Zynga Shares Rise Despite More Suits Against Company
Zynga shares were up slightly Monday despite the suits filed against the company last week. The company declined to comment Monday about the several legal actions seeking class action status, accusing it and its top executives of insider trading and other securities violations. Zynga shares closed 8.1 percent higher Monday at $2.94 -- still a far cry from its 52-week high of $15.91 in March.
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Shareholder rights company Robbins Umeda of San Diego was the latest law firm to say it was investigating possible breaches of fiduciary duty and other violations of the law by certain officers and directors at Zynga.
One of the suits was filed by Glancy Binkow & Goldberg on behalf of Zynga stockholder Steven Diemand and other potential class members in U.S. District Court, San Francisco. The suit claimed that, despite a continued decline in users of Zynga games and declines in average bookings per user, the company issued positive results forecasts from February through April that weren’t justified by its actual performance and trends. The suit also claimed that the positive forecasts allowed defendants Zynga CEO Mark Pincus, General Counsel Reggie Davis, Chief Operating Officer John Schappert, Chief Marketing and Revenue Officer Jeff Karp and Chief Financial Officer David Wehner to sell almost $600 million of Zynga shares at inflated prices in early April -- about two months before a lock-up period previously agreed to by Zynga executives was scheduled to expire. The other suits made similar claims.
Zynga reported weaker than expected results for Q2 ended June 30 and cut its forecast for 2012, slashing its estimated earnings per share by more than two-thirds, to 4-9 cents (CED July 27 p10), the suits said. In response to that news, the price of Zynga shares tumbled about 37 percent, the suits said. One day later, several law firms said they were investigating whether Zynga and its top executives were guilty of securities violations.
The company did say Friday it will “defend our rights to the fullest extent possible” against an Electronic Arts lawsuit filed earlier in the day in U.S. District Court, San Francisco (CED Aug 6 p8). EA alleged No. 1 social game maker Zynga’s recently released Facebook game The Ville infringed the copyrights for EA’s Facebook game The Sims Social.
It was “not clear” if “the mere emulation of a game concept constitutes a copyright infringement,” Wedbush analyst Michael Pachter said Monday. “Many of EA’s allegations have a ring of truth, while others appear harmless,” he said. He predicted EA will “press on with this lawsuit until it receives a jury verdict.” EA and Zynga “will remain adversaries for the next several years over this case, and we do not expect the case to be resolved for several years,” he said.