The makers of Farmville are under fire as a U.S. lawsuit alleging Zynga intended to commit fraud has moved forward.
Ruling 13 months after dismissing an earlier version of the lawsuit, U.S. District Judge Jeffrey White in San Francisco said on Wednesday that shareholders could pursue claims that Zynga concealed declining user activity, masked how changes in a Facebook Inc platform for its games would affect demand and inflated its 2012 revenue forecast.
Zynga saw its share price drop substantially since its initial public offering in December 2011 as the company posted disappointing earnings and a revised outlook.
Plaintiff alleges that the officers at Zynga obsessively tracked bookings and game-operating metrics on an ongoing, real-time basis with regular updates on the activity and purchases by every user of every Zynga game,” White wrote. “Confidential witnesses all corroborate that the updates on game users and spending data was readily accessible to Zynga’s management.
Shareholders led by David Fee also claimed that Zynga hid its weaknesses to enable insiders to sell $593 million of stock before a post-IPO lockup was to expire, and avoid a roughly 75 percent drop in its share price over the next four months.
Zynga at the time had no comment on the lawsuit.
The company has been struggling to top its breakout hit Farmville and compete with the rise of other mobile game competitors such as Candy Crush. This latest lawsuit can only mean greater hurdles for the company.
Despite the return of its former CEO Marc Pincus, the company’s days may very well be numbered. Its user base is down as well as its revenues. As well, much of its talent exited the company after the IPO. Zynga is intent on bucking the news by announcing several new games, however, those may come as too little, too late.
So what is your take? Does the lawsuit surprise you? Is Zynga’s decline reversible? Tell us below in the comments.