Zynga’s stock is currently trading at $3.09 per share, which is well below their high point of $14.69 in March 2012. Zynga’s market cap back then was over $8 billion and now it is at around $2.27 billion. A couple of days ago, Henry Blodget at BusinessInsider.com wrote an article about insiders at Zynga that cashed out right before the stock crashed.
Now several law firms are investigating Zynga to find out if executives and shareholders breached their fiduciary duty and broke securities law after selling off $500 million worth of stock in a secondary offering this past April.
Law firms Schubert, Jonckheer, & Kolbe, LLP; Johnson & Weaver, LLP; Bronstein, Gewirtz, & Grossman, LLC; Levi & Korsinsky; and Wohl & Fruchter, LLP are conducting the investigation. Mark Pincus (Zynga CEO), Institutional Venture Partners, Union Square Ventures, Google, Silver Lake Partners, Reid Hoffman, David Wehner (Zynga CFO), John Schappert (Zynga COO), and Reginald Davis (Zynga general counsel) sold Zynga’s stock when it was close to about $12 per share.
Selling the stock is not illegal and the law firms are going to have to prove that the sales were caused by inside knowledge. Zynga executives obviously knew what to expect from their quarterly earnings before it was announced, but the law firms will have to prove what else the Zynga execs knew.
Investors have a tendency to sell shares off shortly after a company goes public in order to liquidate their equity in exchange for cash. However this could be an indication of a class-action lawsuit from Zynga’s shareholders sometime in the near future. I know if I had stock in Zynga, I’d be pissed about it too.