Zynga slapped with dueling shareholder lawsuits

Lawsuits against the Farmville-maker are beginning to pile up with allegations of executives keeping slumping revenue and user growth a secret.

July 31, 2012 9:19 PM PDT

Zynga CEO Mark Pincus

(Credit: Rafe Needleman/CNET)

It's been a dismal week for Zynga. First news of bleak revenue growth in the second quarter followed by plunging stock prices, then accusations of insider trading... and now the gaming company is being slapped with two shareholder lawsuits.

The almost identical lawsuits are being filed by two California law firms seeking class-action status on behalf of stockholders who are accusing Zynga of not warning them about slumping revenue growth before the company's shares plummeted 42 percent last week, according to Reuters.

"Zynga misrepresented or failed to disclose material adverse facts about its business, operations, and growth prospects," said the lawsuit filed late on Monday by Kessler Topaz Meltzer & Check, according to Reuters. The second lawsuit was filed today by Robbins, Geller, Rudman and Dowd.

According to the lawsuits, the gaming company wasn't clear with its shareholders that the business was performing poorly and changes to Facebook's platform made it easier for users to be drawn away by competing games. Zynga users play games like Farmville, Words With Friends, and Draw Something exclusively on Facebook.

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Last week, several law firms announced their plans to investigate Zynga CEO Mark Pincus and other people who work at Zynga on insider-trading claims. The investigations note that Zynga insiders sold 43 million shares of stock in April at $12 per share -- making over $500 million -- when employees and early investors were banned from selling their shares until May and the price was set at $10 per share.

The first lawsuit regarding these investigations, which is separate from the shareholder lawsuits, was filed yesterday in San Francisco. According to The Verge, more suits will likely follow.

Zynga's poor growth performance and pile-on of lawsuits may be why COO John Schappert was demoted today. According to Bloomberg, Schappert is reportedly no longer the head of game development -- a role that focused on reviving growth and earning money from mobile services.

CNET contacted Zynga for comment. We'll update the story when we get more information.