Report: SEC’s Alibaba Accounting Fraud Investigation Gaining Steam

alibaba-baba-logoAlibaba Group Holding Ltd (NYSE:BABA) is in hot water with the SEC over alleged accounting wrongdoings, and it has the help of at least one “higher-up” whistleblower from the inside, according to a new report.

The alleged fraud could involve billions of dollars worth of accounting irregularities. From the New York Post:

The Securities and Exchange Commission is working with one or more whistleblowers as it investigates the controversial accounting practices of the China-based e-commerce giant, The Post has learned.

Alibaba disclosed in May that the SEC was looking into how it accounts for a tangle of complex transactions between its Cainiao logistics arm and dozens of other business affiliates, as well as the way it reports sales for its annual Single’s Day shopping bash.

The investigation has apparently taken on new life with the aid of one or more “higher-ups,” according to sources familiar with the matter. China-based BABA isn’t subject to the sort of rigorous accounting requirements that U.S. firms are, and Chinese regulations may prevent the company from disclosing certain documents. However, the SEC could potentially obtain that information from an insider cooperating with the agency instead.

Heavy hitters in the investment world like Jim Chanos and Herb Greenberg have frequently called Alibaba’s accounting practices into question recently. Chanos suspects the company’s Cainiao logistics segment could be used to hide losses, because there’s little to no transparency regarding that unit. Greenberg, meanwhile, has called the investigation “serious,” and called the company’s numbers “suspect” due to it potentially moving a number of costs off its balance sheet.

Investors, meanwhile, haven’t seemed to care one bit. Since the SEC investigation was first reported back in May, BABA has surged more than 30%.

Alibaba shares fell $1.61 (-1.58%) to $100.08 in Tuesday morning trading. Year-to-date, BABA has gained 25.13%, more than five times the return of the benchmark S&P 500 during the same period.