updated 02:45 am EDT, Wed August 1, 2012
Investors claim FaceBook game maker lacked fiduciary transparency
Dismal revenues in the second quarter which drove stock prices down sharply have sparked an investigation and class-action lawsuits of casual game developer Zynga. Nearly-identical lawsuits are being filed by two California law firms seeking class-action status on behalf of stockholders who allege Zynga never warned them about financial problems. The company's shares dropped 42 percent last week on reports of poor player retention and unexpected competition.
Law firm Newman Ferrera filed the first insider trading lawsuit, with a second filed by Robbins, Geller, Rudman, and Dowd. The suits follow investigations of Zynga staffers and CEO Mark Pincus. Pincus and other high-ranking Zynga employees are accused of selling 43 million shares of stock in April at $12 per share, when employees and other early investors were banned from selling until May. By then, the stockholders claim, the business had already begun to slump, falling from $8.46 per share on May 1 to $6.26 by the end of that month, half the value of the shares when Pincus and others allegedly held their sell-off. Immediately prior to the earnings announcement, Zynga shares were worth $5.08. The stock closed today at $2.95.
The first lawsuit developing from the investigations was filed on July 31. More suits are likely. Zynga's poor growth and performance likely unseated COO John Schappert late Tuesday from his head of game development role at the troubled game company. Chief Mobile Officer David Ko and Executive Vice President Steve Chiang will supervise the company's existing portfolio to boost user growth and retention both on the web and on mobile platforms. Ko and Chiang will now report directly to Pincus, rather than to Schappert. Zynga officials declined to comment on the pending lawsuits or stock sales.