Insider trading lawsuit filed against Zynga

Law firm Newman Ferrara filed a lawsuit against Zynga on Monday, alleging that certain executives at the social gaming company used underwriters Morgan Stanley and Goldman Sachs to waive their stock selling restrictions, allowing them to cash out while regular employees were unable to, reports The Verge.

The lockup prevented employees from selling shares of the company, which went public in December 2011, until May 28. The stock debuted at $10 per share, but had fallen to $6 by the time the selling restriction expired. Zynga's stock has since fallen to just under $3 at time of reporting.

"Zynga's regular employees were still locked up from selling their shares. But the guys at the top, who saw what was coming down the pipe, got to cash out," said Roy Shimon, a Ferrara attorney.

Newman Ferrara is the first law firm reported to file suit against the company, though four other law firms have also announced investigations into insider trading at Zynga. The case, if it is to proceed, will hinge on whether it can be proven that insiders at Zynga had information that the company would post poor results and failed to disclose that information to the public before selling shares at the higher price.

Chief executive Mark Pincus sold a small portion of his total holdings, but Chief Operating Officer John Schappert sold 45% of his shares, while Chief Financial Officer David Wehner sold more than half of his, according to The New York Times.

Source: The Verge

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