Zynga Inc (NASDAQ:ZNGA) Must Face A Lawsuit Alleging Fraud Tied To IPO

Zynga Inc (NASDAQ:ZNGA) is set to face a lawsuit accusing the online gaming corporation recognized for “FarmVille” of duping shareholders about its projections before and after its December 2011 IPO.

Analyst predict major swings in the market… will it affect ZNGA?

U.S. District Judge Jeffrey White in San Francisco said stockholders could follow up on claims that Zynga covered up declining user activity. Zynga had concealed how demand for its games would be affected by the alterations of the Facebook platform. The company also exaggerated its 2012 profit projections. The judge was speaking after dismissing the ruling of an earlier version of the lawsuit a year and one month ago.

The lawsuit was grounded partly on at least six confidential witnesses, and White said their testimony supported the claim that Zynga’s management intentionally committed fraud.

The Judge wrote that the Accuser claimed that the Zynga’s officials fixatedly followed up on deposits and the metrics of running the games on a continuous, present basis. He also maintained that there were regular updates on the actions and procurements by all users of every single Zynga game. All confidential witnesses corroborated that the updates on game users and spending data was readily accessible to Zynga’s management.

White disallowed a claim over Zynga’s purported product launch delays, saying it was misrepresenting information towards the company’s favor. The company had described its games portfolio as strong and very healthy despite its struggling performance.

Investors claimed that Zynga covered up its poor performance, so that insiders could sell stock worth to the tune of $593 million before the closing of a post-IPO. The IPO was to set expire, and Zynga would evade a near proximate 75%descent in its share value over the next four months.

Kelly Pakula Kunz, a Zynga Inc (NASDAQ:ZNGA) spokeswoman, on Thursday, said the San Francisco-based company had no comment on White’s decision.

Lawyers for shareholders led by an individual, David Fee, did not immediately respond to requests for comment.

Zynga Inc (NASDAQ:ZNGA)’s share price has dropped below $5 for more than a year, following the failure to create popular games that can keep up with other competitively performing games such as the candy crush saga.



Erica is a graduate of New York University's school of Journalism. She joined US Markets Daily as a general assignment reporter in January of 2008.