The unmitigated disaster that social gaming company Zynga has become is well documented. There was a time when the
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Farmville maker was the hottest company in the gaming space, commanding ridiculous pie-in-the-sky valuations that eclipsed established companies with powerhouse franchises. It went public at $10 and shot up to $15.91 on rumors that it might be getting into real money gambling. But it turned out to be a gamble after all, and after a long, slow slide off of that high, the stock price plummeted following a disappointing earnings report. It now sits at $2.85.
Of course, if you’ve already cashed out $200 million, you’re less concerned about that sort of thing. That’s the situation that CEO Mark Pincus is in, and he’s not alone among high-level executives and backers who conveniently sold large amounts of stock before the price tanked. Several lawsuits now accuse Pincus and others of malfeasance, ranging from misleading reports to insider trading.
As CNN Money points out, the timing for allegations of insider trading could be hard to prove, considering that Zynga actually beat Q1 estimates and made the secondary stock offering in question just one day after Q2 began. Still, other lawsuits allege that Zynga deliberately distorted and withheld information about declining revenues and questionable growth prospects.
Pincus and other top execs were able to sell their stock at $12 a share long before the initial lock-up period ended, allowing them to make a mint while the majority of Zynga employees had to wait for their stock to plummet before they were able to sell.
That something went wrong is clear, and these lawsuits will hinge on just what the top leadership knew that the public did not. That a company selling virtual cows was going to have a hard time maintaining a $7 billion valuation shouldn’t have been hard for anybody to figure out.
Right now, it’s difficult to imagine that Zynga has many places to go besides real money gambling, which could still save the ailing company. It desperately needs a hit to turn around its failing fortunes, and so far, it doesn't seem like it has the creative juice to make one.
