The long-awaited regulatory penalty has finally been imposed on 37 Interactive Entertainment Network Technology Group Co., Ltd. The A-share gaming giant recently announced it received the "Prior Notice of Administrative Penalty" from the China Securities Regulatory Commission (CSRC).
The belated penalty, arriving after nearly two and a half years, exposes multiple violations committed by 37 Interactive Entertainment between 2014 and 2021. These include false records of shareholder holdings, concealment of related-party transactions, and inaccurate temporary disclosures.
The investigation traces back to June 27, 2023, when 37 Interactive Entertainment disclosed receiving a CSRC立案告知书 (case initiation notice) for suspected information disclosure violations involving the company, its chairman Li Weiwei, and vice chairman Zeng Kaitian.
The CSRC's investigation revealed four major violations: 1. False records of shareholder holdings in annual reports from 2014 to 2020 2. Failure to disclose the acquisition of Jiangsu Jiguang as a related-party transaction in 2018 3. Misrepresentation of the indirect acquisition of Guangzhou 37 as a related-party transaction in 2020 4. Undisclosed related-party transactions totaling 1.166 billion yuan with Hainan Liyuan and other entities from 2018 to 2021
The CSRC proposed penalties including: - Corrective orders and warnings for 37 Interactive Entertainment - Warnings for responsible individuals - Total fines of 32.55 million yuan for the company and six responsible parties - A personal fine of 14 million yuan for Chairman Li Weiwei (5 million as directly responsible executive and 9 million as actual controller)
The company emphasized that these violations don't trigger delisting risks under Shenzhen Stock Exchange rules and won't significantly impact operations.
The violations originated during 37 Interactive Entertainment's transformation from auto parts manufacturer Shunrong Shares to gaming company. Between 2014-2015, Shunrong acquired gaming firm "Shanghai 37 Play" through two transactions, eventually rebranding as 37 Interactive Entertainment. During this transition, Li Weiwei and Zeng Kaitian allegedly used acquisition funds to purchase shares held under others' names, violating disclosure requirements.
Notably, the company repeatedly concealed related-party transactions, including: - Undisclosed related-party nature of Jiangsu Jiguang acquisition - Undisclosed related-party transactions worth 1.166 billion yuan with Hainan Liyuan and others over four years
While 37 Interactive Entertainment ranks among top A-share gaming companies, its heavy reliance on user acquisition spending continues to raise concerns about game quality. Recent financials show: - Q1-Q3 revenue: 12.461 billion yuan (-6.59% YoY) - Net profit: 2.345 billion yuan (+23.57% YoY) - Q3 revenue: 3.975 billion yuan (-3.23% YoY) - Q3 net profit: 944 million yuan (+49.24% YoY)
The company attributes growth to optimized operations and successful new game launches like "Time Explosion," "Heroes Don't Dodge," and "Douluo Continent: Soul Hunting World." However, these games received mixed user ratings (4.5-6.8/10) on TapTap, with complaints about server fragmentation, aggressive monetization, and intrusive ads.
Despite a 19.53% reduction in marketing expenses to 6.199 billion yuan, they still consume nearly 50% of revenue. Meanwhile, R&D spending—critical for the company's "premium product strategy"—remains relatively low at 512 million yuan.
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