Lawsuit for Zynga, where fortunes have sunk since its 2011 Initial Public Offering.
Earlier this week, a judge ruled that Zynga will face a revised lawsuit based on allegations that it defrauded investors by offering overzealous news about the company’s future during its Initial Public Offering (IPO). Investors allege that Zynga knew that an upcoming platform change at Facebook would reduce the company’s ability to generate revenue, but executives concealed the information. After the successful IPO, the complaint alleges that executives sold their shares before the stock price crashed.
Investors filed the lawsuit in July 2012, shortly after Zynga's stock fell to $3 a share from a peak of $15.91 a share. U.S. District Judge Jeffrey White dismissed an earlier version of the lawsuit a year ago, but ruled that the company should face a revised complaint from the investors themselves.
Although Zynga denies the investors' allegations, the plaintiffs claim they have at least six confidential witnesses who had access to daily reports on pre-IPO registrations. These witnesses report that the company was in decline before the IPO.
“Although the company may have reported large bookings after the fact,” Judge White wrote, “Plaintiff alleges that bookings declined significantly during the Initial Public Offering period and Defendants continued to convey to the public that registrations were strong.”.
In 2012, Zynga ultimately lost several billion dollars, millions of monthly average users.
The company's stock closed Friday at $2.77.
