Game developer Zynga reaches $23 settlement with shareholders

Social game developer Zynga has just reached a $23 million settlement, ending litigation that accused the company of defrauding its shareholders by lying about its products both before and after its initial public offering (IPO) back in December of 2011.

The shareholders, led by David Lee, specifically accused Zynga of hiding declining user activity, lying about the impact changes in Facebook's platform would have on product demand, and inflating its 2012 revenue predictions.

All of this leads to the trump charge in the case: that the company hid these weaknesses to allow insiders to sell off over $593 million of stock before a post-IPO lockup expired, allowing them to avoid what would have been a sudden drop in share price.

Zynga's founder, Mark Pincus, and four other members of his management team were able to sell much of their stock before this deadline passed, which the suit valued at $100 million.

Zynga announced the settlement when it made its quarterly report public on August 7. Spokespeople assured investors that it would have no financial impact on the company, as the entire payout would be handled by the company's insurance. The settlement was reached earlier that week after prolonged mediation, with Zynga agreeing to it to remove what they describe as the "distraction of protracted litigation."

Zynga posted a loss this quarter, though the margins of that loss have significantly increase.

No matter where you are with your company, it's important to contact a skilled business attorney as soon as possible. A lawyer can help protect your rights in case of litigation, and get you just compensation.

Categorised in: Business Law

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