Zynga faces lawsuit alleging executives engaged in insider trading

  • SHARES

By Mike Thompson Comment

After last week’s second quarter earnings call, Zynga’s stock price tumbled even lower and five legal firms announced they were investigating allegations that members of the company engaged in insider trading. Today, VentureBeat is reporting San Francisco-based firm Newman Ferrara has filed a class-action lawsuit against Zynga, the company’s directors and associated brokerages.

The suit was filed on behalf of Mark H. DeStefano and “all other persons similarly situated.” The main allegations are based around how Zynga set the initial executive lock-up agreement to expire on May 28, 2012 (ten days after Facebook’s IPO and Zynga’s stock plummet), issued positive statements about its anticipated bookings and then revised the lock-up agreement in March. The new lock-up expiration date allowed the defendants to sell their shares on April 3 for $12 a share, generating proceeds of over $500 million.

The suit also claims, “Zynga misrepresented or failed to disclose material adverse facts about its business, operations, and growth prospects including, among other things, that: (1) Zynga had been experiencing a rapid decline in user numbers and virtual goods sold in existing web games; (2) Zynga had faced substantial delays in launching new web games; and (3) Zynga’s revenue and bookings were entirely dependent on Facebook’s online gaming platform.”

Zynga has yet to publicly respond to the lawsuit. At the time of writing, the company’s shares are trading at $2.93.

 

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