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FarmVille Developer Zynga Accused of Insider Trading

By - Source: Kotaku | B 26 comments

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.

 

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Top Comments
  • 24 Hide
    lahawzel , July 28, 2012 7:26 AM
    "It’s starting to look more and more like a fad"

    It took them until now to realize it?
  • 21 Hide
    Pinhedd , July 28, 2012 7:32 AM
    I wonder how much they charge for tiny virtual violins
  • 14 Hide
    Cazalan , July 28, 2012 7:49 AM
    Zygna helped Facebook make a lot of money too, so both are going to tank.


Other Comments
  • 24 Hide
    lahawzel , July 28, 2012 7:26 AM
    "It’s starting to look more and more like a fad"

    It took them until now to realize it?
  • 21 Hide
    Pinhedd , July 28, 2012 7:32 AM
    I wonder how much they charge for tiny virtual violins
  • 14 Hide
    Cazalan , July 28, 2012 7:49 AM
    Zygna helped Facebook make a lot of money too, so both are going to tank.


  • 7 Hide
    s3anister , July 28, 2012 9:02 AM
    and the world keeps turning...
  • 6 Hide
    memadmax , July 28, 2012 9:15 AM
    Fad is correct.
  • 3 Hide
    olaf , July 28, 2012 10:24 AM
    OH MY GOD , How ever will i ever go on now ....
  • -3 Hide
    bad_student , July 28, 2012 1:37 PM
    Game developer Zynga, who seemingly sat upon a mountain of cash for years thanks to ...
  • 8 Hide
    bad_student , July 28, 2012 1:37 PM
    Game developer Zynga, who seemingly sat upon a mountain of cash for years thanks to ...

    Mad libs time! Finish the sentence. Here are my attempts:
    1) Unctuous body practices and unhygienic business practices.
    2) Copy-pasting the work of others.
    3) Stripping the company of needless innovations like 'innovation'.
    4) the land of Mordor, where the shadows lie.
    5) Making bad games.
    6) Copying bad games.
    7) Wiping WoW PUGs.
    8) Throwing its keyboards across the rooms in spectral displays of telekinesis and teenage angst.
    9) Watching Star Trek reruns.
    10) Algebraic socks and promethean magic.
    11) Those blasted kids, without whom he would've gotten away!
    12) Cheating and not prospering simultaneously while sequentially simulating sums of simian smirks in its salty salty sandwich.
    13) Being a materialistic game company in a materialistic girl.
    14) OJ Simpson.
    15) Orange juice.
    16) Being the illegitimate offspring of something evil and something fraudulent.
    17) Dirty dealings, shady business practices, and bears-- oh, my!
  • 9 Hide
    gigantor21 , July 28, 2012 1:57 PM
    What, so it ISN'T the new face of gaming? Thank God. Maybe now my nightmares will stop...
  • -1 Hide
    epdm2be , July 28, 2012 2:04 PM
    Zynga who?
    Why is this news?
  • 5 Hide
    face-plants , July 28, 2012 3:33 PM
    It's news because Zynga is a relatively popular company that has millions of gamers on it's many games. I'm sure I'm not alone in enjoying the drama and watching them flounder. After failing to find enough ways to milk their customers to stay afloat, the top execs have milked their less-than-a year-old IPO dry and are gonna pay the price for basically stripping $500 million out of their company. Money that could have gone to actually improving or developing new products. They're definitely a 'success story' in the US now; Golden parachutes for the top execs just like the best banks!
  • 1 Hide
    JohnnyLucky , July 28, 2012 6:30 PM
    Geez! The execs cashed out in a hurry. They just took the money and ran.
  • 0 Hide
    blazorthon , July 28, 2012 6:30 PM
    otacon72The fact these idiots didn't think dumping all that stock would raise any red flags shows how dumb they are.


    Only if that wasn't part of their plan. We might never know.
  • 0 Hide
    jalek , July 28, 2012 9:19 PM
    Federal security laws? The US has those?
    Who knew?
    Next thing you know, there will be trust-busting laws to prevent "too big to fail" from usurping the power of the elected.
  • 5 Hide
    csbeer , July 28, 2012 9:56 PM
    timw03878There's books that totally debunk the fallacy of insider trading being "evil"there's benefits that nobody even begins to consider.


    Did you just fall off the turnip truck? If a gross redistribution of wealth from the equity buying public to Zynga executives and insiders is "not eveil and benfits society" then yeah, your statement is correct. Sadly, the money is going to go from the greedy execs to lawyers next, instead we should just throw some of the pinkish nerds in jail.
  • 1 Hide
    magnumfinger , July 29, 2012 1:00 AM
    timw03878There's books that totally debunk the fallacy of insider trading being "evil"there's benefits that nobody even begins to consider.


    If insider trading was legal and "good" then you should rewrite the storyline of the movie Wallstreet 1 and create a third sequel to it -- and hire Pincus for the leading role.
  • 2 Hide
    Kami3k , July 29, 2012 6:48 AM
    timw03878There's books that totally debunk the fallacy of insider trading being "evil"there's benefits that nobody even begins to consider.


    All of them written by people who have done insider trading do doubt...
  • 2 Hide
    azxcvbnm321 , July 29, 2012 11:28 AM
    Quote:
    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.



    Sounds like to me just greedy law groups trying to make money from a shakedown where they get paid to go away because fighting an BS claim can be more costly.

    Executives and people working at Zynga selling stock IS NOT INSIDER TRADING! It is a given that these people know more about the company than the general public. That's why there are numerous regulations over how they can sell stock. They have to declare months in advance any planned stock sales with their broker. There is also a lockup period where they can't sell stock directly after the IPO for X amount of time. Generally the CEO and executives tell their brokers to sell stock after the lockup period ends. So if the lockup period is 6 months, then executives will tell their brokers, at the time of the IPO, to sell 6 months in the future. That's the way it works.

    Insider trading is when someone not working for the company gains information from insiders and uses that to trade. Let's say my friend works at Zynga and he tells me the company is doing horribly. I then sell my stock or short the stock. That's insider trading. If my friend at the company wants to sell, he has to go through HR which has rules that get tougher as you go up the leadership chain.


    Selling personal stock doesn't "strip" the company, it merely goes from one private person to another. For each sale there has to be a buyer on the other side. The company is not effected. An executive buying company stock doesn't add to the company either. It goes from his private funds to another private individual. Only when the company issues stock or buys back stock does that effect the company's finances. The company already received its investment money in the IPO. Whatever happens to the stock on the markets after that doesn't effect the company's funds.
  • 4 Hide
    p05esto , July 29, 2012 4:03 PM
    Facebook is headed the same, as with Twitter and the rest of the social lame stuff. BORING NOW.
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