Pincus to face lawsuit over share selling

Pincus to face lawsuit over share selling

Thursday, November 20, 2014 Totally Gaming

Zynga chairman Mark Pincus and four of his fellow directors are to face a lawsuit after a judge in the US ruled their sale of stock could be considered to be “not entirely fair”.

The social gaming company’s former product manager Wendy Lee is suing Pincus and others for their sale of stock in 2012, when other shareholders were still unable to do so following an initial public offering of the Farmville creator in December 2011.

Zynga had asked the Delaware Court of Chancery to dismiss Lee’s lawsuit, which alleged the company’s board breached their duty of loyalty to shareholders by waiving the lockup for select investors two months before others were allowed to trade. But Judge Andre Bouchard found in a 35-page ruling that there was a case to answer.

“It is reasonably conceivable that the benefit the director defendants received in the lockup restructuring was not entirely fair,” Judge Bouchard wrote.

Totallygaming.com approached Zynga and Lee’s attorney, Ethan Wohl, of Wohl Fruchter, but neither would comment on the case.

The ruling allows Ms Lee to seek documents and take depositions ahead of a full hearing.

Lee had 30,000 shares in the company, which she bought at a price of $3.805 but eventually sold for just $3.15 each. In court papers, it was heard that executives “nearly doubled the proceeds from their sales” by being allowed to sell early. Lee added that while Zynga’s higher-echelon officials were allowed “to cash out early,” the board “did not extend the same opportunity to Zynga’s non-executive and former employees”.

Wohl, speaking to Upstart Business Journal last year, said: “It was clearly a vote of no confidence by Pincus. The company actually warned investors in its prospectus that the sale of shares by insiders might well drive the stock price down.”

Zynga had argued to Judge Bouchard that the lawsuit should be dismissed because the defendants agreed to sell only 20 per cent of their holdings, while putting the remainder of their stock under an extended staggered lockup through July and August of 2012.

The firm also argued that waiving the lockup did not harm Lee or other shareholders because it did not change the lockup expiration for them.

Separately, Judge Bouchard dismissed claims that Goldman Sachs & Co and Morgan Stanley aided the breach of fiduciary duty by consenting to the lockup waiver and collecting $10 million in fees from the secondary offering.

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