A former employee and one of Zynga Inc (NASDAQ:ZNGA)’s shareholder has filed a suit against the company accusing the game maker of blocked the lower level staff and general investors from selling stock while executive earned profits by doing the same thing, reports Bloomberg.
Zynga Inc (NASDAQ:ZNGA) product manager Wendy Lee has claimed that the executives sold 40 million shares for more than $200 million. The stock depreciated from that level, and lost around $142 million, which is a massive decline.
The executives were allowed to sell their shares during the lockup period of 165 day, and the other investors were not allowed during this period to sell their shares. The duration of lockup was supposed to go till May 2012, but was discontinued due to few high ranking shareholders in March 2012 itself.
According to Wendy Lee, the executives earned double the profit by selling their shares at $200 million, and a chance was denied to other shareholders. The suit filed by Lee calls for compensation to be paid by those who garnered profit by selling their shares during lockup. The Suit is filed on behalf of all nonexecutive Zynga Inc (NASDAQ:ZNGA) shareholders.
“Zynga’s share price had dropped 49.3 percent” by the end of the lock up, the investor said, further she booked loss by selling her 30,000 shares, which cost $3.80 but sold at $3.15.
Zynga Inc (NASDAQ:ZNGA) has not led itself into this brawl for the first time, but there have been incidents in the past too. However, not enough evidence was found; Zynga received a blow from the financial world when it extended its lockup before the price crash immediately after the executives were allowed to sell their shares.
Zynga Inc (NASDAQ:ZNGA) took this step to stop the sudden selling of its stock, but the price of Zynga fell by almost 71 percent in the last 12 months alone after the December 2011 IPO.
Many questions have been raised regarding accusation and Zynga’s admission of copying games. Zynga Inc (NASDAQ:ZNGA) even after winning the cases against it, is finding it difficult to face the cut throat competition in the social game space.
The game maker is facing a tough time after it maintained its distance from Facebook Inc (NASDAQ:FB). Zynga Inc (NASDAQ:ZNGA) has been stopped from using Facebook’s notification system for promoting its games to the players’ friends.
The game maker has made some amendments in its compensation plan this weekend after some of the top line executive has departed from the company. After this lawsuit, the company will find it increasingly challenging to rebuild its trust with the shareholders.