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Zynga hit by class action lawsuit over possible insider trading

by Andrew Yoon, Jul 31, 2012 11:30am PDT
Related Topics – Zynga

With such a tumultuous drop in stock price, it was bound to happen. Zynga executives are being targeted in a class action lawsuit over allegations that insiders profited from dumping the stock. For example, CEO Marc Pincus sold 16.5 million shares for a gain of $200 million. Various insiders gained over $500 million by selling their stock.

Law firm Newman Ferrara is the first to go after the social gaming company, with others expected to follow. At the heart of the lawsuit is a trading "lockup" that prevented regular employees from selling their shares until May 28th, while many insiders were able to dump their stock well in advance.

"Zynga's regular employees were still locked up from selling their shares. But the guys at the top, who saw what was coming down the pipe, got to cash out," Ferrara attorney Roy Shimon told The Verge. "It's not easy for employees to see that the executive team were selling their shares while most people were still locked up."

Pincus' sale represents "only a fraction" of his total investment in the company, meaning any decrease in share value would negatively affect him as well. However, Zynga COO John Schappert sold 45% of his shares, and CFO David Wehner sold more than half of his stocks, which certainly raises a few eyebrows. Four additional law firms are currently investigating allegations of insider trading at the company.




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