Zynga being investigated by law firms after stock plummets

After Zynga stock plummets, law firms begin investigation of possible violations of federal securities laws and breaches of fiduciary duty.

A team of law firms are investigating FarmVille and Words With Friends publisher Zynga after executives and insiders dumped more than half a billion dollars in stock prior to share values dropping 40%. At least six firms are looking at the Facebook and mobile game maker for potential violations of federal securities laws and breaches of fiduciary duty by certain insiders, including CEO Marc Pincus.

On Wednesday, Zynga announced quarterly earnings of $332.4 million with a loss of $22.8 million. Zynga slashed its 2012 earnings per share estimate to four to nine cents a share, down from a previously projected 23 to 29 cents. Stock prices tumbled from $5 to $3 in after hours trading.

Zynga blamed the lackluster quarter on a decline in its existing social games due to a "more challenging environment" on Facebook and reduced expectations for the once-hot Draw Something.

A report on The Daily Ticker on Thursday detailed a sell-off of shares during the losing quarter in which Zynga's chief officers, general counsel, and a host of investors unloaded 43 million shares of company stock.

Today, law firms in New York, San Diego and San Francisco — Johnson & Weaver LLP; Schubert Jonckheer & Kolbe; Bronstein, Gewirtz & Grossman; Newman Ferrar; Wohl & Fruchter; and Levi & Korsinsky — announced they're investigating the sale of those shares.

The investigations focus on whether "certain officers and directors of Zynga breached their fiduciary duties by failing to inform investors of material adverse information, including declining sales and revenues, while at the same time selling their own shares."

Zynga issued its IPO in December 2011 at $10 per share. The stock peaked at $14 per share in March.

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