Social gaming company Zynga has won the dismissal of a lawsuit in which shareholders had accused the firm of fraudulently misleading them about its financial and business prospects prior to and after its initial public offering (IPO) in December 2011.
According to the Reuters news agency, US District Judge Jeffrey White ruled in favour of Zynga despite what he described as an “excessively long and prolix” 110-page complaint from the plaintiffs.
White said shareholders failed to include “relevant, basic factual details” in the complaint to support their claims against Zynga officials including founder Mark Pincus.
The judge also dismissed claims linked to an April 2012 secondary stock offering as the named plaintiffs lacked standing as they did not actually purchase shares in the offering. However, he gave shareholders a chance to amend the complaint.
Joseph Tabacco, a partner at Berman DeValerio, which represented the plaintiffs, said that although his clients were disappointed with the decision, “we are confident that the case will proceed, as we believe we will more than satisfy the court’s concerns when we file our amended complaint”.
The defendants were accused of inflating Zynga’s stock price by concealing how a drop in user activity, delays on product launches and planned changes to the firm’s Facebook games would have a negative impact on revenue and earnings.
Shareholders have claimed that Zynga did this to allow select insiders to sell over $593 million (€431.5 million) in stock almost two months before a post-IPO lockup was due to expire, thus avoiding a near-75% drop in stock price for the ensuing four months.
Zynga went public with shares priced at $10 each, but this dropped to $3 on 26 July, 2012 after the firm posted disappointing results and slashed its full-year outlook a day earlier.
At the time, Zynga said a change in Facebook’s algorithm had reduced demands for its games and that its ‘Draw Something’ title, developed by the recently acquired OMGPOP studio, was underperforming.
source : www.igamingbusiness.com
