Alibaba says the fraud perpetrated on its users is minor and immaterial, fiscally, to its investors. But top leaders still fell on their swords to save the company's reputation where it really counts.

By Bill Powell, contributor

Alibaba CEO David Wei, who resigned yesterday

For several years now, the Internet firm Alibaba-Taobao has been one of the
 most prominent Chinese companies on the planet—thanks both to its
 success and to its brash, charismatic founder and chairman, "Jack O' (Yun)
Ma, who started the online commerce company in 1999. Its 
business-to-business platform, Alibaba.com, went public on Hong Kong's stock
 exchange in 2007 and raised $1.7 billion—at the time the second biggest 
Internet IPO ever, behind only Google (GOOG). Its online consumer sales company,
Taobao, went mano-a-mano with eBay (EBAY) and effectively ran the global 
giant out of China a few years ago.

Yesterday
 for the first time, Alibaba hit a big public bump in the road: It reported that 2,326 high volume sellers who 
pay a fee to the company to peddle their wares on the site – "gold 
suppliers," as they're called—defrauded customers over the course of two 
years, with the assistance of nearly 100 Alibaba.com employees. Ma said the
 sellers were organized "fraudsters." As a result of the scandal, Alibaba.com
 CEO David Wei, and his deputy, COO Elvis Lee, both resigned yesterday. 
Neither, the company stressed, are implicated in the fraud; both were 
falling on their swords to accept responsibility. (Japanese style corporate
 accountability comes to China.) More