Zynga Sued Over Social-Game Maker Executives’ Stock Sales

Zynga Inc., the largest maker of online social games, was sued by a shareholder after executives were allowed to sell stock early for more than $200 million, while sales by lower level employees and outsiders were blocked.

Wendy Lee, a former Zynga product manager, contended that after a Dec. 16, 2011, initial public offering, substantially all shareholders, including all officers and directors, were barred from selling shares for 165 days.

That “lockup” was waived the following March for some executives, who sold more than 40 million shares in a secondary offering, Lee said in a Delaware Chancery Court complaint made public today in Wilmington.

While those higher-echelon officials were allowed “to cash out early,” Zynga’s board “did not extend the same opportunity to Zynga’s non-executive and former employees,” Lee said.

Executives “nearly doubled the proceeds from their sales” by being allowed to sell early. By the time the lockup on other investors expired, “Zynga’s share price had dropped 49.3 percent,” Lee said. She acquired 30,000 shares at $3.805 each, and sold them at $3.15, according to court papers.

Stephanie Hess, a Zynga spokeswoman, declined to comment on the lawsuit.

Lee’s suit came as San Francisco-based Zynga announced that Chief Executive Officer Mark Pincus lowered his salary to $1 to cut costs. His pay in 2011 totaled $1.68 million, according to filings. Pincus founded Zynga in 2007.

Lee is seeking to proceed on behalf of non-executive shareholders, and asked the court to order those who benefited from early sales to pay damages.

Zynga rose 10 cents to $3.55 today in Nasdaq Stock Market trading. The shares had fallen 71 percent in the 12 months before today.

The case is Lee v. Pincus, CA8458, Delaware Chancery Court (Wilmington).

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