– A former senior executive of 360, Yu Hong (玉红), has publicly accused founder Zhou Hongyi (周鸿祎) of orchestrating fake accounting worth tens of billions of yuan, specifically in gaming业务.
– The allegations, if proven, could lead to severe regulatory action from bodies like the China Securities Regulatory Commission (CSRC) and criminal liabilities, impacting 360’s stock and investor confidence.
– Yu Hong’s motivations appear rooted in deep personal grievances, possibly from profit-sharing disputes during his tenure, highlighting broader issues in China’s first-generation internet companies.
– The gaming sector’s susceptibility to financial manipulation is scrutinized, with virtual economies allowing for easier revenue inflation compared to traditional industries.
– Zhou Hongyi’s recent shift to a ‘网红企业家’ (internet celebrity entrepreneur) persona faces reputational risk, as these fake accounting allegations threaten to undermine his transformed public image and 360’s strategic pivots.
In a stunning revelation that has jolted China’s financial and technology circles, former 360 senior vice president Yu Hong (玉红) has leveled explosive fake accounting allegations against the company’s iconic founder, Zhou Hongyi (周鸿祎). The accusations, disseminated via social media on December 16, 2025, claim involvement in fabricating financial records worth at least tens of billions of yuan, primarily within 360’s gaming operations. This incident transcends typical corporate disputes, posing significant legal and market risks that demand immediate attention from institutional investors and business professionals monitoring Chinese equities. As details emerge, the focus turns to the credibility of these fake accounting allegations and their potential to unravel one of China’s internet pioneers.
The Explosive Allegations: Unpacking Yu Hong’s Accusations
The core of this scandal lies in Yu Hong’s direct and public statements, which have shifted from private grievance to a potential legal battlefield. His claims strike at the heart of corporate integrity and financial reporting standards in China’s capital markets.
Core Claims and Immediate Fallout
Yu Hong’s allegations are multifaceted and severe. He asserts that he personally assisted Zhou Hongyi in creating fake accounting entries amounting to tens of billions of yuan, with specific emphasis on 360’s gaming business being entirely financially fabricated. In his own words, as reported, he stated: “I帮周鸿祎做假账就至少几十亿的，我都有数据” (I helped Zhou Hongyi with fake accounting worth at least tens of billions, and I have the data). He further added, “认识周鸿祎是我一生的耻辱！” (Knowing Zhou Hongyi is the shame of my life!). The immediate response from 360 has been a terse “不予置评” (no comment), while Zhou Hongyi appears to have blocked Yu Hong on social media, cutting off direct communication. This silence is telling, as Zhou is known for his combative public persona, suggesting the allegations may carry weight that necessitates cautious legal maneuvering.
Legal Implications of Multi-Billion Yuan Fraud
If substantiated, these fake accounting allegations could trigger severe consequences under Chinese law. The Criminal Law of the People’s Republic of China includes provisions for accounting fraud and securities fraud, with penalties ranging from fines to imprisonment for responsible individuals. For context, historical cases like the Luckin Coffee (瑞幸咖啡) scandal in 2020 led to massive fines and delisting. Here, the scale—tens of billions of yuan—could implicate not only Zhou Hongyi and Yu Hong but also board members and auditors. The China Securities Regulatory Commission (CSRC) would likely initiate an investigation, potentially leading to trading halts for 360’s stock (奇虎360), shareholder lawsuits, and reputational damage that could affect its standing in both domestic A-shares and international investment portfolios. Investors should monitor regulatory announcements closely, as any action could signal tighter scrutiny on tech sector reporting.
Who is Yu Hong? From 360 Insider to Blockchain Mogul
Understanding Yu Hong’s background is crucial to assessing his motivations and the credibility of his claims. His journey from a key 360 executive to a blockchain figurehead adds layers to this conflict.
Rise and Role in 360’s Growth
Yu Hong first entered 360’s orbit in 2014 when Zhou Hongyi’s company acquired Quyou Group (趣游集团), a prominent web-gaming firm where Yu was the founder and CEO. Post-acquisition, Yu joined 360 as a senior vice president, playing a pivotal role in monetizing 360’s vast user base through gaming and later initiatives like the Huajiao Live (花椒直播) streaming platform. He was involved in core strategic decisions, including the Sogou (搜狗) merger talks, indicating his proximity to Zhou during 360’s peak expansion phases. This insider status lends credence to his ability to access sensitive financial data, supporting his assertion of having evidence for the fake accounting allegations. However, his departure from 360 around 2017-2018 marked a shift away from traditional tech into the volatile blockchain space.
Post-360 Ventures and Motivations
After leaving 360, Yu Hong gained fame as a blockchain evangelist, notably founding the “三点钟无眠区块链群” (3 AM No Sleep Blockchain Group) in 2018, which became a hub for cryptocurrency discussions during China’s crypto boom. His ventures in the blockchain sector, while initially lucrative, have faced regulatory crackdowns by authorities like the People’s Bank of China (中国人民银行). This context raises questions about his motives: is this a case of “深仇大恨” (deep vendetta) from unresolved financial disputes, such as unpaid bonuses or equity shares from his 360 tenure, or “分赃不均” (uneven profit sharing) from past collaborations? Alternatively, it could be a strategic move to deflect attention from his own regulatory challenges in crypto. Either way, his decision to “自爆” (self-expose) implies a high-stakes gamble where he risks legal liability as a co-conspirator, suggesting profound personal or financial grievances driving these fake accounting allegations.
The Gaming Sector: A Fertile Ground for Financial Manipulation?
Yu Hong’s specific focus on gaming业务 (gaming business) highlights an industry-wide vulnerability that investors must consider when evaluating Chinese tech stocks. The virtual nature of gaming economies creates unique opportunities for accounting distortions.
Why Games Are Prone to Accounting Fraud
Gaming companies, especially those with online platforms, face lower barriers to fabricating revenue compared to physical goods sectors. Key factors include:
– Virtual Goods and Services: In-game items like “屠龙刀” (Dragon Slaying Sword) are mere code, with near-zero marginal cost, allowing companies to report high sales without corresponding inventory or logistics proof.
– Channel Stuffing and Round-Tripping: Firms can create shell accounts to purchase virtual currency, inflating revenue figures, and then cycle funds back through marketing or partnership expenses. This method, often hard to detect without forensic auditing, can artificially boost metrics like ARPU (average revenue per user).
– Data Control: With servers under company management, internal teams can manipulate active user counts and transaction logs to meet performance targets, as seen in past scandals globally. For 360, which relied on gaming for cash flow during its transition from美股 (U.S. listings) to A-share markets via a backdoor listing in 2018, pressure to deliver on earnings promises may have incentivized such practices. These fake accounting allegations, if proven, would expose systemic risks in how gaming revenue is recognized and audited in China.
Historical Precedents and Regulatory Scrutiny
China’s gaming industry has faced prior scrutiny over financial irregularities. For instance, in 2021, the CSRC investigated several firms for revenue inflation, leading to fines and enhanced disclosure requirements. Globally, cases like Zynga’s past accounting issues underscore common pitfalls. Investors should review 360’s historical financial statements, particularly during its post-delisting phase when it承诺 (promised) high growth to justify its valuation. The Shenzhen Stock Exchange (深圳证券交易所), where 360 is listed, may now demand additional audits or clarifications. As a precaution, analysts recommend cross-referencing gaming revenue with independent data from platforms like App Annie or third-party payment processors to gauge authenticity. The fallout from these fake accounting allegations could prompt broader regulatory reforms, impacting sector-wide valuations.
Zhou Hongyi’s Transformation and 360’s Business Challenges
Zhou Hongyi’s evolving public image and 360’s strategic shifts add context to why these allegations are particularly damaging. Once known as a fierce competitor, Zhou has recently rebranded himself, making the scandal a threat to his carefully cultivated persona.
From ‘Red Coat Cannon’ to ‘Internet Celebrity’
Zhou Hongyi, nicknamed “红衣教主” (Red Coat Pope) for his trademark attire, built his reputation through aggressive tactics like the 3Q War with Tencent (腾讯) and public spats with peers such as Lei Jun (雷军) of Xiaomi (小米). However, in recent years, he has pivoted to a more approachable, mentor-like figure, engaging in live streams, discussing AI trends, and even selling his Mercedes-Maybach to promote domestic electric vehicles. This reinvention as a “网红企业家” (internet celebrity entrepreneur) aims to sustain relevance amid 360’s declining core businesses—antivirus software has become commoditized, and smartphone ventures failed. The fake accounting allegations now risk painting him as hypocritical, undermining trust just as he seeks to lead conversations on innovation and ethics in tech.
360’s Core Business Pressures and Strategic Pivots
360’s financial health has been under strain, with slowing growth in its traditional security segments and increased competition in areas like cloud services and artificial intelligence. The company’s reliance on gaming for revenue diversification, as highlighted in its annual reports, makes Yu Hong’s claims especially pertinent. If gaming profits were overstated, it could signal deeper issues in 360’s ability to generate sustainable cash flow. Moreover, 360’s forays into big models and smart car security—key areas Zhou promotes—may face investor skepticism if corporate governance is questioned. The “不予置评” (no comment) stance may reflect internal crises management, potentially involving legal teams and communications strategies to mitigate fallout. For stakeholders, this underscores the importance of scrutinizing non-core business segments in Chinese tech firms, where aggressive expansion can sometimes mask financial weaknesses.
Market and Regulatory Ramifications
The broader implications of these fake accounting allegations extend beyond 360, affecting market sentiment and regulatory approaches in China’s equity markets. Institutional investors must assess contagion risks and compliance trends.
Potential Impact on 360’s Stock and Investor Confidence
Immediately following the allegations, 360’s stock price on the Shenzhen exchange could experience volatility, as seen in past corporate scandals. Key considerations include:
– Shareholder Reactions: Long-term investors, including funds managed by firms like BlackRock or local institutions, may re-evaluate holdings based on governance risks, potentially leading to sell-offs.
– Credit and Bond Markets: 360’s corporate bonds, if any, could face downgrades by rating agencies like China Chengxin International (中诚信国际), increasing borrowing costs.
– Comparative Analysis: Similar cases, such as the Kangmei Pharmaceutical (康美药业) fraud in 2019, resulted in significant market capitalization losses and legal penalties, serving as a cautionary tale. Investors should monitor trading volumes and analyst reports for signs of institutional repositioning.
CSRC’s Role and Broader Implications for Chinese Tech
The China Securities Regulatory Commission (CSRC) is likely to take a keen interest, given its mandate to protect investors and ensure market integrity. Past actions, such as the 2023 crackdown on financial disclosure violations, suggest a low tolerance for accounting fraud. If Yu Hong provides tangible evidence, the CSRC might launch a formal inquiry, possibly coordinating with the Ministry of Public Security (公安部) for criminal aspects. This could lead to:
– Enhanced Auditing Standards: Requirements for more rigorous third-party audits, especially for tech firms with complex revenue streams.
– Sector-Wide Reviews: Other gaming or internet companies might face increased scrutiny, affecting stocks like Tencent (腾讯) or NetEase (网易), though indirectly.
– International Repercussions: Global investors in Chinese equities via channels like Stock Connect may demand higher transparency, influencing foreign direct investment flows. The fake accounting allegations here could accelerate regulatory reforms, making due diligence even more critical for cross-border portfolios.
The Road Ahead: Legal Battles and Reputational Damage
As the situation unfolds, several scenarios could emerge, each with distinct outcomes for the parties involved and the market at large. Proactive assessment is essential for risk management.
Possible Outcomes and Scenarios
Based on similar historical incidents, the paths forward include:
– Evidence Disclosure: If Yu Hong follows through on his threat to “全网公布” (publish全网), releasing data such as internal emails or transaction records, it could force 360 into a defensive legal position, possibly leading to shareholder lawsuits or a CSRC enforcement action.
– Settlement or Silence: The parties might reach a private settlement to avoid public scrutiny, though Yu Hong’s public outburst makes this challenging. Alternatively, if evidence is lacking, Zhou Hongyi could sue for defamation, but that would prolong negative media attention.
– Regulatory Intervention: The CSRC might impose fines or trading suspensions, similar to its handling of the Fantasia (花样年) default case, impacting 360’s operations and access to capital markets.
Investors should prepare for prolonged uncertainty, with key milestones being any official statements from 360, regulatory announcements, or court filings.
Lessons for Investors and Corporate Governance
This incident offers critical takeaways for professionals engaged in Chinese markets:
– Due Diligence: Deep dive into company financials, especially for firms with histories of mergers, backdoor listings, or reliance on volatile sectors like gaming. Tools like天眼查 (Tianyancha) for corporate records can help identify red flags.
– Governance Metrics: Evaluate board independence and audit committee effectiveness; 360’s structure, with Zhou Hongyi as a dominant figure, may have enabled oversight gaps.
– Diversification: Spread exposure across sectors to mitigate risks from sector-specific scandals, particularly in tech where growth narratives can overshadow financial integrity.
The fake accounting allegations serve as a reminder that China’s tech boom, while lucrative, carries hidden risks from its rapid-growth era. As the market matures, transparency and accountability will become paramount for sustainable investment.
This scandal underscores the volatile intersection of personal grievances and corporate finance in China’s internet sector. The fake accounting allegations by Yu Hong against Zhou Hongyi highlight urgent needs for robust auditing and ethical leadership. Investors should closely watch regulatory responses and consider adjusting portfolios to account for governance risks. Moving forward, prioritize firms with clear compliance records and engage with independent research to navigate this evolving landscape. The truth behind these claims will shape not only 360’s future but also confidence in Chinese equities globally.