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Zynga IPO fraud suit dismissed by US District Court

Wednesday, 26th February 2014 22:20 GMT By Brenna Hillier

Zynga has been successful in its bid to dismiss a suit brought against the casual publisher alleging fraud related to its initial public offering.

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Reuters reports US District Judge Jeffrey White ruled in Zynga’s favour, saying the group of shareholders behind the claim failed to offer “relevant, basic factual details” to back up their allegations.

The crux of the shareholders complaint was that Zynga had withheld information in order to inflate stock price, allowing select company insiders to sell off their stock before a massive drop in price. They made similar claims about a secondary stock offering, which White also dismissed, as the plaintiffs hadn’t participated in that sale.

The shareholders have been offered a chance to amend their complaint. Lawyers for the plaintiffs said the group was disappointed in the ruling but confident the amended complaint will proceed.

Zynga has been accused of concealing information regarding the effects on revenue and earnings of drops in user activity, delays and changes to its relationship with Facebook, thereby artificially inflating its stock price.

Most Zynga shareholders were unable to sell their stock during a post-IPO lockup, but a select group of senior staff – presumably with access to the knowledge the plaintiffs claim Zynga concealed – were exempt, selling off more than $593 million of stock nearly two months before the lockup was due to expire, avoiding a stock decline of about 75% that occurred when the lockout ended and shareholders rushed to offload the under-performing investment.

In December 2011, Zynga famously went public at $10 a share, the largest tech IPO since Google. By the end of July 2012 its share price had fallen to below $3, on the back of disappointing financial releases. The publisher blamed changes at Facebook and its acquisition of Draw Something – but the social bubble seems to have popped, leaving it struggling to jump on mobile and gambling.

It’s not clear if this is the same or just a very similar suit to that initiated by former Zynga general manager Wendy Lee in April last year, as court documents show the lead plaintiff as one David Fee.

Thanks, GamesIndustry.

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