Lawsuit Says Zynga Insiders Knew Stock Would Tank When They Cashed Out

The folks behind Words with Friends have yet another problem on their hands: a new lawsuit charges Zynga's top-level employees with insider trading.

Law firm Newman Ferrara, one of five to announce that it would investigate Zynga for violating federal laws in the wake of news that insiders dumped half a billion in stock three months before it tanked last week, filed a lawsuit against the FarmVille maker last night in San Francisco.

The full suit, obtained by The Verge [PDF], alleges that Zynga CEO Mark Pincus and other insiders knew that the stock would crash when they sold shares this April.

"Zynga's regular employees were still locked up from selling their shares. But the guys at the top, who saw what was coming down the pipe, got to cash out," Ferrara attorney Roy Shimon told The Verge.

In the suit, Ferrara argues that Zynga's executives didn't disclose critical information to shareholders, such as a "rapid decline" in subscribers and goods sold as well as a "substantial" delay on The Ville and other new games.

At the end of March, Zynga's games had a total of 290 million combined users. In a report filed at the end of July, Zynga said that number is now 250 million.

"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," the suit says.

Ferrara also says that when asked why he sold his stock this April, Zynga's CEO dodged the question.

"During a conference call held by Zynga to discuss its second quarter financial results, BTIG analyst, Richard Greenfield, questioned Defendant Pincus about the timing of Defendant Pincus' sale of his personally held shares," the lawsuit says. "Defendant Pincus declined to address the issue, instead responding off-topic that 'we believe in the opportunity for social gaming and play to be a mass-market activity, as it is already becoming.'"

The suit says that Zynga's execs knew the company was in trouble, and if they didn't, they "acted with reckless disregard for the truth" by not digging up the facts before the stock's collapse last week.

I've again reached out to Zynga for comment and will update should they respond.

Zynga Complaint Filed [The Verge]


Comments

    I suppose if they can't be touched for producing these pokie replacement 'games' then we can get them for running like scammers do when their businesses eventually tank.

    best excuse to use, say they learnt it from commentators outside the company based on publicly available information . Though, admitting to that could mean they could get sued by their investors for deliberately running the business in a way that they knew would cause the stock price to plummet (because, if the result of their methods was so obvious to outsiders that it can get them out of insider trading, then it would be something the people running the business should know, and be taking action on.)

    Take 'em for all they're worth.

    So you extended your arm in a certain direction and tried to touch Zynga? Or did you reach out with a leg, which is admittedly somewhat longer? Was said reaching done in the presence of an actual human who works for or represents Zynga? Why would anyone respond to you reaching out anyway? I reached out to my cat this morning, but considering I was at work and it was at my house, it had no effect whatsoever on anything ever. I was on the bus yesterday and I reached out to another passenger, but they were more than arm's length away, so my pointless gesture only attracted befuddled stares. I reached out this afternoon to scratch my balls. That motion did at least have an effect, but not one that is worth sharing a damn on the internet.

    Even if they did respond, my bet is they will say "The fuck is this freak touching me for? Back off dude, I don't know where you've been!"

    Reach out. FFS.

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