Surrey Alibaba

Home , AliExpress, Jack Ma, Jonathan Lu, Taobao, Tmall

Case 3:15-cv-01036-WQH-WVG Document 1 Filed 05/08/15 Page 1 of 31

1 FINKELSTEIN & KRINSK LLP Jeffrey R. Krinsk, Esq. (SBN 109234) 2 [email protected] Mark L. Knutson, Esq. (SBN 131770) 3 [email protected] William R. Restis, Esq. (SBN 246823) 4 [email protected] David J. Harris, Esq. (SBN 286204) 5 [email protected] Trenton R. Kashima, Esq. (SBN 291405) 6 [email protected] 550 W. C Street, Suite 1760 7 San Diego, California 92101 Telephone: (619) 238-1333 8 Facsimile: (619) 238-5425

9 Attorneys for Plaintiff

11 UNITED STATES DISTRICT COURT

12 SOUTHERN DISTRICT OF CALIFORNIA

14 STEVE SURREY, Derivatively On Case No: '15CV1036 WQHWVG Behalf of Alibaba Group Holding 15 Limited, CLASS ACTION 16 Plaintiff, SHAREHOLDER DERIVATIVE 17 COMPLAINT v. 18 JACK YUN MA, JOSEPH C. TSAI, 19 JONATHAN ZHAOXI LU, JURY TRIAL DEMANDED MASAYOSHI SON, DANIEL YOUNG, 20 CHEE HWA TUNG, WALTER TEH MING KWAUK, J. MICHAEL EVANS, 21 and JERRY YANG,

22 Defendants, 23 -and- 24 ALIBABA GROUP HOLDING 25 LIMITED,

26 Nominal Defendant. 27

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1 Plaintiff, Steve Surrey, individually and on behalf of all others similarly 2 situated, by plaintiff’s undersigned attorneys, for plaintiff’s derivative complaint 3 against certain of the officers and directors, alleges the following based upon personal 4 knowledge as to plaintiff and plaintiff’s own acts, and upon information and belief as 5 to all other matters based on the investigation conducted by and through plaintiff’s 6 attorneys, which included, among other things, a review of Securities and Exchange 7 Commission (“SEC”) filings by Alibaba Group Holding Limited (“Alibaba” or the 8 “Company”), as well as media reports about the Company and Company press 9 releases. Plaintiff believes that substantial additional evidentiary support will exist for 10 the allegations set forth herein after a reasonable opportunity for discovery. 11 NATURE OF THE ACTION 12 1. This is a derivative action brought on behalf of all persons who purchased 13 or otherwise acquired the securities of Alibaba between October 21, 2014 and the 14 present, inclusive (the “Relevant Period”), against Alibaba and certain of its officers 15 and/or directors for breach of fiduciary duty and violating Section 14(a) of the 16 Securities Exchange Act of 1934 (“Exchange Act”). 17 2. Defendant Alibaba is a China-based online and mobile commerce 18 company dealing in retail and wholesale trade, as well as cloud computing and other 19 services. Alibaba represented that it is “the largest online and mobile commerce 20 company in the world in terms of gross merchandise volume” in 2013. The Company 21 hosts an online sales platform for third parties and does not engage in any direct sales, 22 compete with merchants or hold inventory. 23 3. During the Relevant Period, Defendants issued materially false and 24 misleading statements regarding the soundness of the Company’s business operations, 25 the strength of its financial prospects and concealed substantial ongoing regulatory 26 scrutiny. Specifically, Alibaba failed to disclose that Company executives had met 27 with China’s State Administration of Industry and Commerce (“SAlC”) in July 2014, 28 just two months before Alibaba’s $25+ billion initial public offering in the United

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1 States (the “lPO”), and that regulators had then brought to Alibaba’s attention a 2 variety of highly dubious – even illegal – business practices that Alibaba was actively 3 engaged in which threatened the core aspects of Alibaba’s business, including: 4 • The rampant sale of counterfeit goods, including fake cigarettes, alcohol, and branded handbags, by vendors on Alibaba’s third-party 5 marketplace platform;

6 • The sale of restricted weapons and other forbidden items on Alibaba’s third-party marketplace platform; 7 • That Alibaba staffers had taken bribes from merchants and others 8 seeking help to boost their search rankings and to get advertising space;

9 • That Alibaba ignored the practice by some vendors of faking transactions to make their sales volumes appear higher; 10 • That Company officials did nothing to stop merchants from using 11 tactics such as false and misleading advertising; and;

12 • Accusing Alibaba of alleged anti-competitive behavior such as forbidding merchants to participate in rival sites’ promotions. 13

14 4. Prior to the disclosure of the adverse facts detailed above, Alibaba and 15 defendants Jack Yun Ma (“Ma”) and Joseph C. Tsai (“Tsai”) sold more than 368 16 million American Depositary Shares (“ADS”) in the IPO at $68 each, making more 17 than $25 billion. Throughout the Relevant Period, Alibaba’s ADS continued trading at 18 ever-increasing, artificially inflated prices reaching a Class Period high of $120 each 19 in intraday trading on November 13, 2014. 20 5. On January 28, 2015, before the opening of trading, various members of 21 the financial media reported that SAlC, China’s main corporate regulator, had released 22 a white paper accusing Alibaba of engaging in the illegal conduct disclosed to Alibaba 23 executives in July 2014. 24 6. On this news, the price of Alibaba’s ADS dropped 4%, or $4.49 per 25 ADS, closing at $102.94 per ADS on January 28th, on unusually high volume of 26 approximately 42 million shares trading. 27 7. Then, on January 29, 2015, before the market opened, Alibaba issued a 28 press release announcing its financial results for the fourth quarter 2014 (“4Q 2014”)

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1 ended December 31, 2014. The Company reported revenues of just $4.22 billion for 2 the 4Q 2014, significantly underachieving the $4.45 billion target defendants had led 3 the investment community to expect based on Alibaba’s bullish statements throughout 4 the Class Period concerning its ongoing purported strong revenue growth. The 5 Company also disclosed that its profits had fallen to $964 million, or 37 cents per 6 share, a 28% decline from the financial results for the fourth quarter 2013 (“4Q 7 2013”), a decline Alibaba largely attributed to expenses from giving shares to 8 employees. The Company also attributed challenges to generating revenues from 9 transactions on its mobile platforms, where advertising is less profitable than on 10 personal computers, and which comprised a larger percentage of sales in the quarter 11 than in the previous quarter. 12 8. As a result of these disclosures, the price of Alibaba’s ADS plummeted 13 another $8.64 per ADS to close at $89.81 per ADS on January 29, 2015, a one-day 14 decline of approximately 9%, again on extremely unusually high volume of more than 15 76.3 million shares trading. The two declines collectively reduced the price of 16 Alibaba’s ADS more than 25%) from its Class Period high, erasing more than $11 17 billion in market capitalization. 18 9. Plaintiff brings this derivative action to: (a) recover damages against 19 Alibaba’s officers and directors for the benefit of the Company; and (b) require the 20 Company to reform and improve internal corporate governance and related procedures 21 to protect Alibaba from repetitive instances of the type of damaging events described 22 herein. 23 JURISDICTION AND VENUE 24 10. The claims asserted herein arise in part under §14(a) of the Exchange 25 Act, 15 U.S.C. §78n(a). Jurisdiction is conferred by the Exchange Act, and 26 supplemental jurisdiction over the state law claims is conferred by 28 U.S.C. § 1367. 27 11. This Court has also jurisdiction over the subject matter of this action 28 under 28 U.S.C. § 1332(a) because the plaintiff and defendants are citizens of different

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1 states and the matter in controversy exceeds $75,000. This action is not a collusive 2 action designed to confer jurisdiction on a Court of the United States that it would not 3 otherwise have. The Court also has supplemental jurisdiction under 28 U.S.C. § 4 1367(a). 5 12. Venue is proper in this Court under 28 U.S.C. §1391 because nominal 6 defendant Alibaba a substantial portion of the transactions and wrongs complained of 7 in this action occurred in this District. 8 The ADS of the IPO trade on the New York Stock Exchange (“NYSE”) located 9 in this District. The roadshow used to sell the IPO took place, in large part, in the 10 borough of Manhattan. The Company’s U.S. legal counsel, the underwriters who 11 conducted the IPO and the underwriters’ counsel are all largely located in this District 12 and carried out the IPO in this District. Many of the acts charged herein, including the 13 preparation and dissemination of materially false and misleading information, 14 occurred in substantial part in this District. 15 13. In connection with the acts alleged in this complaint, defendants, directly 16 or indirectly, used the means and instrumentalities of interstate commerce, including, 17 but not limited to, the mails, interstate telephone communications and the facilities of 18 the NYSE stock market. 19 PARTIES 20 14. Plaintiff acquired Alibaba common stock as set forth in the attached 21 verification that plaintiff continuously owned during the Relevant Period. 22 15. Defendant Alibaba is a China-based online and mobile commerce 23 company in retail and wholesale trade, as well as cloud computing and other services. 24 Alibaba’s ADS trade in the United States on the NYSE, an efficient market, under the 25 ticker symbol “BABA.” The Company had more than 386 million ADS issued and 26 trading in the U.S. as of the date of its IPO. 27 16. Defendant Jack Yun Ma (“Ma”), the lead founder of Alibaba is, and at all 28 relevant time was, the Company’s Executive Chairman of the Board.

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1 17. Defendant Joseph C. Tsai (“Tsai”), co-founder of Alibaba, is, and at all 2 relevant time was, Executive Vice Chairman of the Board of the Company. 3 18. Defendant Jonathan Zhaoxi Lu (“Lu”) is, and at all relevant times was, 4 Chief Executive Officer (“CEO”) and a director of the Company. 5 19. Defendant Maggie Wei Wu (“Wu”) was, at all relevant times, Chief 6 Financial Officer (“CFO”) of the Company and was a signatory to Alibaba’s IPO. 7 20. Defendant Daniel Yong Zhang (“Zhang”) is, and at all relevant times was 8 a director of Alibaba, and was a signatory to Alibaba’s IPO. 9 21. Defendant Masayo Shi Son (“Son”) is, and at all relevant times was, a 10 director of Alibaba, and was a signatory to Alibaba’s IPO. 11 22. Defendant Chee Hwa Tung (“Tung”) is, and at all times relevant was, a 12 director of Alibaba, and was a signatory to Alibaba’s IPO. 13 23. Defendant Walter Teh Ming Kwauk (“Kwauk”) is, and at all times 14 relevant was, a director of Alibaba, and was a signatory to Alibaba’s IPO. 15 24. Defendant J. Michael Evan (“Evan”) was a former vice chairman of 16 Goldman Sachs Group, Inc. and at all times relevant was, a director of Alibaba, and 17 was a signatory to Alibaba’s IPO. 18 25. Defendant Jerry Yang (“Yang”) is, and at all times relevant was, a 19 director of Alibaba, and was a signatory to Alibaba’s IPO. 20 26. The defendants referenced above in ¶¶ 16-25 are referred to herein as the 21 “Individual Defendants.” The Individual Defendants made, or caused to be made, false 22 statements which caused the prices of Alibaba’s ADS to be artificially inflated during 23 the Class Period. 24 27. The Individual Defendants, because of their positions with the Company, 25 possessed the power and authority to control the contents of Alibaba’s quarterly 26 reports, shareholder letters, press releases and presentations to securities analysts, 27 money and portfolio managers and institutional investors, i.e., the market. They were 28 provided with copies of the Company’s reports and press releases alleged herein to be

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1 misleading prior to or shortly after their issuance and had the ability and opportunity 2 to prevent their issuance or cause them to be corrected. Because of their positions with 3 the Company, and their access to material non-public information available to them 4 but not to the public, the Individual Defendants knew that the adverse facts specified 5 herein had not been disclosed to and were being concealed from the public, and that 6 the positive representations being made were then materially false and misleading. 7 The Individual Defendants are liable for the false and misleading statements pleaded 8 herein. 9 28. Defendants are liable for: (i) making false statements; or (ii) failing to 10 disclose adverse facts known to them about Alibaba and the adequacy of its internal 11 controls. Defendants’ fraudulent scheme and course of business that operated as a 12 fraud or deceit on purchasers of Alibaba’s ADS was a success, as it: (i) deceived the 13 investing public regarding Alibaba’s prospects and business; (ii) artificially inflated 14 the prices of Alibaba’s ADS; (iii) permitted Alibaba and the selling shareholders to 15 raise more than $25 billion in the IPO and Alibaba to raise more than $8 billion in its 16 Class Period private debt placement; and (iv) caused plaintiff and other members of 17 the Class to purchase Alibaba’s ADS at inflated prices. 18 BACKGROUND 19 29. Alibaba, founded in 1999, is a China-based online and mobile commerce 20 company in retail and wholesale trade, as well as cloud computing and other services. 21 The Company provides technology and services to enable consumers, merchants, and 22 other participants to conduct commerce in what it calls its “ecosystem.” The Company 23 operates Taobao Marketplace, an online shopping destination, Tmall is a third-party 24 platform for brands and retailers and Juhuasuan. The Company represents that it 25 provides the fundamental technology infrastructure and marketing reach to help 26 businesses leverage the power of the Internet to establish an online presence and 27 conduct commerce with consumers and businesses. 28 30. In July 2014, two months before its IPO, Alibaba executives met with

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1 China’s SAIC during which meeting the regulators brought to Alibaba’s attention a 2 variety of highly dubious even illegal -business practices that the SAlC advised 3 Alibaba it was then actively clamping down on and which threatened the core of 4 Alibaba’s business, including: 5 • The rampant sale of counterfeit goods, including fake cigarettes, alcohol and branded handbags, by vendors on Alibaba’s third-party 6 marketplace platform;

7 • The sale of restricted weapons and other forbidden items on Alibaba’s third-party marketplace platform; 8 • That Alibaba staffers had taken bribes from merchants and others 9 seeking help to boost their search rankings and to get advertising space; 10 • That Alibaba ignored the practice by some vendors of faking 11 transactions to make their sales volumes appear higher;

12 • That Company officials did nothing to stop merchants from using tactics such as false and misleading advertising; 13 • Accusing Alibaba of alleged anti-competitive behavior such as 14 forbidding merchants to participate in rival sites’ promotions;

15 These facts were never disclosed to the investing public prior to the IPO. 16 DEFENDANTS’ MATERIALLY FALSE AND MISLEADING PRE-CLASS PERIOD STATEMENTS THAT REMAINED LIVE AND UNCORRECTED IN THE MARKET 17 THROUGHOUT THE CLASS PERIOD AND CLASS PERIOD MISSTATEMENTS

18 31. On May 6, 2014, Alibaba filed with the Securities and Exchange 19 Commission (“SEC”) a Registration Statement on Form F1, which would later be 20 utilized for the IPO following several amendments in response to comments by the 21 SEC. Each of the Individual Defendants signed the Registration Statement. On 22 September 18, 2014, the SEC declared the Registration Statement effective. On or 23 about September 19, 2014, Alibaba priced the IPO at $68 per ADS and filed the final 24 Prospectus for the IPO on September 22, 2014, which forms part of the Registration 25 Statement (collectively, the “Registration Statement”). 26 32. Concerning the purported integrity of Alibaba’s third-party marketplace 27 portal-or its “growing ecosystem” -and the legitimacy of the products being sold there, 28 the Registration Statement stated in pertinent part as follows:

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1 We have been a leader in developing online marketplace standards in China. Given the scale we have been able to achieve, an ecosystem has 2 developed around our platforms that consists of buyers, sellers, third- party service providers, strategic alliance partners, and investee 3 companies. Our platform and the role we play in connecting buyers and sellers and making it possible for them to do business anytime and 4 anywhere is at the nexus of this ecosystem. Much of our effort, our time and our energy is spent on initiatives that are for the greater good of the 5 ecosystem and the various participants in it. We feel a strong responsibility for the continued development of the ecosystem and we 6 take ownership for this development. Accordingly, we refer to this as “our ecosystem.” 7 Our ecosystem has strong self-reinforcing network effects that benefit 8 our marketplace participants, who are invested in our ecosystem’s growth and success. Through this ecosystem, we have transformed how 9 commerce is conducted in China and built a reputation as a trusted partner for the participants ill our ecosystem.1 10

11 33. Emphasizing the Company’s purportedly “Trusted Brands,” the 12 Registration Statement highlighted as a “Competitive Strength” that “Alibaba, Taobao, 13 Tmall [were] well recognized and trusted brands in China,” that “[d]ue to the strength 14 of these brands, a majority of [its] customers navigate[d] directly to [its] China retail 15 marketplaces to find the products and services they [were] seeking instead of via third- 16 party search engines.” 17 34. The Registration Statement also emphasized the Company’s “Thriving 18 Ecosystem with Powerful Network Effects,” stating that it was “the steward of a 19 thriving ecosystem, which provide[d] [it] with [certain] key advantages,” including 20 that “interactions among participants create[d] value for one another as [its] 21 ecosystem expand[ed] and generate[d] strong network effects.” 22 35. The Registration Statement further emphasized the Company’s “Data 23 Insights” and “Third-party Platform Business Model” as competitive strengths, stating 24 in pertinent part as follows: 25 • Data Insights. Data from consumer behavior and transactions completed on our marketplaces and interactions among participants in 26 our ecosystem provide us with valuable insights to help us and our sellers improve the buyer experience, operate more efficiently and 27 create innovative products and services. 28 1Emphasis added unless otherwise noted. 8 COMPLAINT Case 3:15-cv-01036-WQH-WVG Document 1 Filed 05/08/15 Page 10 of 31

1 • Third-party Platform Business Model. Our exclusively third-party platform business model allows us to scale rapidly without the risks 2 and capital requirements of sourcing, merchandising and holding inventory borne by direct sales companies. This business model 3 drives our profitability and strong cash flow, which give us the flexibility to further invest in and improve our platform, expand our 4 ecosystem and aggressively invest in people, technology, innovative products and strategically important assets. 5 36. Concerning ongoing revenue growth purportedly then being experienced, 6 and importantly that which could be expected in the Company’s 4Q 2014, the 7 Registration Statement stated, in pertinent part, as follows: 8 Due to promotional events and higher consumer spending in the quarters 9 ended June 30 and December 31, merchants are inclined to allocate more of their marketing spending during these periods to compete for and 10 attract this consumer spending, which therefore drives revenue growth during those periods disproportionately to GMV growth and because 11 increased demand for such services also increases pricing.

12 37. Pursuant to Item 303 of Regulation S-K [17 C.F.R. §229.303], and the 13 SEC’s related interpretive releases thereto, including any known trends, issuers are 14 required to disclose events or uncertainties that have had or are reasonably likely to 15 cause the registrant’s financial information not to be indicative of future operating 16 results. Prior to the lPO, Alibaba and SAlC had met and the Company was advised 17 that Alibaba was engaging in a number of improper and/or illegal business practices. 18 The adverse events and uncertainties associated with this meeting and the practices 19 discussed at the meeting were reasonably likely to have a material impact on Alibaba’s 20 continuing operations and, therefore, were required to be disclosed in the Registration 21 Statement but were not. 22 38. Defendant Ma emphatically denied at the time of the IPO that Alibaba 23 would undertake any untoward business practices to increase sales to the detriment of 24 reputation, telling CNBC on September 19, 2014 that he had “always believe[d] that 25 customer is number one, employee number two and shareholders are number three.” 26 Refuting that he would ever take action to drive up stock prices to the detriment of 27 customers, he told The Independent on September 22, 2014 that “[f]or me, the price, 28 up and down, my people worry about that. I want to make the customer happy. On

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1 September 17th he told Charlie Rose: “I have said on numerous occasions that we will 2 put customers first, employees second and shareholders third.” I can see that investors 3 who hear this for the first time may find it a bit hard to understand. Let me be clear: as 4 fiduciaries of the company, we believe that the only way for Alibaba to create long- 5 term value for shareholders is to create sustainable value for customers. So customers 6 must come first.” On the 60 Minutes show in late September 2014, Ma proclaimed: “If 7 you want to invest in us, we believe customer No.1, employee No.2, shareholder No.3. 8 If they don’t want to buy that, that’s fine. If they regret, they can sell us.” 9 39. On November 4, 2014, before the market opened, Alibaba issued a press 10 release announcing its financial results for the 3Q 2014 ended September 30,2014. 11 The Company reported net income of $494 million, or 20 cents per share, on revenues 12 of $2.7 billion. Concerning the strength of the Company’s ongoing business, the press 13 release stated, in pertinent part, as follows: 14 “We delivered a strong quarter with significant growth across our key operating metrics,” said Jonathan Lu, chief executive officer of Alibaba 15 Group. “Our business continues to perform well, and our results reflect both the strength of our ecosystem and the strong foundation we have 16 for sustainable growth. On our China retail marketplaces, gross merchandise volume for the quarter increased 490/0 and annual active 17 buyers increased 52% year on year. We extended our unrivaled leadership in mobile with 217 million monthly active users on our mobile 18 commerce apps in September and US$95 billion in mobile GMV for the twelve months ended September 2014. We are also encouraged by 19 continued improvement of mobile monetization which demonstrates the strong commercial intent of our users.” 20 “Our financial performance this quarter was robust, with revenue growing 21 54% year on year,” said Maggie Wei Wu, chief financial officer of Alibaba Group. “We continue to execute our focused growth strategy, 22 and the fundamental strength of our business gives us the confidence to invest in new initiatives to add new users improving engagement and 23 customer experience, expand our products and services and drive long- term shareholder value.” 24

25 40. Later that day, Defendants Tsai, Lu and Wu conducted a call with 26 investors to discuss the quarterly financial results, making additional positive 27 statements about the strength of the Company’s ongoing business metrics and 28 financial prospects.

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1 41. On November 11, 2014, the Company issued a press release entitled 2 “Alibaba Group Generated US$2 Billion in GMV in First Hour of 11.11 Shopping 3 Festival,” highlighting that the sales had greatly exceeded expectations in the annual 4 event. 5 42. On November 11, 2014, Defendant Ma was also interviewed by CNBC’s 6 David Faber on “Squawk on the Street.” Concerning the importance of the Company’s 7 good reputation and not chasing sales to increase the stock price at the cost of 8 damaging reputation, Defendant Ma emphasized that Alibaba always put its 9 customers’ best interests before the stock market’s perception of Alibaba’s 10 profitability and worth, stating in pertinent part as follows: 11 JACK MA: --YOU KEEP--YOU TRY TO KEEP THE PEOPLE YOU TRUST, AND THEY TRUST IN YOU, HAPPY. ‘CAUSE I CANNOT 12 MAKE EVERY SHAREHOLDER HAPPY. THE SHAREHOLDER HAS TO UNDERSTAND THIS COMPANY HAVE A STRANGE 13 UNIQUE PHILOSOPHY. . WE ARE BUILDING ON A BUSINESS MODEL THAT’S A ECOSYSTEM. NOBODY EVER HEARD OF 14 THAT. WE’RE FOCUSING ON HELPING CUSTOMERS, SMALL BUSINESS. WE’RE FOCUSING ON MAKING SURE THAT 15 EMPLOYEE HAPPIES AND THEN THE SHAREHOLDER.

16 DAVID FABER: AND SO--IF I HAVE TO ASK YOU TO DESCRIBE THE CULTURE OF ALIBABA, WHAT IS IT? IS IT THAT? 17 JACK MA: TRUST AND TRANSPARENT. ‘CAUSE WE ARE 18 WORKING WITH--MY COMPANY AND THE TEAM HAVE--WE HAVE 30 THOUSAND SMART PEOPLE. IF YOU WORK WITH THE 19 SMART PEOPLE, YOU GOTTA BE TRANSPARENT. YOU GOTTA MAKING SURE THEY TRUST YOU AND YOU TRUST THEM AND 20 MAKING SURE THAT EVERYBODY HAVE THE SAME V1SIONAND VISION AND VALUE. AND THESE ARE THE CORE. 21 ‘CAUSE THEY’RE SO SMART. IT SI SOMETIMES GREAT TO WORK WITH THE STUPID GUYS, WHATEVER YOU SAY, 22 THEY’LL FOLLOW IT. BUT IT’S A GOOD PAIN IF THEY--IF YOU ARE SMART THAN THEM-IT IS A DISASTER 23

24 43. Then on November 12, 2014, the Company issued a release entitled 25 “Alibaba Group Generated US $9.3 Billion in GMV on 11.11 Shopping Festival” 26 Mobile GMY Accounted for 42.6%.” This release further emphasized the purportedly 27 strong quarter the Company was then having, stating, in pertinent part, as follows: 28 “On behalf of our entire ecosystem -from millions of buyers and merchants both here and abroad -we are very happy with the results of 11 COMPLAINT Case 3:15-cv-01036-WQH-WVG Document 1 Filed 05/08/15 Page 13 of 31

1 this year’s 11.11 shopping festival,” said Jonathan Lu, CEO of Alibaba Group. “We are particularly encouraged by tile growing trend of 2 consumers embracing mobile shopping on a global stage. Alibaba is humbled to play a role in making it easy for people to do business 3 anywhere. “

4 The 11.11 Shopping Festival (“11.11”) began in 2009 with 27 merchant participants as an event for Tmall.com merchants and consumers to raise 5 awareness of the value in online shopping. This year, more than 27,000 brands and merchants participated in tire event, including Costco, 6 Muji, Desigual, ASOS, and Tire North Face. By expanding globally with the participation of AliExpress and Tmall Global, consumers from 7 over 217 countries and regions were able to select from more titan one million products through online storefronts and e-commerce websites. 8

9 44. On November 13, 2014, the Company issued a press release stating that it 10 was going to offer Senior Unsecured Notes (the “Notes”). On November 21, 2014, the 11 Company announced the following pricing of the Notes which would be sold to the 12 U.S. investing public in an offering exempt from registration under the federal 13 securities laws for a total of $8 billion:

14  US $300 million floating rate notes due 2017 at an issue price per note 15 of 100.000%;

16  US $1,000 million 1.625% notes due 2017, at an issue price per note 17 of 99.889%;

18  US $2,250 million 2.500% notes due 2019 at an issue price per note of 19 99.618%;

20  US $1,500 million 3.125% notes due 2021 at an issue price per note of 21 99.558%;

22  US $2,250 million 3.600% notes due 2024 at an issue price per note of 23 99.817%; and,

24  US $700 million 4.500% notes due 2034 at an issue price per note of 25 99.439%. 26 45. The Notes were priced favorably to Alibaba based on its then present 27 strong corporate debt ratings. 28 46. On December 8, 2014, the Company issued a press release entitled

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1 “Alipay 2014 Spending Report Sheds Light on Chinese Online Spending Behavior.” 2 Alipay was launched in 2004 as part of the Alibaba Group’s “ecosystem” and provides 3 the Company’s online payment services. The release stated, in pertinent part, as 4 follows: 5 Alipay, China’s largest online payment service provider, marks its 10- year anniversary today with the release of its Annual Spending Report, 6 highlighting the development of online economic activity and consumer behavior of Chinese Internet users over the past decade (2004 through 7 October 31, 2014). According to tire report, the availability of online payment services has played a major role in making goods and services 8 widely accessible throughout Chinese society, especially in less- developed interior provinces and counties where people now enjoy 9 equal access to branded products at the same prices as those living in first and second tier cities. 10 * * * 11 Meanwhile, with ongoing advances in mobile Internet technology, 12 ecommerce in China continues to shift from desktop PCs to smartphones and other mobile devices. From 2012 to 2014, the proportion of mobile 13 payments to total payments in some of the country’s less-developed regions more than doubled, indicating consumers in rural areas and 14 smaller cities are quickly adopting mobile devices as their primary tool for online shopping as more people in China have access to mobile 15 devices and smartphones.

16 47. On December 23, 2014, the Company issued a press release entitled 17 “2014 Counterfeit Report Press Conference -Speech By Jonathan [Zhaoxi] Lu, CEO 18 of Alibaba Group -Hangzhou, China, December 23, 2014.” The release claimed 19 Alibaba was actively monitoring and deterring counterfeit sales on its platform and 20 other fraudulent activity, stating, in pertinent part, as follows: 21 Ever since the founding of Alibaba Group in 1999, it has been our mission to make it easy to do business anywhere. This ease of doing 22 business must be facilitated by trust. We believe that trust is the basis for wealth and that trust is an important currency that makes our e- 23 commerce platforms tick. All the work that we have done over the past 15 years underscores this belief. 24 Since the establishment of Taobao in 2003, Alibaba Group has 25 constantly fought to protect the interests of consumers in the Internet space and together with, our valued government partners, we have 26 made great strides in addressing this issue.

27 However counterfeiting is a global problem and one that we need to face together as a society. From Alibaba Group’s perspective, we bear a 28 serious responsibility in this fight against counterfeits. Jack Ma said yesterday if e-commerce does well in China, that may have little to do 13 COMPLAINT Case 3:15-cv-01036-WQH-WVG Document 1 Filed 05/08/15 Page 15 of 31

1 with Alibaba Group, but if counterfeits in society are not tackled effectively, it has a lot to do with Alibaba Group. 2 In our years of combating this problem, we have built cooperative 3 relationships with various government bodies to combat counterfeiting at its source in order to safeguard the interests of consumers. We have 4 built systems and services like Alipay that are based on trust and are there to protect the consumer because in the end, counterfeiting hurts 5 Alibaba Group as consumers who receive fake goods may no longer want to shop on our platforms. 6 Thankfully, Internet technology has made it easier for transactions to 7 be traced. This means that by analyzing transaction data we call trace counterfeiters who sell online. Through the analysis of big data, online 8 sources of counterfeit products can be tracked offline, making it easier to enforcement authorities to do their work. 9 Secondly, we believe that protecting customer rights and combating 10 counterfeits should be a long-term and persistent goal. To achieve that, support needs to come from all levels of society. Through tile years, 11 Alibaba Group has become more effective at protecting consumer rights and combating counterfeits. According to the latest data available, only 12 3.5 transactions in every 10,000 transactions received customer complaints, 22% decline from last year. 13 Effectively combating the counterfeiting issue requires the active 14 involvement from different government agencies and authorities, as the root of the counterfeit problem is offline. By collaborating with China’s 15 Public Security Bureau, the General Administration of Quality Supervision, China’s State Intellectual Property Office and State 16 Administration of Press, Publication, Radio, Film and Television and leveraging new tools such as the Internet and big data, Alibaba hopes 17 that these measures will be impactful in combating fakes in the real world. We hope that by exposing counterfeiters and supporting the fight 18 in a long-term fashion, fakes can be eliminated one day.

19 48. On January 8, 2015, the Company issued a press release entitled “Alibaba 20 and Microsoft Collaborate To Improve Online Customer Experience, Creating a Safer 21 Internet.” The release again claimed Alibaba was actively monitoring and deterring 22 counterfeit sales on its platform and other fraudulent activity, stating in pertinent part 23 as follows: 24 “Alibaba Group takes the issue of IPR infringement very seriously and we are constantly working with partners and stakeholders to enhance 25 IPR protection on our platforms in order to tackle the problem of counterfeiting effectively,” said Ni Liang, Alibaba Group’s Senior 26 Director of Security Operations.

27 49. The true facts, which were known by the Individual Defendants 28 throughout the Class Period, but were not disclosed to the investing public were as

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1 follows: 2 a) the Company was engaged in a proliferation of unscrupulous – if 3 not illegal – business practices; 4 b) Chinese regulators had brought the Company’s unscrupulous 5 business practices to its attention in July 2014 as part of their efforts to increase 6 enforcement of consumer protection laws in China, exposing the Company fines, 7 penalties and damage to reputation; and 8 c) Alibaba’s 4Q 2014 sales growth was declining as a result of its 9 unscrupulous business practices. 10 50. On January 28, 2015, before the opening of trading, various members of 11 the financial media reported that SAIC, China’s main corporate regulator, had released 12 a “white paper” accusing Alibaba of engaging in the illegal conduct disclosed to 13 Alibaba executives in July 2014. Specifically, it was disclosed that in July 2014, two 14 months prior to the lPO, regulators had brought to Alibaba’s attention a variety of 15 highly dubious even illegal business practices that the IPO failed to properly disclosed. 16 Alibaba was then actively clamping down on and which threatened the core of 17 Alibaba’s business, including: 18 • The rampant sale of counterfeit goods, including fake cigarettes, alcohol and branded handbags, by vendors on Alibaba’s third-party 19 marketplace platform;

20 • The sale of restricted weapons and other forbidden items on Alibaba’s third-party marketplace platform; 21 • That Alibaba staffers had taken bribes from merchants and others 22 seeking help to boost their search rankings and to get advertising space; 23 • That Alibaba ignored the practice by some vendors of faking 24 transactions to make their sales volumes appear higher;

25 • That Company officials did nothing to stop merchants from using tactics such as false and misleading advertising; and 26 • Accusing Alibaba of alleged anticompetitive behavior such as 27 forbidding merchants to participate in rival sites’ promotions.

28 51. As reported by the Wall Street Journal on January 28th, whose reporters

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1 had reviewed the SAIC white paper before it was removed from SAIC’s website: 2 The Chinese government accused e-commerce giant Alibaba of falling to crack down on the sale of fake goods, bribery and other illegal activity on 3 its sites in a rare public dispute with one of the country’s most prominent companies. 4 *** 5 Alibaba has long grappled with allegations that Taobao, its biggest ecommerce platform, is rife with counterfeit goods. The accusations 6 from the Chinese government could lend further force to those complaints and damage Alibaba’s reputation among investors and 7 brands overseas, while the highly public spat could hurt the company’s relationship with the government, experts warn. 8 The government’s accusations are in a white paper made public on 9 Wednesday by China’s State Administration for Industry and Commerce, but based on conversations between the agency and Alibaba officials in 10 July. That was two months before Alibaba’s U.S. lPO, which valued the Chinese company at more than $230 billion. In the paper, the agency 11 said it held off on disclosing details of the talk so as not to affect the IPO. 12 *** The report said the problems had grown to become Alibaba ‘s “greatest 13 credibility crisis” since the company was established. Citing a Chinese phrase that refers to letting a small problem fester, the paper said, “for 14 a long time, [Alibaba[ didn’t pay sufficient attention to the issue and didn’t bane of its life.” 15

16 52. On this news, the price of Alibaba’s ADS dropped 4%, or $4.49 per ADS, 17 closing at $102.94 on January 28, 2015 on unusually high volume of approximately 42 18 million shares trading. 19 53. Then, on January 29, 2015, before the market opened, Alibaba issued a 20 press release announcing its financial results for the fourth quarter 2014 ended 21 December 31, 2014. The Company reported revenues of just $4.22 billion for the 4Q 22 2014, significantly under-achieving the $4.45 billion target defendants had led the 23 investment community to expect based on Alibaba’s bullish statements throughout the 24 Class Period concerning its ongoing strong revenue growth. The Company also 25 disclosed that its profits had fallen to $964 million, or 37 cents per share, a 28% 26 decline from the 4Q 2013, a decline Alibaba largely attributed to expenses from giving 27 shares to employees. The Company also attributed challenges generating revenues 28 from transactions on its mobile platforms, where advertising is less profitable than on

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1 personal computers, and which comprised a larger percentage of sales in the quarter 2 than in the previous quarter. 3 54. As a result of these disclosures, the price of Alibaba’s ADS plummeted 4 another $8.64 per ADS to close at $89.81 per ADS on January 29, 2015, a one-day 5 decline of approximately 9%, again on unusually high volume of more than 76.3 6 million shares trading. The two declines collectively reduced the price of Alibaba’s 7 ADS more than 25% from its Class Period high, erasing more than $11 billion in 8 market capitalization. 9 DUTIES OF THE INDIVIDUAL DEFENDANTS 10 A. Fiduciary Duties 11 55. By reason of their positions as officers, directors, and/or fiduciaries of 12 Alibaba and because of their ability to control the business and corporate affairs of 13 Alibaba, the Individual Defendants owed and owe the Company and its shareholders 14 fiduciary obligations of trust, loyalty, good faith, and due care, and were and are 15 required to use their utmost ability to control and manage Alibaba in a fair, just, 16 honest, and equitable manner. The Individual Defendants were and are required to act 17 in furtherance of the best interests of Alibaba and its shareholders so as to benefit all 18 shareholders equally and not in furtherance of their personal interest or benefit. 19 56. Each director and officer of the Company owes to Alibaba and its 20 shareholders the fiduciary duty to exercise good faith and diligence in the 21 administration of the affairs of the Company and in the use and preservation of its 22 property and assets, and the highest obligations of fair dealing. In addition, as officers 23 and/or directors of a publicly held company, the Individual Defendants had a duty to 24 promptly disseminate accurate and truthful information with regard to the Company’s 25 operations, performance, management, projections, and forecasts so that the market 26 price of the Company’s stock would be based on truthful and accurate information. 27 B. Audit Committee Duties 28 57. In addition to these duties, members of the Audit Committee owed

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1 specific duties, under the Audit Committee’s Charter to review and approve quarterly 2 and annual financial statements, earnings press releases, and the Company’s internal 3 controls over financial reporting. Some of the Audit Committee’s responsibilities 4 included: 5 1. Review the annual audited financial statements with management and the independent auditor, including the Company’s disclosures under 6 Management’s Discussion and Analysis of Financial Condition and Results of Operations, significant issues and judgments regarding 7 accounting and auditing principles and practices, and the effect of regulatory and accounting initiatives on the Company’s financial 8 statements, and recommend to the Board whether the financial statements should be included in the Form 10-K. The review of the 9 annual audited financial statements also includes a review of any transactions as to which management obtained a letter pursuant to 10 Statement on Auditing Standards No. 50.

11 2. Review and discuss with management and the independent auditor the Company’s quarterly financial statements prior to filing the Form 10- 12 Q, including the results of the independent auditor’s review of them and the Company’s disclosures under Management’s Discussion and 13 Analysis of Financial Condition and Results of Operations.

14 3. Review major issues and changes to the Company’s auditing and accounting principles and practices as suggested by the independent 15 auditor, internal auditors or management, and analyses setting forth significant financial reporting issues and judgments, including 16 analyses of the effects of alternative GAAP methods on the financial statements, and the effect of regulatory and accounting initiatives, as 17 well as off-balance sheet structures, on the financial statements of the Company. 18 4. Discuss policies with respect to risk assessment and risk management, 19 including appropriate guidelines and policies to govern the process, as well as the Company’s major financial and business risk exposures 20 and the steps management has undertaken to monitor and control such exposures. 21

22 C. The Code of Ethics For Senior Financial Officers 23 58. The Company’s executive officers owed specific duties under the 24 Company’s Code of Ethics. The duties included: 25 1. The CEO and all Senior Financial Officers are responsible for full, fair, accurate, timely and understandable disclosure in the reports and 26 documents that the Company files with, or submits to, the Securities and Exchange Commission and in other public communications made 27 by the Company. Accordingly, it is the responsibility of the CEO and each Senior Financial Officer promptly to bring to the attention of the 28 General Counsel or the CEO any material information of which he or she may become aware that affects the disclosures made by the 18 COMPLAINT Case 3:15-cv-01036-WQH-WVG Document 1 Filed 05/08/15 Page 20 of 31

1 Company in its public filings.

2 2. The CEO and each Senior Financial Officer shall promptly bring to the attention of the General Counsel or CEO any information he or she 3 may have concerning (a) significant deficiencies in the design or operation of internal controls which could adversely affect the 4 Company’s ability to record, process, summarize and report financial data or (b) any fraud, whether or not material, that involves 5 management or other employees who have a significant role in the Company’s financial reporting, disclosures or internal controls. 6 3. The CEO and each Senior Financial Officer shall act with honesty and 7 integrity in the performance of his or her duties at the Company, shall comply with laws, rules and regulations of federal, state and local 8 governments and other private and public regulatory agencies that affect the conduct of the Company’s business and the Company’s 9 financial reporting.

10 4. The CEO and each Senior Financial Officer shall promptly bring to the attention of the General Counsel or the CEO any information he or 11 she may have concerning evidence of a material violation of the securities or other laws, rules or regulations applicable to the 12 Company and the operation of its business, by the Company or any agent thereof, or any violation of this Code of Ethics. 13

14 D. Control, Access, and Authority 15 59. The Individual Defendants, because of their positions of control and 16 authority as directors and/or officers of Alibaba, were able to and did, directly and/or 17 indirectly, exercise control over the wrongful acts complained of herein, as well as the 18 contents of the public statements issued by Alibaba. 19 60. Because of their advisory, executive, managerial, and directorial positions 20 with Alibaba, each of the Individual Defendants had access to adverse, non-public 21 information about the financial condition, operations, and improper representations of 22 Alibaba. 23 61. At all times relevant, each of the Individual Defendants was the agent of 24 each of the other Individual Defendants and of Alibaba, and was at all times acting 25 within the course and scope of such agency. 26 BREACHES OF DUTIES 27 62. The conduct of the Individual Defendants complained of herein involve a 28 knowing and culpable violation of obligations as directors and officers of Alibaba, the

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1 absence of good faith on their part, and a reckless disregard for their duties to Alibaba 2 and its shareholders that the Individual Defendants were aware, or should have been 3 aware, posed a risk of serious injury to Alibaba. The conduct of the Individual 4 Defendants who, were also officers and/or directors of the Company were ratified by 5 the remaining Individual Defendants who, collectively, comprised the entire Alibaba 6 Board. 7 63. The Individual Defendants each breached their duty of loyalty and good 8 faith by causing the Company to issue false statements about Alibaba and by 9 misrepresenting the Company’s financial results and prospects. In addition, as a result 10 of the Individual Defendants’ illegal actions and course of conduct, the Company is 11 now the subject of a class action lawsuit that alleges violations of securities laws. As a 12 result, Alibaba has expended, and will continue to expend, significant sums of money. 13 CONSPIRACY, AIDING AND ABETTING, AND CONCERTED ACTION 14 15 64. In committing the wrongful acts alleged herein, the Individual Defendants 16 have pursued, or joined in the pursuit of, a common course of conduct, and have acted 17 in concert with and conspired with one another in furtherance of their liability. The 18 Individual Defendants further aided and abetted and/or assisted each other in 19 breaching their respective duties. 20 65. During all relevant times, the Individual Defendants collectively and 21 individually initiated a course of conduct that was designed to and did conceal that the 22 Company was issuing false and misleading statements about the source of Alibaba’s 23 actual revenues. In furtherance of this plan, conspiracy, and course of conduct, the 24 Individual Defendants collectively and individually took the actions set forth herein. 25 66. The Individual Defendants engaged in a conspiracy, common enterprise, 26 and/or common course of conduct. During this time, the Individual Defendants caused 27 the Company to issue false and misleading statements regarding Alibaba’s financial 28 results.

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1 67. The purpose and effect of the Individual Defendants’ conspiracy, 2 common enterprise, and/or common course of conduct was, among other things, to 3 disguise the Individual Defendants’ violations of law, including breaches of fiduciary 4 duty, unjust enrichment, and waste of corporate assets. 5 68. The Individual Defendants accomplished their conspiracy, common 6 enterprise, and/or common course of conduct by causing the Company to 7 purposefully, recklessly, or negligently release improper statements. Because the 8 actions described herein occurred under the authority of the Board, each of the 9 Individual Defendants was a direct, necessary, and substantial participant in the 10 conspiracy, common enterprise, and/or common course of conduct complained of 11 herein. 12 69. Each of the Individual Defendants aided and abetted and rendered 13 substantial assistance in the wrongs complained of herein. In taking such actions to 14 substantially assist the commissions of the wrongdoing complained of herein, each 15 Individual Defendant acted with knowledge of the primary wrongdoing, substantially 16 assisted the accomplishment of that wrongdoing, and was aware of his or her overall 17 contribution to and furtherance of the wrongdoing. 18 DAMAGES TO ALIBABA 19 70. The Individual Defendants’ wrongful conduct was the direct and 20 proximate cause of damages Alibaba has suffered, and will suffer. 21 71. The Individual Defendants failed to disclose that the Company was 22 issuing false and misleading statements about the source of Alibaba’s revenues caused 23 by the improper statements and omissions have devastated Alibaba’s credibility. 24 Alibaba is now the subject of a class action lawsuit, alleging violations of securities 25 laws in connection with the improper financial reporting, false statements, and 26 material omissions. The Company will face substantial costs, expenses, and a potential 27 adverse verdict in connection with that lawsuit. Alibaba’s rampant sale of counterfeit 28 goods, restricted weapons and other forbidden items on the Company’s third-party

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1 market place platform; common place bribery from merchants to boost the sale of their 2 goods; and misbooking/misrepresenting the booking sales to make Alibaba’s sales 3 volume appear higher than represented in the Company’s public filings. 4 72. As a direct and proximate result of the Individual Defendants’ actions as 5 alleged above, Alibaba’s market capitalization and borrowing capacity has been 6 substantially damaged. 7 73. Further, as a direct and proximate result of the Individual Defendants’ 8 conduct, Alibaba has expended and will continue to expend significant sums of 9 money. Such expenditures include, but are not limited to: 10 (a) costs incurred in investigating and defending Alibaba and certain officers in securities class action lawsuit filed again Alibaba on 11 February 3, 2015 in the United States District Court for the Southern District of New York, Case No. 15-cv-0811-UA, plus 12 potentially hundreds of millions of dollars in settlement or to satisfy an adverse judgment; 13 (b) costs incurred from compensation and benefits paid to the 14 Individual Defendants, which compensation was based, at least in part, on Alibaba’s artificially-inflated stock price and inflated 15 growth prospects;

16 (c) costs incurred from the loss of the Company’s customers’ confidence in Alibaba’s products; and 17 (d) damages to the Company due to the false and misleading financial 18 statements that the Individual Defendants caused the Company to file. 19

20 74. Moreover, these actions have irreparably damaged Alibaba’s image and 21 goodwill. For at least the foreseeable future, Alibaba will suffer from what is known 22 as the “liar’s discount,” a term applied to the stocks of companies who have been 23 implicated in illegal behavior and have misled the investing public, such that 24 Alibaba’s ability to raise equity capital or debt on favorable terms in the future is now 25 impaired. 26 DERIVATIVE ALLEGATIONS 27 75. Plaintiff Surrey brings this action derivatively on behalf and for the 28 benefit of the Company to remedy the wrongdoing by the Defendants as alleged

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1 herein. Plaintiff brings this action for the benefit of Alibaba to redress injuries 2 suffered, and yet to be suffered by Alibaba, as a direct and proximate result of the 3 Individual Defendants’ breaches of fiduciary duty, unjust enrichment, and waste of 4 corporate assets. Alibaba is named in this action as a Nominal Defendant solely in a 5 derivative capacity. 6 76. Plaintiff will fairly and adequately represent the interests of the Company 7 and has retained competent counsel, experienced in derivative litigation, to enforce 8 and prosecute this action. 9 77. This action is not a collusive one to confer jurisdiction on a court that it 10 would not otherwise have. 11 78. Plaintiff did not make a demand on the Board to bring this action because 12 such demand would be futile given the facts as alleged herein and, therefore, such a 13 demand is excused. 14 79. Alibaba is controlled by its Board of Directors, which currently consists 15 of the following individuals: Ma, Tsai, Lu, WU, Son Zang, Tung, Kwauk, Evans, and 16 Yang. The directors are named as defendants in this lawsuit and engaged in wrongful 17 acts alleged herein. Thus, they are not disinterested and cannot exercise independent 18 business judgment on the issue of whether Alibaba should prosecute this action. As a 19 result, demand on Alibaba and its Board is futile and therefore excused. 20 A. Demand Is Futile As To The Directors 21 80. The Director Defendants face a substantial likelihood of liability for 22 disregarding and allowing the Company to continue to illegally promote Alibaba’s 23 common stock. 24 81. Company was issuing false and misleading statements about its online 25 and mobile commerce and retail services and cloud computing services, and by not 26 disclosing the SAIC investigation and disclosure to Alibaba’s Board in July 2014 27 disclosing numerous improper and illegal activities. Thus, the Individual Defendants 28 ignored the false statements in violation of their fiduciary duties and/or failed to take

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1 any action to correct the false statements. Accordingly, the Individual Defendants filed 2 a substantial likelihood of liability for breaching their fiduciary duties to the Company, 3 rendering any demand upon them futile. 4 B. Demand Is Futile As To Audit Committee Defendants 5 82. Defendants Ma, Tsai, Lu, WU, Son Zang, Tung, Kwauk, Evans and Yang 6 were members of Alibaba’s Audit Committee when the false and misleading 7 statements were being disseminated. The Audit Committee is required to oversee the 8 accuracy of Alibaba’s financial reporting to insure the investing public is provided 9 with accurate financial information. Despite these duties, the Audit Committee 10 members issued and/or approved the false and misleading statements that failed to 11 disclose that (a) Alibaba repeatedly failed to report that Companies rampant sale of 12 counterfeit goods by vendors on the Company’s third party internet platform; (b) the 13 sale of forbidden products on the Company’s website; (c) the multiple bribes for 14 products on its website; and, (d) other rival websites. 15 83. As a result of (a) their access to and review of internal corporate 16 documents; (b) conversations and connections with other corporate officers, 17 employees and directors; and (c) attendance at management and Board meetings, each 18 of the members of the Audit Committee knew the adverse non-public information 19 regarding Alibaba’s business, operations, and management related to its products and 20 services and the SAIC notification to the Company in July, 2015 that cited numerous 21 improper and/or illegal acts committed by the Company. Indeed, each of the members 22 of the Audit Committee knew of the wrongdoing complained herein. Thus, the 23 Individual Defendants face a substantial likelihood of liability for their breaches of 24 fiduciary duties, rendering any demand upon them futile, and Defendant’s refusal to 25 investigate or address these was these two entertwinded activities. 26 D. Demand Is Futile As To All Of The Director Defendants 27 84. If Alibaba’s officers and directors are protected against personal liability 28 for their acts of mismanagement, abuse of control, and breaches of fiduciary duties

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1 alleged in this Complaint by Directors Insurance (“D&O Insurance”), they caused the 2 Company to purchase that insurance for their protection with corporate funds, i.e. , 3 monies belonging to the shareholders. However, Plaintiff is informed and believes that 4 the D&O Insurance policies covering the Individual Defendants in this case contain 5 provisions that eliminate coverage for any action brought directly by Alibaba against 6 the Individual Defendants, known as the “insured versus insured exclusion.” As a 7 result, if the Board of Directors were to sue themselves or certain of the officers of 8 Alibaba, there would be no D&O Insurance protection, and thus, this is a further 9 reason why they will not bring such a suit. On the other hand, if the suit is brought 10 derivatively, as this action is brought, such insurance coverage exists and will provide 11 a basis for the Company to effectuate recovery. Therefore, the Board of Directors 12 cannot be expected to file the claims asserted in this derivative lawsuit because such 13 claims would not be covered under the Company’s D&O insurance policy. 14 85. Under the factual circumstances described herein, the Individual 15 Defendants are more interested in protecting themselves than they are in protecting 16 Alibaba by prosecuting this action. Therefore, demand on Alibaba and its Board is 17 futile and is excused. 18 86. Alibaba has been and will continue to be exposed to significant losses due 19 to the Individual Defendants’ wrongdoing. Yet, the Board of Directors has not filed 20 any lawsuits against themselves or others who were responsible for the wrongful 21 conduct. Thus, the directors are breaching their fiduciary duties to the Company and 22 face a sufficiently substantial likelihood of liability for their breaches, rendering any 23 demand upon them futile. 24 COUNT I

25 Derivative Claim Against Defendants for Violation of Section 14(a) of the Exchange Act. 26

27 87. Plaintiff incorporates by reference and realleges each and every allegation 28 set forth above, as though fully set forth herein.

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1 88. Defendants Ma, Tsai, Lu, WU, Son Zang, Tung, Kwauk, Evans, and 2 Yang who were Alibaba’s directors at the time, issued, caused to be issued, and 3 participated in the issuance of materially false and misleading written statements and 4 material omissions to shareholders that were contained in the Company’s 2014 Form 5 F-1 Registration Statement. The 2014 Registration Statement soliciting materials 6 failed to disclose to the Company’s shareholders that these Defendants had caused the 7 Company to file materially false and misleading statements about the source of 8 revenues and that the Company was improperly promoting and marketing of its 9 products and services. By reasons of the conduct alleged herein, these Defendants who 10 caused the issuance of the 2014 Form F1 Registration violated Section 14(a) of the 11 Exchange Act. As a direct and proximate result of these Defendants’ wrongful 12 conduct, the Company misled and/or deceived its shareholders by falsely portraying 13 the operations of the Company. 14 89. Plaintiff, on behalf of the Company, thereby seeks relief for damages 15 inflicted upon the Company in connection with the misleading and incomplete proxy 16 materials. Alibaba is entitled to recover damages to compensate the Company for all 17 damages resulting from the Defendants’ acts and omissions in violation of Rule 14a-9. 18 COUNT II 19 Breach of Fiduciary Duty Against All Individual Defendants 20 90. Plaintiff incorporates by reference and realleges each and every allegation 21 set forth above, as though fully set forth herein. 22 91. The Individual Defendants owed and owe Alibaba fiduciary obligations. 23 By reason of their fiduciary relationships, the Individual Defendants owed and owe 24 Alibaba the highest obligation of good faith, fair dealing, loyalty, due care, reasonable 25 inquiry, oversight and supervision. 26 92. The Individual Defendants violated and breached their fiduciary duties of 27 good faith, fair dealing, loyalty, and due care. 28 93. The Individual Defendants each knowingly, recklessly or negligently

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1 signed or approved the issuance of false and misleading statements and allowed the 2 Company to market purposes. These actions could not have been a good faith exercise 3 of prudent business judgment to protect and promote the Company’s corporate 4 interests. 5 94. As a direct and proximate result of these Individual Defendants’ failure to 6 perform their fiduciary obligations, Alibaba has sustained significant damages. As a 7 result of the misconduct alleged herein, the Individual Defendants are liable to the 8 Company. 9 95. Plaintiff, on behalf of Alibaba, has no adequate remedy at law. 10 COUNT III 11 Waste of Corporate Assets Against All Individual Defendants 12 96. Plaintiff incorporates by reference and realleges each and every allegation 13 contained above, as though fully set forth herein. 14 97. The wrongful conduct alleged regarding the issuance of false and 15 misleading statements was continuous, connected, and on-going throughout the 16 applicable time period. It resulted in continuous, connected, and on-going harm to the 17 Company. 18 98. As a result of the misconduct described above, the Individual Defendants 19 have caused Alibaba to incur substantial legal liability as the Company will incur 20 significant legal costs defending itself as a result of the Individual Defendants’ 21 misconduct and unlawful actions. 22 99. As a result of the waste of corporate assets, the Individual Defendants are 23 liable to the Company. 24 100. Plaintiff, on behalf of Alibaba, has no adequate remedy at law. 25 COUNT IV 26 Unjust Enrichment Against the Individual Defendants 27 101. Plaintiff incorporates by reference and realleges each and every allegation 28 contained above, as though fully set forth herein.

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1 102. The Individual Defendants were unjustly enriched at the expense of the 2 Company by receiving incentive compensation based on the stock performance of 3 Alibaba. 4 103. To prevent the Individual Defendants’ unjust enrichment, the Court 5 should order these Individual Defendants to disgorge to the Company all the proceeds 6 they received from their wrongful conduct. 7 PRAYER FOR RELIEF 8 WHEREFORE, Plaintiff, on behalf of Alibaba, prays for relief and judgment 9 as appropriate as follows: 10 A. A determination that this suit is a proper derivative action and certifying 11 Plaintiff as an appropriate representative of Alibaba for this action; 12 B. A declaration that each of the Defendants breached his or her fiduciary 13 duties to Alibaba and violated Section 14(a) of the Exchange Act; 14 C. A determination and award to Alibaba for the damages sustained by it as 15 a result of the violations set forth above from each of the Defendants, jointly and 16 severally, together with interest thereon; 17 D. A declaration that the Company must undertake necessary corrective 18 actions to reform and improve its corporate governance and internal procedures in 19 order to protect the Company from a repeat of the damaging events described in this 20 Complaint, including but not limited to, adopting the following remedial measures: 21 1. Strengthening the Board’s supervision through strong 22 accountability measures to ensure the Board accurately discloses 23 the Company’s business prospects; 24 2. Adopt a process allowing the Company’s shareholders to nominate 25 at least two new candidates for election to the Board; and 26 3. Modifying the Company’s share repurchase program. 27 E. An award to Plaintiff for the costs and disbursements of this action, 28 including reasonable fees and costs to Plaintiff’s attorneys and experts; and

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1 F. Such other and further relief as the Court may deem just and proper. 2 JURY TRIAL DEMANDED 3 Plaintiff demands a trial by jury. 4 Respectfully submitted,

5 FINKELSTEIN & KRINSK LLP 6 Dated: May 8, 2015 By: /s/ Jeffrey R. Krinsk 7 Jeffrey R. Krinsk 8 Mark L. Knutson

9 Counsel for Plaintiff 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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1 VEIUFlCATION 2 3 I, Steve Surrey, I am the named Plaintiff in this action. I am authorized to make 4 this verification on behalfofmyself and herel:ty verify that I have at all times material 5 am a shareholder ofAlibaba Group Holding Limited. I am ready, willing, and able to 6 . pursue this action in the hope of improvina the Company and recovering damages for 7 the Company caused by the defendants' conduct. I have reviewed the allegations made 8 in this Shareholder Derivative Complaint (the "Complaint"). As to those allegations of 9 which I have personal knowledge, I believe them to be true. As to those allegations of 10 which I lack personal knowledge, I rely upon my counsel and coUl'UJeI's investigation, 11 and believe them to be true. Having received a copy ofthe Complaint and reviewed it 12 with counsel, I authorize its filing. 13 I declare under penalty ofperjury under the laws ofthe United States of 14 America that the foregoing is true and correct. 15 16 Dated: May !!., 2015 17 Steve Surrey, 18 19 20 21 22 23 24 25 26 27 28

COMPLAINT. Case 3:15-cv-01036-WQH-WVG Document 1-1 Filed 05/08/15 Page 1 of 2

JS 44 (Rev. 12/12) CIVIL COVER SHEET The JS 44 civil cover sheet and the infonnation contained herein neither replace nor supplement the filing and service ofplead~ or other papers as required by law, except as provided by local rules of court. This form, approved by the Judicial Conference ofthe United States in September 1974. is required for the use of the Clerk ofCourt for the purpose of initiating the civil docket sheet. (SEE INSTRUCTIONS ON NEXT PAGE OF THIS FORM) I. PLAINTIFFS . DEFENDANTS Steve Surrey, Derivatively On Behalf of Allbaba Group Holding Limited, Jack Yun Ma. Joseph C. Tsal. Jonathan, Zhaoxi Lu. Maaayoshi Son. Daniel Young, Chee Hwa Tung,WalterTeh,Mlng Kwauk, J.Mlchael Evans and Jerry Yang (b) County of Residence of First Listed Plaintiff ""s""al1.!n....D"'i""e¥g"'o______County ofResidence of First Listed Defendant ..luo!!n.!.!kun!.loOWD!!!.!..I.-______(EXCEPT IN u.s. PLAINTIFF CASES) (IN u.s. PLAlN11FF CASES ONLy) NOTE: IN LAND CONDEMNATION CASES, USB THE LOCATION OF THE TRAer OF LAND INVOLYEO.

(C> Attorneys (Firm Nante, Address, and Telep/loM Numher) Attorneys (lfKMWn) Finkelstien & Krinsk LLP 550 W C Street, Ste. 1760 San Diego. CA 92101 '15CV1036 WQHWVG II. BASIS OF JURISDICTION (Place an "X" in On. Bar. Only) III. CITIZENSHIP OF PRINCIPAL PARTIES (place an "X" In OM Bar./or Plaintiff (For Div."tty Cases Only) and OM BO:J;lor V.fondant) CI I u.s. Government )It 3 Federal Question PTF DEF PTF DU Plaintiff (U.s. Government Nol a Party) Citizen ofThis S_ III CI I IDCOtpOI1Ited or Prin~ipal Place CI 4 Cl4 ofBusiness In This Stato

CI 2 U.S. Government CI 4 Diversity Citizen ofAnoIher Stale CI 2 CI 2 lnoorporated and ~ipal P_ CI .S Defendant (Indicate Citizenship o/Parlies in Ilem Ill) ofBusinosa In Anolber S_

Citizen or Subject ofa CI 3 CI 3 Foreign Nation CI 6 Cl6 F IV. an "X" in OM Bar.

CI 110 Insurance PERSONAL INJURY PERSONAL INJURY 62S Dru& Rela!od Saizuro 422 Appeal 28 USC I ~8 CI 3" False Claims Act CI 120 Marine Cl310Aitpiane CI 36SPcrsonallnjW')" ofPropony21 USC 881 423Witbdrawal CI 4OOStaieReapportionmeat CI 130 Miller Act CI 31S Aitpllinc Produci Product Lillbility 690 0Ib0r 28 USC 1$7 CI 410 Antitnlll CI 140 Negotiable Insttument Liability CI 367 HeaI1h Carel " .... CI 430 Banks ad Baakins CI 150 RecovCty of Cn-CI']paytllCltt CI 320 Assault, Libel 41; Pbannaceutic:al II! I!I•••• CI 4~0 Comancrrec 41; Enforcement Slander PersonellnjW')' CI 460 DcponatiOli CI 1$1 Medicare Act CI 330 Fedora! Employers' Product Liability CI 470 Raek_lnfIucnced ad CI I S2 Re<>ovCty ofDcfaulted Liability CI 368 Asbestos PeraonaI ComIpt OrJ..uz.tions Student Loans CI 340 Marine Injury Product CI 480 Consumer Credit (Excludes Veterans) CI 345 Marine Product Liability CI 490 c.bIeISat TV CI 153 ReeovCty ofOverpayment Liability PERSONAL PROPERTY rr~'!!!!!!!.~P!"'!I!!!II ••~ )It 850 SewriticslComtnoditiCIII ofV_'s Benefits CI 3S0 Motor Vehicle CI 370 0Ib0r Fnwd Act Bxchlln8e CI 160 Stoekbo1dcrs' Suits CI 355 Motor Vehicle CI 371 TIlIlb in Lendina 720 LaborlMaMgement CI 890 0tII0r SI8t\IIOIy A~ons CI 190 0Ib0r Contract Product Liability CI 380 0Ib0r PCfSOIIIII Rolalions CI 891 ~ Aas CI 195 Contract Product Liability CI 360 0tII0r PerJOll8l Property 0 ...... 0 740 RoiIway Labor Act CI 893 Enviroamenlll Matters CI 196 Franchise Injury CI 38~ Property o.mage 7~ I Family ad Medic:aI CI 895 Frecodom oflnformalion CI 362 Porronal Product Liability Loave Act Act

~!!!!!!IIl.~!~M!cdiaI!.~I! IQlII...... Oo 790791 OIherFmpIoyee Labor Rotiremont LitiSation ._•• CI 896899 AdminilCrativcArbitration I'roeedIIre ~CI 210 Land CI 440 0Ib0r Civil RilJhts H...... COrpul: lneomo Socurity Act CI 870 Taxes Plaintiff ACllReview or AppoaI of CI 220 Fon:c1osIR CI 441 Votina CI 463 A1iOll DetaiMc or DefOndal) AJm<:)' Decision CI 230 Reot Lease 41; Bjectment CI 442 Employment CI 510 Motions to VI\QIIIc CI 871 IRS-Third PaI1y CI 9~0 ConatiIutionality of CI 240 Tons to Land CI 443 HOllsin,g/ Sentcnc:o 26 USC 7609 State S_ CI 24$ Ton Product Liability Ac:c:ommodations CI S30 0eneraI CI 290 All OIher Roal Property CI 44~ Amer. w!Disabilities· CI S3~ Daath Penalty Employment OIlIer. CI 446 Amer. wlDiaabi1ities· CI 540 Mandamus 41; 0Ib0r 0Ib0r CI 5~0 Civil RiahU CI 448 Education CI 555 Prison Coodition CI 560 Civil DetaiMc • Cooditions nf COIIfinement V. ORIGIN (PIQC~ an "X" in One Bar. Only) )I( t Original 0 2 Removed from o 3 Remanded from o 4 Reinstated or o S Transferred from o 6 MultidiS'lrict ProCeeding State Court Appellate Court Reopened Another District Litigation c· Cite the U.S. Civil Statute under which you are filing (Do /WI .jlIri64ktlmtlll_III,I_Il-.Ityj: VI. CAUSEOFACTION~1~5~U~SC~S=edkm~~78~1~------ Briefdescription ofcause: Com int for derivative relief. VII. REQUESTED IN (] CHECK IF THIS IS A CLASS ACTION DEMANDS CHECK YES only ifdemanded in complaint: COMPLAINT: UNDER RULE 23, F.R.Cv.P. JURY DEMAND: )II Yes 0 No VIII. RELATED CASE(S> IF ANY (See ins/ructions): r DOCKET NUMBER DATE 05/0612015 fOR oFFiCi USE ONLY RECBlPT# AMOUNT APPLYING 11'1' ----- JlIIJOE ----- MAO.JVDGE ------Case 3:15-cv-01036-WQH-WVG Document 1-1 Filed 05/08/15 Page 2 of 2

JS 44 Rev..." (Rev. 12112)

INSTRUCTIONS FOR ATTORNEYS COMPLETING CIVIL COVER SHEET FORM JS 44 Authority For Civil Cover Sheet

The JS 44 civil cover sheet and the information contained herein neither replaces nor supplements the filinp and service of pleading or other papers as required by law, except as provided by local rules ofcourt. This form, approved by the Judicial Conference ofthe United States in September 1974, is required for the use of the Clerk of Court for the purpose of initiating the civil doeket sheet. Consequently, a civil cover sheet is submitted to the Clerk of Court for each civil complaint filed. The attorney filing a case should complete the fonn as follows:

I.(a) PlaiBti....Defead..ts. Enter names (last, first, middle initial) of plaintiffand defendant. Ifthe plaintiff or defendant is a 10vemmeDt agency, use only the full name or standard abbreviations. If the plaintiff or defendant is an official within a government agency, identify first the agency and then the official, giving both name and title. (b) COUDty of RtsldeDee. For each civil case filed, except U.S. plaintiff cases, enter the name ofthe county when the first listed plaintiff resides at the time of filing. In U.S. plaintiff cases, enter the name ofthe county in which the first listcd defendant resides at the time of filing. (NOTE: In land condemnation cases, the county of residence of the "defendant" is the location ofthe tract ofland involved.) (e) Attoraeys. Enter the finn name, address, telephone number, and attorney ofrecord. Ifthere are several attorneys, list them on an attachment, noting in this section "(see attachment)".

n. JUriadktioD. The basis ofjurisdiction is set forth under Rule 8(a), F.R.Cv.P., which requires that jurisdictions be sbo'Wll in pleadings. Place an "X" in one ofthe boxes. Ifthere is more than one basis ofjurisdiction, preccdenc:e is given in the order shown below. United States plaintiff. (I) Jurisdiction based on 28 U.S.C. 1345 and 1348. Suits by agencies and officers of the United States are induded here. United States defendant. (2) When the plaintiff is suing the United States, its officers or agencies, place an "X" in this box. Federal question. (3) This refers to suits under 28 U.S.C. 1331, where jurisdiction arises under the Constitution ofthe United States, an amendment to the Constitution, an act of Congress or a treaty of the United States. In cases where the U.S. is a party. the U.S. plaintiff or defendant code takes precedence, and box I or 2 should he marked. Diversity of citizenship. (4) This refers to suits under 28 U.S.C. 1332, where parties arc citizens ofdifferent states. When Box 4 is cbeclccd, the citizenship of the different parties must he checked. (See Section mbelow; NOTE: Went qlllltioD actIH. taU ,nndnce over dtvenity cues.)