Zynga has been hit with the first of five expected lawsuits alleging a handful of top executives and investors engaged in insider trading – including CEO Marc Pincus and Google. Following Zynga's IPO in December, employees and investors were "locked up," unable to sell their shares until May 28. Technically. A group of top executives and shareholders hired underwriters to manage the sale of their shares, creating a loophole that allowed them to sell their stock at $12.
By May 28, when initial investors were legally allowed to sell their shares, Zynga stock had fallen to $6. Yesterday, it struck $3. Locked up investors had no opportunity to sell their shares at the same price as the top brass, and the insiders that did "cashed out at exactly
the right time," Business Insider
's Henry Blodget writes.
Zynga executives paid the underwriters – which include Morgan Stanley, Goldman Sachs, Bank of America and other high-profile Wall Street companies – roughly $15 million to arrange the early sales, and Zynga the company spent $1 million on legal fees, private jet rentals and other expenses to help the process along. The insiders took $516 million. And then Zynga's stock crashed.
During the artificial sale period, Pincus sold 16.5 million shares and made out with $200 million, Google sold 4 million for $48 million, and Zynga COO John Schappert sold 322,000 shares for $3.9 million, along with other
large names and numbers.
Newman Ferrara is the first law firm to file a suit against Zynga and its executives, with Schubert Jonckheer & Kolbe
and others investigating the claims as well.
Blodget has a personal perspective on the matter, and he writes, "I know many of these folks personally, including at the company's underwriters, and like and respect them. I think the last thing they would intentionally do is unload stock when they thought it was about to crash - especially when the amount they made in the sale, though huge, is still relative chicken feed for them. Also, all of these folks only sold a fraction of their holdings, so they've been hammered along with the rest of Zynga shareholders by the subsequent collapse.
"But, all that said, wow."