Zynga’s shares plummet; insider trading suspected

Social gaming giant under investigation by several law firms

Chris KempJuly 28, 2012

Zynga had a meteoric rise on the back of Facebook game phenomena such as Farmville, but more and more the juggernaut’s social gaming bubble seems to be bursting.

The company has posted another loss for the second quarter of 2012, this time to the tune of $22.8 million. In addition, Zynga’s shares have plummeted a staggering 40%.

This dive in shares has put the house that social gaming built under some legal scrutiny, as multiple law firms are reportedly looking into suspicions that the firm did not disclose “materially adverse facts” prior to its bomb in share prices.

Reports say a number of Zynga insiders sold off a ton of stock a few months before the precipitous drop in value, causing a lot of suspicion that they had knowledge about the state of the business they were withholding.

Law firm Levi & Korsinksy is “investigating concerns that Zynga misrepresented and/or failed to disclose materially adverse facts about its business and financial condition”. The same firm is also investigating similar claims against THQ regarding uDraw.

In a call with investors this week Zynga chalked up the latest quarterly loss to “new short-term challenges” that had an adverse impact on the business.

Zynga also said things aren’t getting much better for the rest of 2012, lowering their financial expectations due to “delays in launching new games, a faster decline in existing web games due in part to a more challenging environment on the Facebook web platform, and reduced expectations for Draw Something.”