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Zynga CEO cashed out for $200M before stock implosion
Zynga CEO cashed out for $200M before stock implosion
July 26, 2012 | By Eric Caoili

July 26, 2012 | By Eric Caoili
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    31 comments
More: Social/Online, Business/Marketing



Though Zynga's stock prices have plummeted since the company's earnings report on Wednesday, CEO Mark Pincus and other insiders managed to reduce their damages from the crash by dumping shares months ago.

Pincus along with other Zynga executives and investors sold a portion of their shares in April, bringing in around $516 million at $12 a share, a couple of dollars above the stock's initial IPO price, according to a report from Daily Ticker.

The company's stock has floated around the $5 mark for a few weeks now, but after Zynga reported disappointing revenues and a third-straight quarter of losses for the April-to-June period yesterday, share prices plunged to a new low of $3.

Of those insiders who sold their stocks early, Pincus made the most and brought in $200 million from the sale, but several others also took home eight-figures. They would have made a lot less if they waited until today to dump their shares like many other investors.

The fortunate timing of their cashouts -- conducted in the same quarter when Zynga's's business appeared to deteriorate to the point that its share prices collapsed once investors were updated on its status -- has raised a few eyebrows.

One law firm, Newman Ferrara LLP, is already conducting an investigation into whether Zynga misrepresented or failed to provide investors information about problems with its social games, such as delayed launches or the company's dependence on Facebook's platform.

[Update: Two other firms specializing in securities litigation, Johnson & Weaver LLP and Schubert Jonckheer & Kolbe LLP, are also now investigating whether these insiders had access to data indicating Zynga's unfavorable business and financial conditions when they sold their shares.]

Earlier today, analysts expressed doubt that Zynga will be able to continue to dominate the social game space as it has for two years now, commenting "The bottom line is that Zynga over promised and significantly under delivered."


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Comments


Gerald Belman
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LOL, I can't wait to here the Zynga faithful's defense for this.

Marc Schaerer
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As faithfull as their court cases on 'who is the dirty copy cat' ;)

Mike Weldon
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We are at the beginning of a new revolution in gaming where Zynga is uniquely positioned to blah blah blah. Just give me your wallets.

Mike Kasprzak
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Next, Zynga CEO steps down and ... is unable to be found in the US.

Jane Castle
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The joys of insider trading.....

Andrew Brown
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This isn't insider trading, it's perfectly legal to sell your own stock as long as you follow the SEC's rules. The question is, why would anyone would invest in a company whose executives are unilaterally dumping boatloads of stock? Clearly, those people that defied logic and did so got hit with huge losses.

Michael Joseph
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Strictly speaking it is insider trading. Not all insider trading is illegal.

And i think it's foolish to believe that top officers in a company like Zynga who find a way to unload shares ahead of the majority of employees aren't acting on material non-public information,

This is also why as you pointed out, insider activities (aka insider trades) are made available to investors... so they can determine if it's wise to purchase shares when executives are "dumping boatloads of stock."

Jane Castle
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@Andrew this is totally insider trading..... Not ALL insider trading is illegal......

Insider trading is the trading of a corporation's stock or other securities (e.g. bonds or stock options) by individuals with potential access to non-public information about the company. In most countries, trading by corporate insiders such as officers, key employees, directors, and large shareholders may be legal, if this trading is done in a way that does not take advantage of non-public information

Joe Wreschnig
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AppData means a lot of the information is public anyway. I mean sure, Zynga has specific information about revenues that aren't public until their SEC filings. But at the same time you don't need much imagination to look at graphs like http://www.appdata.com/apps/facebook/107040076067341-castleville and figure out what that means for revenue.

Jane Castle
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@Slade this is a professional site, please act accordingly. However considering many of the comments made by you on this site I doubt this is possible for you.

Toby Grierson
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@Slade

Whut?

Philip Wilson
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2 words: Federal Investigation

Alan Rimkeit
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2 more - Pump N Dump ;)

Jonathan Murphy
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Dear uber rich person,

Could you send me $46,000? I won't offer a return on investment specifically for you, but I will offer this. At least a fraction of $200,000,000 got spent on something worthwhile. Enjoy your golden Yacht.

Zach Grant
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So he should have held is stock so he could have sold it for it's current crap price? You guys are delirious if you think you'd do any different. Get off your high horses.

Tom Baird
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But if the Captain abandons ship, you would be a fool not to do the same.

If the CEO of a company is selling off his stocks, it means not even he has faith that the state of affairs will improve, which is a very bad sign for the company as a whole, since he should be the most knowledgeable person around about where his company will be going in the future.

It's basically an admission from the CEO that things will get worse, and he doesn't believe they will get better.

Zach Grant
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I completely agree with you Tom. I wouldn't invest in Zynga. Never have, never will, never will even cross my mind. I just think it's funny the vitriol this guy is getting because he is trying to make a money off shares he owns. As long as he didn't do something to purposely inflate the stock or cook the accounting books, he is free to sell as he pleases. If you know the ship is sinking, why not jump off.

Michael Joseph
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@Joshua

I agree. As an outside investor if you find out top insiders are selling shares (particularly just months after the IPO), you should be very wary of purchasing shares. Afterall, it suggests the officers have no confidence the stock is going to shoot to the moon like GOOG. However, the extra "funny" thing about these shares Zynga officers sold is they were made as a secondary offering. An offering that nets the company itself $0.00! In other words, it's not to raise capital for the company, but for it's officers.

http://dealbook.nytimes.com/2012/03/28/zynga-sets-secondary-offer
ing-at-12/

They weren't just normal trades because they were still under the lock out period. Zynga execs were able to skirt around the lock out period and sell their shares ahead of the rest of the employees at the company. I don't know why there aren't laws against this except that might makes it legal.

Some might argue the case that this secondary offering was a form of malfeasance that had all the markings of impropriety and shook investor confidence and encouraged a sell off in the market.

Patrick Dugan
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It is prudent and reasonable for a founder or exec to liquidate a portion of their stock when it is in demand, would you put your entire net woth in one asset? Of course many people do this with their homes, I await a future where the mode level of math skill is higher.

If they liquidated more than 50% of their stakes, that would raise a flag, if they sold more than 70% you should probably take that as a negative signal.

Michael Joseph
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"It is prudent and reasonable for a founder or exec to liquidate a portion of their stock when it is in demand "

That's a blanket statement. Did the google founders sell 15% of their shares PRIOR TO the lock-out period? No they didn't. Why would they? Their stock was shooting the moon. So at the very least you'd have to modify your statement to be "It is prudent.... when the stock is NOT in demand."

Now Google did have a secondary stock offering but it was over a year after the IPO (well past the lock-out period) and it was to raise capital for the company, not it's officers.

"would you put your entire net woth in one asset?"

Do you think Zynga's officers have their entire net worth in Zynga? This isn't about math skills. It's about taking advantage of special rules to cash out ahead of employees. It's not about selling shares, it's about how they sold them... using a bogus "secondary offering" that didn't raise capital for the company and allowed top insiders and stakeholders to sell in advance of the lock-out period.

•Marc Pincus, Zynga's CEO, sold 16.5 million shares for $200 million
•Institutional Venture Partners, a Zynga investor, sold 5.8 million shares for $70 million
•Union Square Ventures, a Zynga investor, sold 5.2 million shares for $62 million
•Google, a Zynga investor, sold 4 million shares for $48 million
•SilverLake Partners, a Zynga investor, sold 4 million shares for $48 million
•Reid Hoffman, a Zynga investor, sold 688,000 shares for $8.2 million
•David Wehner, Zynga's CFO, sold 386,000 shares for $4.6 million
•John Schappert, Zynga's COO, sold 322,000 shares for $3.9 million
•Reginald Davis, Zynga's General Counsel, sold 315,000 shares for $3.8 million

Philip Wilson
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...and coming next week is Zynga's latest title! Federal InvestigationVille!

Cordero W
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I saw this coming one hundred light years away.

Carlo Delallana
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And you did nothing to stop it future man. The human race is doomed unless you happen to know the lottery numbers for this friday...

Lars Doucet
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Call CERN! News of Zynga's failure is the first known information-carrying particle that propagates faster than light!

David Croeser
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"Lunch is for wimps"

David Croeser
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I rather think the issue here is one of morality rather than legality. Whether the law has been broken is another matter.

David Phan
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Oh the juicy whispers that must be proliferating through Zynga HQ over the past few days! If only water coolers could talk...

Josh Bakken
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Metrics-based design. That's all they need, more metrics-based design. That'll save em.

Alex Nichiporchik
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Any lawyers here to explain if this kind of stuff is illegal insider trading?

To be honest with Empires & Allies I felt the company had a soul, the studio behind it (Zynga LA, founded by the Command & Conquer team) has really smart people behind it that made a game that's a hybrid of hardcore RTS and a casual social game.

Happy I didn't buy Zynga's stock though... Or Facebook's...

Lex Allen
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So, maybe free games and microtransactions aren't as sustainable as we thought? If they can't do it successfully, I don't know who can.

Jeffery Wilson
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Let's see its July this sale happened in April and its a shock the "insiders" cashed out 4 months ago? and there is some sort of "insider trading" based on very recently released earning figures, on a stock sale from 4 months ago? Im not Zynga's biggest fan in any measure but this sounds stupid and grasping at straws.


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