Zynga executives sold millions of shares before the stock tanked last night

Zynga, the social game maker famous for titles like FarmVille and Facebook spam, became a public company in 2011 when it held its IPO (Initial Public Offering). Offering 100 million shares at $10 a pop, Zynga was valued, at that time, between US$7-9 billion depending on how you calculated the value. Yesterday Zynga posted a terrible second quarter and saw its share price drop 41% in one day; shares are currently floating around the US$3 mark (US$3.11 at the time of this writing, to be exact) meaning the company now has a market capitalization of roughly US$2.31 billion.

It isn’t so much the failure of Zynga as a public company that is the issue at hand, although I’m sure many people who invested in Zynga are worried. The issue at hand is: many Zynga insiders dumped millions of shares prior to this stock semi-collapse.

As reported by Yahoo, Zynga CEO, CFO, COO, General Counsel, and a bunch of investors (which includes Google) unloaded millions of dollars worth of stock in April 2012:

  • 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
  • And so on…

In total, US$516 million of Zynga stock was sold by insiders in April 2012.

The insiders sold the stock in April so it isn’t exactly right before the stock price fell so drastically. However, April is the start of the same fiscal quarter that Zynga reported yesterday, meaning Zynga insiders sold millions of shares in the same quarter that the stock crashed.

Of course it should be mentioned many of the above-mentioned still have significant stakes in Zynga (e.g. Marc Pinus still owns 67.7 million shares, according to Forbes); so it wouldn’t exactly be fair to accuse them of selling out before it crashed since a crash would hurt them significantly, too. However, I would be surprised if accusations of insider trading don’t arise from these reports. We shall wait and see what happens.

[via Kotaku, Yahoo | Image credit: Institute of Policy Studies]

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  • Ashraf

    @Finell: Arent lockups typically 6 months or longer? I cant remember what month in 2011 Zynga went public but if this happened in Q2 that means the lockup period for insiders was likely less than 6 for Zynga.

    @Mike: Word.

  • Mike

    Not surprising they sold: the Internet start-up “darlings” have been doing terribly upon going public, and their inflated stock prices collapse. Witness Facebook. Says something about the initial valuations, doesn’t it? How soon the earlier Internet company crash has been forgotten. Companies need to have value to bring it.

  • Finell

    Several law firms that bring class action lawsuits on behalf of investors have announced, in press releases, that they are investigating the situation and are offering to represent Zynga shareholders. Lawsuits are likely. On the other hand, it may be that restrictions on insider stock sales, which followed the public offering, expired, enabling insiders to sell some of their shares in April to lock in some profit–that is, that these were planned sales that would have happened when they did regardless of what they knew about the company’s prospects. In the stock market, July comes 3 centuries after April. It will be interesting to watch this develop.