A common shareholder's suit accuses some of the social gaming company's senior offices and board members of finding a loophole to sell devaluing shares early
A group of Zynga's top officers and board members were sued Friday by a shareholder who alleges that the social gaming company's top-brass used a loophole to sell stocks early, gutting it of more than $500 million before a poor second-quarter report sent stock prices plummeting.
Stacey Barron, a common stock holder from Colorado, sued the company for alleged insider selling, cashing in on the company's value at peak prices, wasting corporate assets and unfairly enriching themselves.
She accuses the executives of exaggerating prospects for growth in its 2011 fourth-quarter projections after its initial public offering in December 2011.
Then, the suit alleges, executives including CEO Mark Pincus negotiated with the banks that backed the IPO to exit their lock-up deals early and sell shares at their peak in April, more than a month before their agreements were due to expire.
Also read: Zynga Loses Two More Executives
Court documents obtained by TheWrap allege the group of shareholders sold 43 million shares of Zynga stock at $12 per share in a secondary offering, for over $500 million.
By the end of April, stock prices fell to $9 per share, below its IPO price of $10.
"The selling shareholders had obtained releases from the lock-up agreements, permitting them to sell their personally held shares early and well in advance of the original May 28, 2012 expiration date," the suit says.
Zynga did not immediately respond to requests from TheWrap for comment.
Also read: Zynga COO John Schappert Resigns
The suit comes amid a string of top-level departures at the gaming company.
On Thursday, two vice presidents resigned — just days after Chief Creative Officer Mike Verdu left to start a new company.
They were among four other managers who exited the company in the last month.
One of those named in the suit, former Chief Operating Officer John Schappert resigned the company earlier this month after he was stripped much of his power.
Pamela Chelin contributed to this report.