From gnomes national news service

Several China-based tech giants seek to follow Silicon Valley’s example and cash-in on Wall Street as Sina Weibo, a social media site resembling Twitter, has filed for an initial public offering in the U.S., while e-commerce behemoth Alibaba Group announced plans to do the same.

These actions reflect Wall Street’s appetite for Internet companies as stocks rose to record highs in 2013, for example Twitter’s share price boomed when the company went public in November. Whether or not we are in an overvalued tech bubble market, investors are eager to get a piece of businesses that tap profits from China’s growing middle class.

The bad news is that Weibo stock will have little or no investor protection in the U.S. because the company is officially based in the Cayman Islands, which is infamous for its loose financial regulations and offshore tax shelters. Its operations are also all conducted in China so investors unhappy with Weibo might be unable to sue its officers, the company warned in its regulatory filing with the U.S. Securities and Exchange Commission.

“It may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise,” Weibo said in its SEC filing, submitted March 14. “Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.”

Companies that list on U.S. stock exchanges must comply with SEC regulations and can be sued, but Weibo is warning that even if an investor won a lawsuit it could be difficult to convince a court in China or the Cayman Islands to recognize the order for damages to be paid, said a securities attorney with experience in international litigation.

“I have never seen a disclosure as blunt as that,” said the attorney. “Most countries that list here have assets here or operate here. This is unusual since the company apparently would have no presence in the U.S. except a listing to sell stock.”

It is less certain whether shareholders would be able to assert legal recourse from Alibaba should the situation arise. Alibaba is headquartered in China but it is an e-commerce group with global ambitions and offices in the U.S. and the U.K., which could give the company more incentive to agree to legal judgments. Like other companies seeking IPO status, Alibaba will disclose a wealth of information if it submits a company profile to the SEC as part of the process.

Most of the information publicly known about Alibaba is drawn from the earnings reports of Yahoo, which owns 24 percent of the business and stands to profit handsomely from its IPO. Alibaba announced on March 16 it would go public in the U.S. through a blog post on Alizila, a news website the company owns.

“This will make us a more global company and enhance the company’s transparency, as well as allow the company to continue to pursue our long-term vision and ideals,” the company said.

Going public on Wall Street instead of Hong Kong is a way for Weibo and Alibaba to raise global awareness about the companies outside of China as they grow and ponder ways to expand. Listing a company in the U.S. also gives greater ownership stock privileges to leaders of a business, which is one reason Wall Street is more attractive to the Chinese tech giants, says Gil Luria, a stock analyst at Wedbush equity research firm.

“It has to do with ownership structure,” Luria says. “The U.S. is more accommodating with the CEO maintaining control and keeping ownership shares, as opposed to the stock exchange in Hong Kong.”

The Hong Kong Stock Exchange was the first choice for Alibaba, the company’s co-founder Joe Tsai said in a blog post in September. The e-commerce giant was discouraged by Hong Kong because it was not receptive to the company’s proposed governance structure to enable the voting rights of the company’s partners and its 18 co-founders to “safeguard the Alibaba culture.”

All businesses in China must have a working relationship with the Chinese Communist Party, but the risks are particularly evident for a social media company like Weibo, which as part of its SEC disclosure admitted to collecting user information and sometimes censoring online material. It is unclear what privacy and censorship issues could affect Alibaba’s users because its business is trade, not communication.

“Privacy concerns relating to our products and services and the use of user information could damage our reputation, deter current and potential users and customers from using Weibo and negatively impact our business,” Weibo said in its SEC filing.

Internet users in China who knowingly make or share information considered defamatory or false by the government could face up to three years in jail, according to a Chinese law that took effect in 2013. Weibo said the new law could have an “adverse effect on the traffic of our platform and discourage the creation of user generated content.” China has 618 million Internet users, approximately 45.8 percent of its population, according to the latest record from the China Internet Network Information Center, a government nonprofit. By comparison, the Pew Research Center estimates nearly 267 million Americans (or 85 percent of the population) are regular Internet users.

Weibo is seeking to raise $500 million in its stock offering. Its parent company Sina, an Internet platform with a wide range of services resembling online media company Yahoo, went public in 2000 on the Nasdaq, a favorite destination for tech stocks.

Neither Alibaba nor Weibo announced which U.S. stock exchange they would trade on. With the money they earn from public offerings, the tech giants could acquire more companies, invest in mobile innovation and expand to new countries as global competitors.

Alibaba’s public offering could become the largest in the history of the tech industry. The e-commerce company is valued at anywhere from $150 billion by the Goldman Sachs Group to $200 billion by the Macquarie Group financial services firm. Weibo’s value is harder to define because its business is social media – a sector still perfecting its profit model. Alibaba bought part of Weibo in April 2013 in a deal that valued the microblog at $3.26 billion, but its value may have grown since then.

The Alibaba Group accounts for the majority of e-commerce in China because it consists of several websites. On the main Alibaba website consumers can buy telescopes and dresses, but businesses can also get a deal on construction machinery and mechanical parts. Its largest Web service Taobao is an online marketplace for more than 7 million sellers.

Taobao’s reliance on advertising should caution against simple comparisons with Amazon and eBay, says Brian Wieser, tech market analyst at the Pivotal Research Group. Alibaba resembles Google more than Amazon because it is essentially a Web platform to search for product sales, Wieser explains.

“The bulk of Alibaba’s revenue is what we would call advertising,” Wieser says. “On Taobao anybody can sell products for free, but to get their brands noticed they pay for advertising on the site.”

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