Chinese police arrest 36 in fraud sting

Two men chat beside a logo of Alibaba (China) Technology Co. Ltd at its headquarters on the outskirts of Hangzhou, Zhejiang province May 17, 2010. REUTERS/Steven Shi

SHANGHAI (Reuters) - Chinese police have arrested 36 people in connection with operating fraud on that prompted the resignations of the firm’s top executives in February, the company said.

The suspects were accused of running a criminal gang that used fake personal and business identities to open accounts on, China’s largest B2B e-commerce platform, and cheated overseas buyers of more than $6 million.

Alibaba Group’s founder Jack Ma wrote in an internal memo in February that about 100 employees were involved in helping the suspects set up accounts in order to meet their sales numbers.

The fraud scandal caused, China’s largest B2B e-commerce platform, to lose its chief executive and chief operating officer, who both stepped down in February after the fraud was uncovered to take responsibility for a “systemic breakdown.”

Police in the city of Hangzhou, southwest of Shanghai, carried out the investigation over a 40-day period and targeted online scammers who posed as legitimate suppliers on’s platform, Alibaba’s news site Alizila said., a unit of Alibaba Group, which is 40 percent owned by Yahoo, said in the statement there were 1,219 fraud cases in 2009 and 1,107 in 2010, with the average value per less than $1,200.

Jonathan Lu, once Taobao’s chief executive is now the chief executive of

Reporting by Melanie Lee; Editing by Kazunori Takada