Alibaba (BABA) Fake Orders | Brushing Plagues BABA Stocks!

Alibaba Fake OrdersWhen the Alibaba (BABA) IPO announcement came late last year, investors got incredibly excited. After all, Alibaba (BABA) is the Amazon, PayPal, and Ebay of China all wrapped into one. However, there’s a new issue surrounding the company that could drive it right into the ground. It seems as though advertisers have been brushing orders. So, today we’ll talk about what brushing is and why it’s illegal in the United States and China, how the news has affected Alibaba (BABA) stocks, and how Alibaba (BABA) has reacted to the claims so far. So, let’s get right to it…

What Brushing Is And Why It’s Illegal

Brushing is a way for companies to make their products appear better than they are. To do so, manufacturers hire people to purchase their products at cost and write a positive review about their experience. The process gives vendors a way to not only show great reviews to real customers, but to also add a little padding to their sales and revenue figures.

Once you know what brushing is, it’s easy to see why both the United States and China have outlawed the practice. Unfortunately brushing harms consumers by providing false reviews, causing them to purchase products they otherwise wouldn’t while giving companies with deep pockets and morals that hang even lower an upper hand in the game.

How The News Has Affected Alibaba’s Stock Price

As any bad news typically does to any company’s stock price, the news of Alibaba (BABA) suppliers brushing products has sent the ecommerce giant’s stock price tumbling. While the stock had been struggling with volatility after weak earnings for quite a while before the news came out. The day the story became available, the stock fell like a lead brick; landing at a new all-time low of $81.53 per share after dipping to a day’s low of $80.03 per share. However, it seems as though Alibaba (BABA) may start making a recovery as trading continues on Wednesday. The stock has been on a strong uptrend throughout the day and is currently trading at more than $85 per share (3.4.2015 1:50).

How Alibaba (BABA) Has Responded To The Brushing Allegations

Alibaba (BABA) is responding to an SEC letter surrounding the allegations. However, they have openly announced that they have no obligation to do so. Here’s what Alibaba (BABA) had to say in a statement…

Alibaba (BABA) has “no obligation to disclose the receipt of the SEC correspondence, we have chosen to proactively disclose the request because we value being open with our investors and feel that disclosure could help avoid false rumors or speculation…The SEC letter states it should in no way be construed as Alibaba (BABA) Group having done anything wrong or there having been any violation of securities law.”

However, for some reason, I couldn’t find any resources that said that Alibaba (BABA) is proactively working to fix the problem.

What Are Your Thoughts

How do you think Alibaba (BABA) should address the brushing issue? Do you think the issue could drive the stock further down or will the recovery continue for Alibaba (BABA)? Let us know in the comments below.

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