Zynga faces legal probe over senior management share sales

Lawyers claim $516m cashed in before stock tanked

By Iain Thomson in San Francisco, 28th July 2012

Zynga's plummeting stock price has brought the attention of lawyers, who have started an investigation into the recent stock dealings by the senior management of the gaming company.

At issue is the sale of 43 million shares of stock by Zynga top brass, netting them $516m in profit. The sales were carried out a couple of months before the financial results were announced that have had such a calamitous effect on the company's fortunes.

"The timing of these insider sales two months before is suspect," Jeffrey Norton, senior attorney at law firm Newman Ferrara tells The Register. "Zynga insiders at the highest level all sold shares at that time."

Norton said that the firm has already been contacted by dozens of investors and is looking to hear from those who bought stock in Zynga between December 16, 2011 and July 25, 2012. The company could be filing a legal case as soon as Monday morning he said.

This is not the first time Norton has been involved in holding companies to account for such dealings. He was part of the team that saw Veritas cough up $30m after it was found to have been cooking its books.

Zynga raised $1bn at its IPO last year, which was then the largest such offering since the floatation of Google. It's shares peaked at over $14 in March but are now trading at a little over $3 and the stock market is showing little enthusiasm for the company after it warned of a tough 2012's trading.

The company did not reply to a request for comment from El Reg. ®

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Posted Saturday 28th July 2012 06:43 GMT

Anonymous Coward

I see your point, if a fool wants to buy your stock and invest in your dotcom business which has no tangible assets and does not produce anything and exists only on a whim then so be it and more fool them. Its up to them to take the risk?

But

If you have the knowledge that your business is in trouble, that you have this knowledge is one thing, that you fool other people into thinking everything is great is another. Then off loading your shares to unsuspecting buyers and making a lot of money knowing that there is a significant problem and that the shares you got rid of will be worthless is something completely different.

Maybe you should have issued a profit warning and then sold you shares?

Posted Saturday 28th July 2012 13:19 GMT

Fibbles

"if a fool wants to buy your stock and invest in your dotcom business which has no tangible assets and does not produce anything and exists only on a whim then so be it"

To be fair to Zynga they do produce things. Utter crap to be sure, but it's still something.

Posted Saturday 28th July 2012 12:35 GMT

Anonymous Coward

There are narrow windows of opportunity whereby senior managers can sell shares. Immediately after the results have been released is usually OK, Even then, if you have some insider knowledge that will materially affect the share price you are barred from dealing until that information is released.

A friend of mine was senior management at a small company traded on the stock exchange. He knew that the shares he held were going to tank, not because of insider knowledge, but because the whole sector was tanking. He was still barred from selling and had to watch the value of his shares drop to less than a third of their value.