics partner Cainiao Network.

“The recent Alibaba incident highlights a legal question that has been much debated recently, especially following the decision on 1 February 2016 of the US Court of Appeals for the Ninth Circuit in Lloyd v CVB Financial Corporation, and that is: Should a company disclose the existence of an SEC investigation?” T K Chang, a partner in the New York office of Zhong Lun Law Firm, told Asia Business Law Journal’s sister publication, China Business Law Journal. “The answer is not clear, although the general weight of legal cases suggests that the company generally does not have a duty to disclose the existence of an SEC investigation. This is because the result of the investigation is still not known, and the company has no general duty to disclose litigation that is not ‘substantially certain to occur’.”