China online-gaming giant Ourgame has acknowledged, in a statement issued to Hong Kong Stock Exchange regulators, that six employees of the poker division of its esports subsidiary,?Beijing Lianzhong Interactive Network Co., Ltd. were among the 39 people arrested in an April sweep by Chinese authorities targeting underground poker gambling.

Beijing, China-based Ourgame International Holdings Limited, the parent investment company of several business entities involved in online gaming and esports interests, has clarified its connection to an April sweep by Chinese authorities that targeted illicit real-money poker games facilitated by the use of soon-to-be-banned “Texas Hold’em” smart-device apps.

According to Ourgame, six employees of its?Beijing Lianzhong Interactive Network Co. (“Lianzhong”) subsidiary were among 39 people arrested in April in connection with the illegal games. The company’s announcements, though limited in detail, expands on Chinese media reports declaring that three prominent executives of the Lianzhong subsidiary were among those arrested.

The statement was made on behalf of three corporate entities around the globe involving stock-trading interests in Ourgame, though the announcements were offered to comply with Hong Kong Stock Exchange regulations. In addition to?Ourgame International Holdings Limited, which is incorporated in the Cayman Islands, the announcements also apply to Ourgame holding companies?Lianzhong International Holdings Limited and?Allianz International Holdings Limited.

Insider-trading considerations

Ourgame issued two separate announcements in connection with the arrests of its employees. The first, offered on May 9, declared a suspension of trading in Ourgame’s listing on the Hong Kong exchange “pending publication of an inside story as soon as practicable”.

According to Ourgame, the story would relate “to claims from relevant Chinese media that certain employees of the company are suspected of engaging in illegal activities”.

Two days later, on Friday, May 11, Ourgame acknowledged the arrests had occurred while reopening trading in its Hong Kong-listed shares. According to Ourgame, roughly translated, “It?had been noticed by media reports that certain individuals who are employees of the Group have been detained by the authorities of the People’s Republic of China (‘China’) and may face prosecution”.

News of the arrests was first published by the Beijing News Agency on May 8. The first English-language version of the story appeared on Flushdraw on May 10.

Few facts offered

Beyond revealing that six Lianzhong employees had been arrested, rather than three, the May 11 clarification was sparse. As reported by BNA and translated at Flushdraw, three of the six were partially identified as “Qinyou”, Lianzhong’s executive vice president; “Xu”,?the head of the “chess and card” (esports) division; and “Zhou”, the head of the VIP outreach department. Ourgame did not dispute the partial identities the BNA report offered, nor did it offer the names of the other three who were arrested.

According to Ourgame, one of the six may also have participated personally in the illegal games. The statement offered this: “A person who is an employee of the Poker Division of Beijing Lianzhong Interactive Network Co., Ltd., a subsidiary of the Group, [] was detained by the Public Security Department of Henan Province for allegedly using the company’s gaming platform to engage in personal activities that violate Chinese gambling laws”.

However, Ourgame’s May 11 statement also sought to create distance between the actions of the six employees and the company as a whole. “These six persons are not directors of the company”, the advisory noted. Ourgame also created a committee to investigate the matter and pledged full cooperation with Henan Province and Chinese national authorities, and hired an external legal advisor to assist those authorities with the investigation.

The company also chose not to offer public comment on why its acknowledgement of the arrests and theoretical insider-trading impact came only after the May 8 BNA report, and not in April, when the arrests occurred.

Ourgame’s stock suffered a precipitous drop on April 4, 2018, shedding a sixth of its value on trading several times the volume of its recent daily average. The company offered no public information regarding the drop. On May 11, the company’s shares tumbled again following the recent announcements, this time shedding over a fourth of their value on an even larger trading volume.