by Claudia Bruemmer

HANGZHOU, CHINA – Chinese police arrested 36 people involved with fraudulent scams on Alibaba.com, which had prompted the resignation of two top Alibaba executives in February. The suspects were accused of running a criminal gang that used fake personal and business identities to open accounts on Alibaba.com, China’s largest B2B ecommerce trade platform. 

The alleged criminal gang cheated overseas buyers out of more than $6 million dollars. So far, Alibaba.com has refunded $1.94 million to victims of the scam. Alibaba reported 1,219 fraud cases in 2009 and 1,107 in 2010, with an average value of less than $1,200 per case.

TopTenWholesale was first to report rumors of the resignation of Chief Executive Officer David Wei and Chief Operating Officer “Elvis” Lee in response to initial allegations of Alibaba fraud in February, and those rumors were quickly confirmed as Wei and Lee subsequently resigned. TopTenWholesale reported more news on the shakeup as the regrettable details unfolded.

The fraud investigation on Alibaba.com involved Alibaba “Gold Suppliers” cheating global buyers around the world out of over $6 million dollars by taking orders, receiving payment and not delivering the goods. “Gold Suppliers” pay to become verified suppliers upon being investigated and approved as authentic companies that can be trusted. Vetting is done by a third-party service. That gives the vetted suppliers “buyer trust,” so overseas buyers can buy with confidence from “Gold Suppliers.” However, Alibaba Group’s founder Jack Ma wrote in an internal memo in February that about 100 Alibaba.com employees were involved in helping the suspects set up accounts in order to meet their sales numbers, and some of these unfortunately were “Gold Suppliers.”

“As Internet scammers become more sophisticated in using Internet technology to commit fraud while covering their tracks, it becomes more important for wholesale search engines to monitor suppliers, as global trade takes due diligence for both sides,” said JP Communications INC CEO Jason Prescott. “Suppliers who pay for these services appeal to buyers because they assume they can source with confidence from them,” he added.

JP Communication INC’s China-based wholesale search engine, Manufacturer.com has been offering a premium membership called Supplier Pass™ since 2009 without incident. During 2009 and 2010 over 2,300 cases of fraud were reported on Alibaba.com. “Alibaba helped to fuel a new generation of web-based sourcing, and Mr. Ma is a great leader who will inevitably take steps to correct the problem,” said Prescott.

JPC is revamping its flagship site, TopTenWholesale.com, to offer Supplier Pass™ services with premium membership starting soon. Supplier Pass™ vetting for JPC is conducted by 1^st PMF Bancorp, a financial institution operating in the U.S. and in China since 1985.

While some buyers may find themselves doubting the authenticity and ethical conduct of global trade platforms, especially those based in China, buyers should know they can conduct due diligence by double checking on their own through the Better Business Bureau and Standard and Poor’s reports (for large orders). Additionally, a Google search can sometimes reveal Internet scams as people are using social networks and are producing a lot of useful content indexed by search engines and available with a search query.