Zynga Breathes Collective Sigh Of Relief As Lawsuit Is Dismissed
Struggling social giant Zynga breathed a collective sigh of relief as a federal judge dismissed a lawsuit brought by shareholders where it was alleged that company officials deliberately misled investors about the true financial state of the company before the December 2011 IPO.
As we all know Zynga was one of the most hyped companies at the time and their IPO share price was $10. Since then it has tanked up to 70% of the launch price but has since “recovered” to trade at around $5. This legal complication could have not come at a worse time for Zynga as they are on somewhat of a recovery path of late. While U.S. District Judge Jeffery White dismissed the lawsuit for now the plaintiffs intend to proceed with an amended complaint.
Judge White stated that the 110 page complaint failed to include “relevant, basic factual details” to support their claims against Zynga. The Judge went on to also dismiss additional claims that were linked to a 2012 stock offering.
The shareholders based their initial case on the fact that Zynga concealed essential information which inflated the value of the Zynga stock price. This included concealing changes in the Facebook platform, product delays and drops in user activity. According to the shareholders by concealing these figures Zynga succeed to enable selected insiders to earn a fortune as they sold over $593 million of stock in the two months before the IPO lockup expired. This resulted in them saving a fortune as the stock fell nearly 75% in the four months following the IPO launch.
Zynga released a statement after the temporary relief saying,” Today the court granted our motion to dismiss the plaintiff’s class action complaint in the securities litigation. We are pleased with today’s order and continue to believe in the merits of our defense. The focus for Zynga is on our forward-looking business and delivering on our 2014 goals of growing and sustaining our proven franchises and creating new hits.”
With all the changes Zynga has done in the last year it seems that things might be turning around for them as we saw in their last fourth quarter results in 2013 that led to a surge in their share price.