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The encyclopedia · Trading & Investing · Financial decision · 2000–2017

XPEC Entertainment: NT$4.9B fake takeover destroyed Taiwan's gaming stock

Taiwanese game developer XPEC collapsed when its Japanese acquirer defaulted on a NT$4.9B tender offer, exposing the founder's stock manipulation scheme.

XPEC Entertainment (樂陞科技) · Cube Digital Entertainment (百尺竿頭数位娛樂) · 2016-08-30

What happened

XPEC Entertainment was founded in 2000 as a Taiwanese video game developer, known for titles including 'Sword of the Stars' and 'Bounty Bay Online'. The company listed on the Taiwan Stock Exchange and became a notable player in the island's gaming industry.

On May 31, 2016, Japanese company Cube Digital Entertainment announced a tender offer to acquire 25.71% of XPEC at NT$128 per share, valuing the deal at NT$4.864 billion. Taiwan's Investment Commission approved the offer on July 25. But on August 22, Cube delayed payment, and on August 30, it defaulted entirely, abandoning the acquisition.

The collapse triggered a massive stock crash. XPEC shares, which had traded at NT$128 during the offer, plunged to under NT$10. Prosecutors discovered that founder Xu Jinlong had orchestrated a scheme to manipulate the stock price through the fake tender offer, making illegal profits of over NT$4 billion. He was arrested in September 2016 and indicted in January 2017.

XPEC was delisted from the Taiwan Stock Exchange on October 19, 2017. The case became one of Taiwan's most notorious securities frauds, exposing how a company founder could use a fake acquisition to pump and dump the stock with regulators failing to detect the scheme.

Why it happened

  • Founder Xu Jinlong orchestrated a fake tender offer by Cube Digital Entertainment to inflate XPEC's stock price, then dumped his shares before the deal collapsed
  • The Japanese acquirer was a shell company — Cube Digital had no real intention or ability to complete the NT$4.9B acquisition
  • Taiwan's Investment Commission approved the tender offer without verifying Cube's financial capacity, and regulators failed to detect the manipulation until after the default
  • The scheme was a classic pump-and-dump: Xu used the tender offer announcement to drive the stock from around NT$80 to NT$128, then sold before the default
What it costNT$4.9B fake deal, stock delisted, founder 18 yearscostly

The lesson

XPEC's founder fabricated a tender offer to pump the stock and dump it. Regulators approved the deal anyway, and investors lost everything when the Japanese shell company defaulted.

Aftermath

XPEC was delisted from the Taiwan Stock Exchange on October 19, 2017. Founder Xu Jinlong was convicted in February 2018; the verdict was revised on appeal. He was released on NT$25 million bail in September 2020. The case prompted tighter scrutiny of cross-border tender offers by Taiwan regulators.

Sources

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