FarmVille Developer Zynga Accused of Insider Trading
Zynga execs may have dumped their stocks on purpose before tanking on Thursday after a disappointing 2Q12 announcement.
Game developer Zynga, who seemingly sat upon a mountain of cash for years thanks to social hits like FarmVille and Words with Friends, has fallen into dark times within the last few months. Just recently the company posted sales of $332.5 million, less than the average $343.1 million 2nd quarter estimate and a net loss of $22.8 million. Profit was even 1 cent per share, less than the estimated 6 cents per share.
Zynga said the shortfall was partially due to Facebook because the social website made changes which supposedly makes it harder for users to find existing Zynga games. The just-launched App Store has also brought a larger wave of competition for both desktop and mobile platforms. Arvind Bhatia, an analyst at Sterne Agee & Leach Inc., said that gamers are even growing tired of the current social gaming format, buying less virtual items in the first quarter.
"It’s a disaster," said Bhatia, who is based in Dallas. "It’s starting to look more and more like a fad, and any hope of a second-half recovery is shot with these kinds of numbers."
Following the quarterly financial announcement, Zynga’s common stock plummeted 40-percent in value to a trading price of $3.06 per share. Zynga’s share price has fallen more than 70-percent since its December 2011 Initial Public Offering.
Meanwhile, reports have surfaced claiming that Zynga CEO Mark Pincus actually sold $200 million worth of stock this past April, conveniently just as the year's second financial quarter had begun. Other executives and investors reportedly dumped their stock as well, selling a combined 43 million shares at $12 per share, generating $516 million USD.
"Zynga's April stock offering was managed by Morgan Stanley, Goldman Sachs, Bank of America, and other premiere Wall Street underwriters. All of the stock sold in the offering was sold by Zynga insiders. None of the cash raised in the offering went to the company," Yahoo news reports.
Now multiple law firms are reportedly getting ready to pounce on Zynga for violating federal securities laws and breaching fiduciary duty. The firms that have announced investigations include Schubert Jonckheer & Kolbe, Newman Ferrara, Johnson & Weaver, Wohl & Fruchter, and Levi & Korsinsky. They are trying to determine if Zynga misrepresented or failed to disclose certain types of information, including the declining number of users, delays in launching new games, and its dependency on Facebook, before selling shares.
"Schubert Jonckheer & Kolbe’s investigation focuses on whether these insiders were privy to material adverse facts about Zynga’s business and financial condition at the time they sold their shares," states Schubert Jonckheer & Kolbe.
So far Zynga has not released an official response to the accusations and investigations.