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Alibaba should face lawsuit over IPO, US court says

A U.S. appeals court said Dec. 5 that Chinese e-commerce giant Alibaba Group Holding Ltd. will have to defend itself against shareholder accusations that it failed to disclose a regulatory warning about counterfeit goods ahead of its 2014 IPO, according to a court document.

Manhattan-based judges on the 2nd U.S. Circuit Court of Appeals ruled 3-0 to revive a lawsuit filed by investors who own American depositary shares of Alibaba and call options against the company and some of its executives. Previously, the U.S. District Court for the Southern District of New York had dismissed the investors' complaint, according to a document filed with the 2nd Circuit.

The investors charge that the e-commerce company did not disclose a meeting it had with China's State Administration for Industry and Commerce, or SAIC, in July 2014, during which Chinese officials said they would impose fines unless Alibaba curtailed sales of counterfeit goods on its website.

Chinese officials disclosed their concerns publicly in January 2015. Alibaba Executive Vice Chairman Joe Tsai addressed the company's interactions with the SAIC during an Alibaba earnings conference call Jan. 29, 2015, describing the government regulator's assessment as "flawed" and explaining that Alibaba has a series of anti-counterfeit measures in place.

While the 2nd Circuit ruling does not make statements on the merits of the investors' case, the judges said the officials' concerns "would likely have had a multi-billion dollar negative effect" on Alibaba's IPO if they had been revealed before the offering, according to a court filing.

A spokesman for Alibaba did not immediately respond to a request for comment on the Dec. 5 ruling.

Shares of the company were 0.3% lower at $169.05 each on the New York Stock Exchange during afternoon trading Dec. 5.