CMGE Responds to Allegations of Questionable Business Practices

Jan 29, 2015 15:47 JST

HONG KONG, Jan 29, 2015 - (ACN Newswire) - China Mobile Games and Entertainment Group Limited (CMGE), the largest publisher and aleading developer of mobile games in China, stated in response to allegations made by a USshort seller recently that the allegations have confused the connections between ShenzhenZhongzheng Ruanyin Science and Technology (Zhongzheng) and CMGE.

Geoinvesting, a short seller based in the US, mentioned on January 15 that CMGE isengaging in questionable business practices and has overstated its revenues, creating anenvironment that allows for the transfer of revenue away from the company to a non-disclosed related entity, Zhongzheng.

CMGE responded to the allegations on the following day, saying that the allegations containnumerous errors and the speculations have no basis.

"Zhongzheng was founded in November 2009, and I was the founder and CEO back then buthave since left Zhongzheng," Shuling Ying, CMGE's chief operating officer, said. "Zhongzheng provided mobile game promotion at that time."

Ying said he started cooperating with Xiao Jian, the CEO of CMGE, in 2012, as they facedthe challenges of expanding in the large mobile game market, and Xiao at that time wastransforming their business from feature phone to smartphone games and was building a newteam for mobile games publishing. Ying said he later joined CMGE in June 2013 as one of theteam leaders in the mobile game publishing division, after disposing of all his shares inZhongzheng. He became the COO of CMGE last October.

Yet the previous team working with Ying remained at Zhongzheng.

"Of all CMGE's revenue in the first three quarters in 2014, less than one percent came fromZhongzheng and payments made to Zhongzheng for the first three quarters of 2014accounted for approximately 3.0% of CMGE's operating expenses for the same period.," Ying said. "It is not possible that CMGE transferred revenue to, or generated significant revenuefrom, Zhongzheng. Furthermore, Zhongzeng is just one of CMGE's many mobile gameadvertising agents and CMGE has no control over Zhongzheng's business."

"Consistent with China's mobile game market practice for Android and iOS, some mobilegame advertising agents put their names on the mobile games for promotion of the gamesand the convenience of game uploads, even though game titles belong to the publishers andrevenue collection is done by the publishers and the app store platforms. In the gamesmentioned by Geoinvesting, revenue collection is done by CMGE and app store platformsand not through Zhongzheng."

CMGE said it has conducted its business with Zhongzheng at arm's length.

Ying also mentioned that in October 2014, Zhongzheng's lease for its old office expired and itwas in the process of looking for a new office space. CMGE agreed to temporarily lease partof its office in Shenzhen to Zhongzheng during the transition. Both Zhong Zheng and CMGEagreed that Zhongzheng should secure a new office space and move out of CMGE'sShenzhen office and change its registered address as soon as possible.

By Zhang Yue (chinadaily.com.cn)
http://www.chinadaily.com.cn/business/tech/2015-01/28/content_19431772.htm

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