Internet & Tech

Game not on

More arrests in fresh setback for Kingnet

Wang Yue-w

Wang Yue: arrested in June

The online game developer Kingnet has always been a bit creative. For example, in 2015 when there was a freeze on new IPOs, it started trading on the Shenzhen stock exchange by exchanging shares with a shoe company already listed on the bourse – a move known as a “backdoor listing”.

Since then the firm has got more unorthodox, it seems; although not in the area of game development, according to unimpressed players.

Last month a fifth executive at the company was arrested on what appear to be charges of insider trading. Jin Feng, 31, was elected chairman of Kingnet in March this year when its previous chair and founder Wang Yue was detained on similar charges.

At the heart of the case is an unusual share purchase in 2017: Kingnet bought 51% of Jin’s company St Hero Network for Rmb1.6 billion ($229.4 million). But then it obliged St Hero to buy Rmb750 million in Kingnet shares, pushing up its stock price.

“In essence this is a listed company using its own money to buy its own shares,” a finance expert from Shanghai Jiaotong University told CCTV.

Kingnet was founded in 2008 and specialises in server-based games, which don’t require software to be downloaded. Its most popular product is Blue Moon Legend – a fantasy game set in a magical version of ancient China. Characters battle for power and wealth, and players can progress to higher levels more quickly by buying virtual goods such as swords and spells.

According to the gaming platform 9K9K, Blue Moon Legend was the most popular server-based game in China in 2017 based on server size – a good indication of how many people are playing.

The site also said the title was China’s highest-earning browser game, generating Rmb200 million a month in revenue.

At the height of its success, Kingnet was worth some Rmb38 billion, making its founder, 36 year-old Wang, a dollar billionaire.

But its fortunes turned for the worse when it was sued by the South Korean game developer WeMade for copyright infringement (WeMade alleged that Blue Moon Legend was a copy of its own game Legend of Mir). A Singapore court ruled in WeMade’s favour, although Kingnet was only ordered to pay Rmb47 million.

It also failed to develop new offerings – a situation not helped by the fact that the government stopped issuing licences for new online games for much of 2018.

In 2017 it had also begun to segue into internet finance, investing Rmb144 million in five companies. All these projects ended in failure, according to Guancha.cn.

Between December 2017 – the time of the suspicious share purchase – to the present day, the company has lost 88% of its stock value.

Jin’s arrest was confirmed by the company on October 25. The detention of four other executives was also confirmed by the Shanghai police. Charges range from insider trading and stock market manipulation to personal economic crimes and breaches of trust.

The company has 78,000 shareholders, according to its 2019 half year-report.

Meanwhile in other tech news, Luo Yonghao, the founder of smartphone maker Smartisan has been slapped onto a list of national debtors for failing to repay a Rmb3.7 million loan (see WiC239 for our first mention of Luo and Smartisan).

Inclusion on the Supreme Court’s blacklist means Luo – a former English teacher – cannot take flights, purchase high-speed rail tickets, stay in luxury hotels, buy property or send his children to private school.

Luo acknowledged the debt in a Sina Weibo post entitled “Confession from a deadbeat CEO”.

Luo once claimed that Smartisan was going to be so successful that it would buy Apple. Instead it fell into debt – Smartisan also needs to repay Rmb300 million of debt – and lost market share to the likes of Huawei and Xiaomi.

Luo now says he will repay the debt, which he had personally secured. But according to a weibo post by Smartisan COO Wu Dezhou last week, Lou has also left the company for “personal reasons”.


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