FarmVille Developer Zynga Accused of Insider Trading

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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  • lahawzel
    "It’s starting to look more and more like a fad"

    It took them until now to realize it?
  • Pinhedd
    I wonder how much they charge for tiny virtual violins
  • Cazalan
    Zygna helped Facebook make a lot of money too, so both are going to tank.

  • s3anister
    and the world keeps turning...
  • memadmax
    Fad is correct.
  • olaf
    OH MY GOD , How ever will i ever go on now ....
  • bad_student
    Game developer Zynga, who seemingly sat upon a mountain of cash for years thanks to ...
  • bad_student
    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!
  • gigantor21
    What, so it ISN'T the new face of gaming? Thank God. Maybe now my nightmares will stop...
  • epdm2be
    Zynga who?
    Why is this news?