[JURIST] The US Court of Appeals for the Second Circuit on Tuesday revived [order, PDF] a lawsuit [complaint, PDF] brought against Alibaba Group Holding Ltd [corporate website] by the Chinese online retailer's shareholders last year.
The suit alleged that in addition to knowing about counterfeiters selling knock-off versions of luxury products on their website, Alibaba defrauded their shareholders by concealing information [Reuters report] regarding a meeting they had with China's State Administration for Industry & Commerce [official website] in which the agency threatened to fine Alibaba if they continued to allow counterfeiters to conduct business on their website.
In 2016 Judge Colleen McMahon dismissed the lawsuit because Alibaba "flagged the regulatory risks in its IPO materials." However, the appeals court found that the shareholders were right to allege the Chinese online retailer's intentions were to defraud them:
The complaint asserts that this concealed information was highly material to investors because the threat required Alibaba to choose between giving up an important source of its revenue or risking enormous fines, where either outcome would have significant negative impact on Alibaba's revenues and on the success of its IPO. ... In dismissing the complaint, the district court inappropriately discredited significant allegations on which Plaintiffs' claims relied, failing to create the complaint in the light most favorable to the Plaintiffs, and to draw reasonable inferences in Plaintiffs' favor.The appeals court remanded the case to McMahon for further proceedings.