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Zynga managers fingered in insider trading lawsuit

Pincus accused of shafting investors

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A class action lawsuit has been filed on behalf of investors over alleged insider dealing by the senior management team at Zynga.

Last week, lawyers at Newman Ferrara issued a call for investors who felt they'd been stiffed by Zynga. They now appear to have enough aggrieved parties.

The case, filed in the US District Court for the Northern District of California, claims that the Zynga board knowingly misled investors and the public about the company's prospects, allowing senior managers to cash out their stock before the price crashed.

According to the filing, Zynga management were promoting strong growth prospects for the company in 2010 and 2011, but must have known that the company was having problems monetizing its customers and developing new games. When Zynga announced disappointing results for the quarter ending in June, its stock price tumbled over 40 per cent, leaving some staff and investors out of pocket.

Lawyers acting for investors allege that while most Zynga employees were barred from selling their shares from the company's IPO until May 28 of this year, the senior management got themselves an exception to this rule and managed to offload 49 million shares, netting around $516m, before the price crashed.

"Zynga insiders were able to sell their holdings at $12 per share before Zynga's second quarter financial results," the suit claims.

Of this bounty, CEO Mark Pincus snaffled over $200m, CTO Cadir Lee got $13.6m and CFO David Wehner earned $4.6m. Several other directors are named as receiving lesser amounts, and the banks underwriting the IPO, who received some shares, are also named in the legal papers.

"Defendants had actual knowledge of the misrepresentations and omissions of material facts set forth herein, or acted with reckless disregard for the truth in that they failed to ascertain and to disclose such facts, even though such facts were available," the lawyers claim.

"Such material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and effect of concealing Zynga's operating condition and future business prospects from the investing public and supporting the artificially inflated price of its securities."

Nuisance lawsuits are a fact of life in the US; Facebook is facing its own legal problems from angry shareholders over the mismanagement of its IPO. But the firms involved in the Zynga case aren't your typical ambulance chasers and have some very specific allegations to put to senior management.

Zynga has not replied to repeated requests for comment. ®

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