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Alibaba Group Holding Ltd (BABA): Could Investors be Defrauded by the Chinese Company?

Alibaba Group Holding Ltd (NYSE:BABA) raises some interesting concerns for investors, many of whom will be investing in China for the very first time through Alibaba Group Holding Ltd (NYSE:BABA)’s IPO today.  In particular is the threat of fraud that is present investing in a company that is essentially outside of Wall Street jurisdiction. Sheryl Wudunn, author of “Thunder From the East” and “China Wakes,” spoke with Bloomberg this morning about the risk of Alibaba Group Holding Ltd (NYSE:BABA) defrauding investors. 1

“Well first of all I have to say I have no idea whether or not there is that suspicion that could come true, but I have to say, it is such a large company that is very hard to understand the entirety of it. And also, there is a lot of vagueness in the numbers and also in the description of the IPO. So we really don’t know. But let’s give it the benefit of the doubt and assume that there is not that much opportunity for fraud,” Wudunn said.

As Wudunn said later, there is really no way to know what you’re getting with a Chinese company, and there have been several instances of such companies launching IPO’s on Wall Street, only to later be delisted for various reasons, including a stock price that remained too low, a lack of transparency in the financial and other data that the company releases, or an overall question of the company’s financial status. In 2011 alone, 26 Chinese companies were delisted from the three major U.S exchanges.

However Wudunn believes Alibaba Group Holding Ltd (NYSE:BABA) has certainly differentiated themselves from any of those other companies, and is clearly doing something right to achieve the success they have. Alibaba Group Holding Ltd (NYSE:BABA) currently controls over 80% of the Chinese e-commerce market, which continues to grow.

Other analysts agree with Wudunn, including Jim Cramer, who believes the stock is one of the best on the market and poised for big gains on IPO day and beyond.

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