Zynga hit by class action lawsuit over possible insider trading

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.

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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.

Andrew Yoon was previously a games journalist creating content at Shacknews.

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  • reply
    July 31, 2012 11:30 AM

    Andrew Yoon posted a new article, Zynga hit by class action lawsuit over possible insider trading.

    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.

    • reply
      July 31, 2012 11:31 AM

      WOW. ohhhhhh shit. this is not going to go well.

    • reply
      July 31, 2012 11:34 AM

      dis gon b gud

    • reply
      July 31, 2012 11:35 AM

      Oh man. This doesn't surprise me at all :\

      I have been getting tired of zynga's bullshit while I am playing the games. WWF and HWF give me a popup message everytime I log in to play now. It wasn't doing that before but I logged out of Facebook through the game and I guess Zynga doesn't like not having access to my friends.

      I am still playing drawsomething with a few people but even that is getting tiring now :-/

    • reply
      July 31, 2012 3:53 PM

      It's NOT easy to see executives selling shares? Yeah it is, after the SEC Form 4 is filed, and then indexed into EDGAR, and also NASDAQ's site: http://www.nasdaq.com/symbol/znga/insider-trades?page=4

      http://en.wikipedia.org/wiki/Form_4
      A Form 4 must be filed before the end of the second business day following a change in ownership of securities or derivative securities (including the exercise or grant of stock options) for individuals subject to Section 16 of the Securities Exchange Act of 1934.

      Hey, look, Reggie Davis, general counsel of Zynga, sold 50,002 shares on July 16, 2012, for about $250K.

      • reply
        July 31, 2012 3:59 PM

        I think it that context it means that it sucked that the executives could sell their shares while the other employees couldn't.

        • reply
          July 31, 2012 4:11 PM

          To which I imagine the executives would say, "Rank has its privilieges; if you don't like it, talk to your congressman."

          I was going to compare Activision's insider trading activity to Zynga's, but Activision's looks far quieter in the past 2 years than Zynga's in the past 8 months (essentially, since ZNGA was first offered). That volatility might be most of why there are FIVE investor-backed lawfirms suing Zynga right now.

          • reply
            July 31, 2012 10:47 PM

            Apparently if they don't like it they can also file a class-action lawsuit and see what a judge thinks about the whole thing. Which they're now doing.

    • reply
      July 31, 2012 7:18 PM

      saw this coming from a mile away, and it is well deserved.

    • reply
      July 31, 2012 8:50 PM

      Sue those fuckers. Sue them long, sue them hard.

    • reply
      July 31, 2012 9:46 PM

      This seems so blatant - higher ups somehow got permission to sell their shares early while everyone else doesn't and it just happened to be right before shit went downhill. Are they just idiots or did they think they'd get away with it?

      • reply
        August 1, 2012 7:23 PM

        If Martha Stewart couldn't get away with it nobody can.

    • reply
      August 1, 2012 5:48 AM

      Fuck this guys CEO's and go after them with the full mighty wrath of the lord and the full extent of the lord!
      FIGHT for the little guy. I'm tired of this kind of shit.
      They should get NO QUARTER and NO leniency.

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