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Judge says shareholder lawsuit against Zynga can move forward

On Behalf of | Mar 28, 2015 | Business Litigation

Accurate business valuation, detailed shareholder agreements and ensuring that fiduciary duties are met can go a long way in protecting a business from shareholder disputes. In many cases, when a dispute does arise, the matter can be resolved outside of court, perhaps through mediation or arbitration. In other cases, conflicts rise to the level of litigation, and to reach a cost-efficient solution, both sides of the dispute will need experienced legal counsel.

A shareholder dispute involving social-media game maker Zynga Inc. is currently being heard in federal court in San Francisco. Zynga is known for making the popular game “FarmVille,” and after great success over the course of several years, the company decided to make an initial public offering in December 2011.

Thirteen months ago, however, shareholders sued Zynga, claiming the company fraudulently misled them about business and financial prospects prior to the IPO. That lawsuit was dismissed because, according to the judge, the plaintiffs failed to provide “relevant, basic factual details” that support the plaintiffs’ claims.

Zynga’s IPO troubles didn’t end there, though. The same judge recently said that shareholders can pursue an updated version of the suit, which accuses Zynga management of inflating its 2012 revenue forecast, concealing declines in user activity and concealing how changes initiated by Facebook would affect demand for Zynga games.

Shareholders also allege that Zynga fraudulently concealed weaknesses so that company directors could sell $593 million in stock prior to the expiration of a post-IPO lockup.

Since Zynga’s 2011 IPO, the company’s price per share has dropped well below the initial $10, with shares recently priced at $2.73.

The trial lawyers of Shulman, Hodges & Bastian LLP represent parties to shareholder disputes. To learn more about our full-service business law firm, please see our business litigation overview.