SAN FRANCISCO/BEIJING (Reuters) - Part-way through Alibaba Group Holding's long-awaited IPO prospectus was a subtle, but striking, warning: investors should know that lead founder and executive chairman Jack Ma might work against the company's best interests.
The acknowledgement, on page 42 of a 300-plus-page filing, highlighted longstanding questions about the Chinese e-commerce giant's complex corporate structure and potential conflicts of interests surrounding Ma, who started Alibaba in his one-room apartment in 1999 and has since branched out into markets as diverse as e-payments and financial investment.
To be sure, such warnings of potential conflicts were included in the prospectuses of many founder-controlled tech companies, including Facebook and LinkedIn. But Alibaba's warning stands out given Ma's numerous investments in third-party firms that partner with his company.
One hot-button issue is Ma's control of Alipay, the PayPal-like affiliate established by Alibaba in 2004, which continues to provide the lions' share of payment services for the company's retail marketplaces.
Four years ago, Alibaba spun out Alipay to a group including Ma, who holds a 46 per cent stake in Alipay through another company, Zhejiang Alibaba E-Commerce.
A row ensued: Alibaba investors including Yahoo and SoftBank objected to the spinoff, which Ma argued was needed to comply with Chinese central bank regulations governing foreign ownership of financial firms.
Alibaba, Yahoo and SoftBank settled the matter in 2011, but not before David Einhorn, the Greenlight Capital hedge fund manager, sold all of his Yahoo shares in frustration at what he deemed mutual "finger-pointing" between the companies.
Alibaba reiterated on Tuesday its longstanding position that the 2010 spinoff was intended to conform with central bank regulations.
But it also said no such rules were in place. "At the time when the licenses were first issued, no such additional regulations governing foreign-owned payment companies had been put in place."
The company declined to comment beyond the prospectus on the matter of Ma's potential conflict or his investments. It also declined to comment on media reports that it is in talks to buy back a stake in the payments firm, or whether Ma would recuse himself from any Alipay talks.
Beyond Alipay, analysts and attorneys say they are concerned about Ma and Alibaba's related-party transactions and "variable interest entities" - firms associated with Alibaba in which Ma has a holding.
In the prospectus, Alibaba says structures such as "variable interest entities" are to its benefit. The investments give Alibaba flexibility in the face of Chinese regulation. Ma can assume legal ownership of a company and agree to transfer "all economic benefits" to Alibaba when legally permitted, the prospectus said.
According to Tuesday's prospectus, Ma has a 40 per cent stake in "several entities" with ties to Yunfeng Capital, an investment firm that has operated alongside Alibaba.
In April, Alibaba agreed to loan 6.5 billion yuan (S$1.3 billion) to co-founder Simon Xie. Through another company formed with Ma, Xie would then purchase a minority stake in Wasu Media Holding, an internet TV firm. Alibaba at the time announced it had reached a cooperation deal with a subsidiary of Wasu. It did not mention the loans or investment.
Alibaba also holds a stake in a separate TV and film company, and M&A lawyers have said the purchase could have been designed to circumvent anti-competition rules.