CV 12 4133 - Wolf Haldenstein Adler Freeman & Herz LLP Complaint.pdf · 1 2 3 4 5 6 7 8 9 10 11 12...

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FRANCIS M. GREGOREK (144785)BETSY C. MANIFOLD (182450)RACHELE R. RICKERT (190634)PATRICK H. MORAN (270881)WOLF HALDENSTEIN ADLER

FREEMAN &HERZ LLPSymphony Tower750 B Street, Suite 2770San Diego, CA 92101Telephone: 619/239-4599Facsimile: 619/234-4599

GREGORY M. NESPOLEALAN D. WEISS

WOLF HALDENSTEIN ADLERFREEMAN & HERZ LLP

270 Madison AvenueNew York, New York 10016Telephone: 212/545-4600Facsimile: 212/545-4653

Attorneys for Plaintiff CV 12 4133UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

Case No.IRA GAINES, on behalf of himself and all otherssimilarly situated.

Plaintiff,

v.

ZYNGA INC.. MARK PINCUS, DAVID M.WEHNER, JOHN SCHAPPERT. MARK

VRANESH. REGINALD D. DAVIS, CADIR. B.LEE, WILLIAM GORDON, REID HOFFMAN,JEFFREY KATZENBERG, STANLEY J.MERESMAN. SUNIL PAUL, and OWEN VANNATTA,

Defendants.

CLASS ACTION COMPLAINT


JURY TRIAL DEMANDED

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Plaintiff Ira Gaines, individually and on behalf of the class described below, alleges this

class action complaint based upon his own personal knowledge, as to his own acts and the acts and

statements of Defendants in which Plaintiff participated directly (the communications with,

representations made, and documentation and information provided to Plaintiff by Defendants in

the ordinary course of business), and upon the investigation of counsel (and counsel's information

and belief only to the extent expressly stated herein). Counsel's investigation conducted on

Plaintiffs behalf, included, among other things: (i) an analysis of publicly-available news articles

and reports; (ii) a review and analysis of public filings, including but not limited to Securities and

Exchange Commission ("SEC") filings by Defendants; (iii) press releases issued by Defendants;

(iv) research offacts and the applicable law with respect to the claims asserted herein including the

use of sophisticated investigatory tools such as Bloomberg subscription services. Lexis Nexis and

other subscription services; and (v) other matters of public record. Plaintiff believes that

substantial additional evidentiary support will exist for the allegations set forth herein after a

reasonable opportunity for discovery.

NATURE OF THE ACTION

1. This is a federal securities class action brought by Plaintiff alleging claims under

sections 10(b) (15 U.S.C. § 78j(b)) and 20(a) (15 U.S.C. § 78t(a)) of the Securities Exchange Act

of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5,

against Defendants, seeking to recover damages caused to the Class byDefendants' violations.

2. On December 15, 2011, Zynga Inc. ("Zynga" or the "Company") floated its initial

public offering (the "IPO") of 100,000,000 shares of its Class A common stock at a price io the

public of $10per share on the NASDAQ Global Select Market under the symbol "ZNGA."

3. Inaddition, selling stockholders granted the underwriters the right to purchase up to

15,000,000 additional shares of Class A common stock to cover over-allotments, if any. Morgan

Stanley, J.P. Morgan, Goldman, Sachs & Co., BofA Merrill Lynch, Barclays, and Allen &

Company LLC, served as underwriters for theoffering.

4. The offering was expected to raise $1 billion, generating tremendous enthusiasm for

social gaming. What transpired, however, has proven to be a scheme on behalf of Company


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insiders to circumvent various IPO restrictions by making false and misleading statements to the

investing public in order to liquidate their personal holdings at elevated prices in a secondaryoffering only four months later.

5. Defendants, individually and collectively, had a duty to Plaintiff and the Class to

provide information regarding Zynga that did not contain material misstatements or omit to

disclose all information about the Company that would be material to Plaintiff and the Class in

their decisions to purchase shares of Zynga.

JURISDICTION AND VENUE

6. Plaintiff brings this action pursuant to sections 10(b) and 20(a) of the Securities

Exchange Act of 1934. (15 U.S.C. § 78j(b) and § 78t(a)) (the "Exchange Act") and Rule 10b-5

promulgated thereunder (17 C.F.R. § 240.10b-5).

7. This Court has jurisdiction over the subject matter of this action pursuant to Section

27 of the Exchange Act and 28 U.S.C. § 1331 and § 1337.

8. Venue is proper in this District because defendants conduct business in this District

and many of the wrongful acts alleged herein took place ororiginated in this District.

9. Most of the Defendants are either headquartered in this District or maintain

significant business presences here.

10. In connection with the acts alleged in this Complaint. Defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including, but not limited

to, the mails, interstate telephone communications and the facilities of the national securities

markets.

11. Shares of Zynga are securities within themeaning of federal law.

12. Shares ofZynga were sold to class members who reside within this judicial district.

PARTIES

13. Plaintiff Ira Gaines ("Plaintiff) purchased shares of Zynga during the Class Period

(defined herein, see infra 1 39) as evidenced by his annexed Plaintiffs Certification, and was

damaged thereby.

14. Defendant Zynga is a Delaware corporation headquartered at699 Eighth Street, San


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Francisco, California 94103. The Company develops, markets, and operates online social games aslive services on the Internet, social networking sites, and mobile platforms.

INDIVIDUAL DEFENDANTS

15. Defendant Mark Pincus ("Pincus") founded Zynga in 2007 and at all relevant

times served as Zynga's Chief Executive Officer and Chairman of Zynga's Board of Directors.

Defendant Pincus signed the Registration Statements in connection with Zynga's IPO and

Secondary Offering. Defendant Pincus sold 16.5 million shares of Zynga Class A common stock

during the Class Period forproceeds ofapproximately $200 million.

16. Defendant David M. Wehner ("Wehner") at all relevant times served as Zynga's

Chief Financial Officer. Defendant Wehner signed the Registration Statements in connection with

Zynga's IPO and Secondary Offering. Defendant Wehner sold 386,865 shares of Zynga stock

during the Class Period for proceeds of approximately $4.6 million

17. Defendant John Schappert ("Schappert") at all relevant times served as Zynga's

Chief Operating Officer and as a director of Zynga Defendant Schappert signed the Registration

Statements in connection with Zynga's IPO and Secondary Offering. Defendant Schappert sold

322,350 shares of Zynga stock during the Class Period for proceeds of approximately $3.9million.

18. Defendant Mark Vranesh ("Vranesh") at all relevant times served as Zynga's

Chief Accounting Officer. Defendant Vranesh signed the Registration Statements in connection

with Zynga's IPO and Secondary Offering. Defendant Vranesh sold 366,216 shares ofZynga stock

during the Class Period for proceeds of approximately $4.3 million.

19. Defendant Reginald D. Davis ("Davis") at all relevant times served as Zynga's

Senior Vice President, General Counsel, and Secretary. Defendant Davis sold 314,643 shares of

Zynga stockduring theClassPeriod for proceeds of approximately $3.8million.

20. Defendant Cadir B. Lee ("Lee") at all relevant times served as Zynga's Chief

Technology Officer. Defendant Vranesh sold 1,172,000 shares of Zynga stock during the Class

Period for proceeds of approximately $13.6 million

21. Defendant WiDiam Gordon ("Gordon") at all relevant times served as a director of


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Zynga Defendant Gordon signed the Registration Statements in connection with Zynga's IPO andSecondary Offering.

22. Defendant Reid Hoffman ("Hoffman") at all relevant times served as a director of

Zynga. Defendant Hoffman signed the Registration Statements in connection with Zynga's IPOand Secondary Offering.

23. Defendant Jeffrey Katzenberg ("Katzenberg") at all relevant times served as a

director of Zynga. Defendant Katzenberg signed the Registration Statements in connection with

Zynga's IPO and Secondary Offering.

24. Defendant Stanley J. Meresman ("Meresman") at all relevant times served as a

director of Zynga. Defendant Meresman signed the Registration Statements in connection with

Zynga's IPOandSecondary Offering.

25. Defendant Sunil Paul ("Paul") at all relevant times served as a director of Zynga

Defendant Paul signed the Registration Statements in connection with Zynga's IPO andSecondaryOffering.

26. Defendant Owen Van Natta ("Van Natta") at all relevant times served as a director

of Zynga. Defendant Van Natta signed the Registration Statements in connection with Zynga'sIPO and Secondary Offering.

27. These twelve individual defendants are collectively referred to as the "Individual

Defendants."

CLASS ACTION ALLEGATIONS

28. Plaintiff brings this action as a class action pursuant to Rule 23(a) and (b)(3) of the

Federal Rules ofCivil Procedure on behalf ofail investors who purchased Zynga common stock

during the Class Period, excluding all officers and directors ofZynga and their immediate families.

29. Members ofthe Class are so numerous that joinder ofall members is impracticable.

While the exact number of Class members is unknown to plaintiff at this time and can only be

ascertained through appropriate discovery, plaintiff believes that there are thousands of members

of the Class located throughout the United States.


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30. According to Bloomberg, there were over 464 million shares of Zynga common

stock outstanding as of July 13, 2012.

31. All members of the Class may readily be identified from records maintained by

Zynga and/or its transfer agent and may be notified of the pendency of this action by mail, using

forms of notice similar to those customarily used in securities class actions.

32. Plaintiffs claims are typical of the claims of the other members of the Class.

Plaintiff and the other members of the Class, by virtue of their purchases of shares of Zynga on

during the Class period, have sustained damages as a result of Defendants' unlawful activities as

alleged herein. Plaintiff has retained counsel competent and experienced in class and securities

litigation and intends to prosecute this action vigorously. The interests of the Class will be fairly

and adequately protected by Plaintiff. Plaintiff has no interests which are contrary to or in conflict

with those of the Class which Plaintiff seeks to represent.

33. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy. Plaintiff knows of no difficulty to be encountered in the

management of this action that would preclude its maintenance as a class action.

34. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

(a) Whether the Exchange Act wasviolated by Defendants;

(b) Whether Defendants participated in the course of conduct complained of

herein; and

(c) Whether members of the Class have sustained damages as a result of

Defendants' conduct, and the proper measure of such damages including but not limited to

rescissionary damages.

SUBSTANTIVE ALLEGATIONS

35. Zynga develops, markets, and operates online social games as live services on the

Internet, social networking sites, and mobile platforms. The Company offers its games under the

CilyVille, Zynga Poker, FarmVille, CastleVille, FrontierVille, Mafia Wars, Words with Friends,


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Hidden Chronicles, Zynga Bingo, Scramble With Friends, Slingo, and Dream Heights names. Its

games are available on various platforms, including social networks and mobile platforms, such as

Apple iOS and Google Android worldwide, but it relies most heavily on Faccbook and its

platform.

36. On December 15, 2011, Zynga floated its initial public offering of 100,000,000

shares ofClass Acommon stock at a price to the public of$10 per share on the NASDAQ Global

Select Market.

37. Pursuant to the Company's IPO Prospectus filed with the SEC on December 16,

2011, all officers and directors of the Company had entered into lock-up agreements which

provided that they would not offer, sell or transfer any shares ofcommon stock beneficially owned

by them for 165 days, or until May 28, 2012. The officers and directors of the Company also

agreed with Morgan Stanley & Co. LLC and Goldman Sachs & Co. not to waive the lock-up

restrictions without their prior consent. Zynga Inc., Prospectus (Form 424B4) (Dec. 16, 2011).

38. Big investors often lake the opportunity to divest stock on the IPO. The investing

public noted favorably that Defendant Pincus, the Company's founder and CEO, would not be

selling any of his personal shares of stock on the IPO.

DEFENDANTS' MATERIALLY MISLEADING STATEMENTS AND OMISSIONS

39. The Class Period began on December 16, 2011, when Zynga began publicly trading

on NASDAQ, and extended until July 25, 2012, inclusive (the "Class Period").

40. On December 15, 2011, Zynga issued a press release announcing that the IPO was

being priced at $10.00 per share. Press Release, Zynga Inc., Zynga Inc. Prices Initial Public

Offering (Dec. 15, 2011), http://www.company.zynga.com.

41. Also on December 15, 2011, the Company filed anAmended Form S-l Registration

Statement with the SEC concerning the Initial Public Offering of its Class A shares which made

certain risk disclosures including the following:

We are subject to Facebook's standard terms and conditions for applicationdevelopers, which govern the promotion, distribution and operation of games andother applications on the Facebook platform. We have entered into an addendumto these terms and conditions pursuant to which we have agreed to use FacebookCredits, Facebook's proprietary payment method, as the primary means of


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payment within our games played through Facebook. This addendum expires inMay 2015. v

Zynga Inc., Amendment No. 9 to Form S-1 Registration Statement (Form S-l/A), at 14(Dec. 15,2011) ("Amended Form S-1") (emphasis added).

42. Notwithstanding the above disclosure, the Amended Form S-1 failed to disclose that

other agreements with Facebook, which could heavily affect Zynga's future bookings and revenue

stream, were scheduled to expire on April 30, 2012.

43. On February 14, 2012, the Company issued a press release which reported the

following impressive results and an even more impressive outlook. Specifically the 2012 outlook

provided by the Company was:

• Bookings are projected to be in the range of $1.35 billion to $1.45 billion.

We expect that growth will be weighted towards the back-half of the

year with slower sequential growth in the first half of the year.

[emphasis added]

• Adjusted EBITDA is projected to be in the range of $390 million to $440

million.

• Stock-based compensation expense is projected to be in the range of $400

million to $425 million excluding the impact of equity awards granted in

connection with potential future acquisitions.

• Capital expenditures are projected to be in the range of $140 million to

$160 million. Our effective tax rate fornon-GAAP net income is projected

to be in the range of 20% to 25%.

• Weproject non-GAAP weighted-average diluted shares outstanding to be

approximately 865 million shares in Ql 2012 and approximately 890

million shares in Q4 2012. Full year 2012 non-GAAP EPS is projected to

be in the range of $0.24 to $0.28.

Press Release, Zynga Inc., Zynga Reports Fourth Quarter andFull Year 2011 FinancialResults (Feb. 14, 2012), http://www.invcstor.zynga.com/releastedetail.cfm7ReleaseID=648577 ("Feb. 14, 2012 Press Release").

44. Concerning theCompany's results and future prospects. Defendant Pincus stated,

2011 was another milestone year for Zynga's mission of connecting the worldthrough games. We are seeing social games and more broadly play become one ofthe most popular pastimes on web and mobile. Zynga set new records in the yearin terms of audience size, revenues and bookings. We saw great momentum in


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mobde and advertising and ended the year with a strong pipeline of new games.We are excited about the opportunities in front of us to continue delighting ourcurrent players and to bring play to millions ofnew people.

Feb. 14, 2012 Press Release.

45. On February 28, 2012, the Company filed a Form 10-K with the SEC for the fiscal

year ended December 31, 2011 which, unlike the Amended Form S-1 filed on December 15, 2011,

made the following disclosure, in pertinent part:

Future bookings and revenue may be negatively impacted if our current gamecard program is not extended beyond April 30, 2012. Our contract with Facebookallows us to continue todistribute our game cards until April 30, 2012.

Zynga Inc., Annual Report (Form 10-K) at 8 (Feb. 28, 2012) ("Feb. 28, 2012 Annual Report").

46. In addition, the section entitled Management's Discussion and Analysis of Financial

Condition and Results of Operations contained the following statement:

We made significant investments in 2011 to drive long-term growth. Wecontinue to invest in game development, creating both new games and newfeatures and content in existing games designed to engage our players. We arealso investing in other key areas of our business, including international marketdevelopment, mobile games and our technology infrastructure. In 2012, we expectto make capital expenditures of up to $160 million as wc invest in networkinfrastructure to support our expected growth and to continue to improve theplayer experience, (emphasis added)

Feb. 28, 2012 Annual Report, at 34,

47. The February 14 and February 28 statements are misleading in that they paint an

overly optimistic picture of the Company's good prospects for the future. More imponantly, the

statements misleadingly emphasize that growth would be weighted towards the back-half of the

year with slower sequential growth in the first half of 2012.

48. As a result of the Company's financial results, statements, and guidance, Zynga

slock closed at an all-time high of $14.69 on March 2, 2012.

49. Conveniently, on March 14, 2012, the Company issued a press release stating that it

had "filed a registration statement with the U.S. Securities and Exchange Commission (the "SEC")

for certain stockholders of Zynga Inc. to offer shares of Class A common stock." Press Release.

Zynga Inc., Zynga Files Registration Statement For Proposed Secondary Offering (March 14,

2012), http://www.investor.zynga.com/releascdetail.cfm?ReleaseID=657142 ("March 14, 2012

Press Release").


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50. The press release stated that Zynga would not receive any proceeds from the sale of

the shares and misleadingly explained that the principal purpose of the offering was to "facilitate

an orderly distribution of shares and to increase the company's public float." March 14, 2012

Press Release.

51. The "orderly distribution of shares" offered by "certain stockholders" was referring

to the liquidating ofover 49 million Class A common shares ofZynga held by Company insiders,

representing almost 50% of the amount sold in its IPO. However, the investing public had no

indication of the magnitude of sales by Company insiders because they were subject to the

previously described lock-up agreements which would not expire until May 28, 2012.

52. On the same day, the Company filed a Form S-1 Registration Statement with the

SEC for the Secondary Offering which contained a section entitled Management's Discussion and

Analysis of Financial Condition and Results of Operations, which reiterated the Company's 2011

year-end results. The following statement also appeared:

We made significant investments in 2011 to drive long-term growth. Wecontinue to invest in game development, creating both new games and newfeatures and content in existing games designed to engage our players. We arealso investing in other key areas of our business, including international marketdevelopment, mobile games and our technology infrastructure, In 2012, we expectto make capital expenditures of up to $160 million as we invest in networkinfrastructure to support our expected growth and to continue to improve theplayer experience.

Zynga Inc., Form S-l Registration Statement (Form S-1), at 40 (March 14, 2012) (emphasis

added).

53. On March 23, 2012, the Company filed an Amendment No. 1 to Form S-1

Registration Statement. The Amended Form S-I stated, "[w]e arc releasing the selling

stockholders from these lock-ups to permit them to sell up to 49,414,526 shares (including the

underwriters' option to purchase additional shares) in this offering." Zynga Inc. Amendment No. 1

to Form S-1 Registration Statement (Form S-1/A), at 29 (March 23, 2012.)

54. As a result. Company insiders would be able to liquidate their personal shares

which they would havehad to have held until May 28, 2012, under the lock-up agreements.


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55. The May 28, 2012 lock-up dale would have been very inconvenient for insiders. In

fact, Zynga stock closed at a price of $6.09 per share on May 29, 2012, almost 50% lower than the

Secondary Offering price of $12, which was consummated on April 3, 2012.

56. On April 12, 2012, Zynga stock closed at $12.13 per share. It would be the last lime

to dale thattheCompany's slock would closeat level of higher than $12 per share.

57. Nonetheless, Company insiders were able lo liquidate over $500 million dollars of

personal shares in Zynga prior to releasing the first quarter financial results, while public

shareholders began amassing huge losses.

58. On April 26, 2012, Zynga issued a press release in connection with its First Quarter

2012 Financial results. The results were not impressive compared to the previous tremendous

growth that the Company had experienced.

59. In fact, while year-over-year quarterly bookings and revenue were up, adjusted

EBITDA, non-GAAP net income, non-GAAP earnings per share, net income, and diluted net

income per share were all down.

60. Nonetheless, Defendant (CEO) Pincus stated.

We're pleased with the progress that Zynga has made in the first quarter growingour audience reach 25% year over year and nearly 20% quarter over quarter. Ourteam did a great job launching 5 new games across mobile and web including newhits like Hidden Chronicles, Slingo and Scramble with Friends ...

Press Release, Zynga Inc., Zynga Reports First Quarter 2012 Financial Results (April 26, 2012),

http://www.investor.zynga.com/releasedetail.cfm?ReleaseID=667869 ("April 26, 2012 Press

Release").

61. The press release again misleadingly stated thai the "principal purposes of the

offering were to facilitate an orderly distribution of shares and to increase the company's public

float." April 26, 2012 Press Release.

62. This statement is false and misleading because the primary purpose of the offering

was, in actuality, to allow Zynga insiders to liquidate theirshares at inflated prices.

63. Surprisingly, notwithstanding the slowing growth in the Zynga's business, the

Company actually raised its 2012 Guidance in the same press release:

As of today, we're updating our outlook for 2012 as follows:


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• Bookings are projected to be in the range of $1,425 billion to $1.5

billion. We expect that, (emphasis added)


million.

• Stock-based expense is projected to be in the range of $420 million to

S445 million excluding the impact of equity awards thatmay be granted in

connection with potential future acquisitions.


$410 million which includes the purchase of our corporate headquarters

building in April 2012.

• Our effective tax rate for non-GAAP net income is projected to be in the

range of 25% to 30%.

• Non-GAAP weighted-average diluted shares outstandingare projected to

be approximately 880 million shares in the fourth quarter of 2012.

• Full year 2012 non-GAAP EPS is projected to be in the range of $0.23 to

$0.29.

April 26, 2012 Press Release.

64. The increased guidance for 2012 seemingly justified the insider sale of stock at

levelselevated from the original IPO price of $10 per share.

65. Similar to the 2012 Outlook presented in its February 14, 2012 press release, the

2012 Outlook provided in the April 26, 2012 press release emphasized that growth would be

"weighted towards the second half of the year with slower sequential growth in the first half of the

year." Compare February 14, 2012 Press Release, with April 26, 2012 Press Release.

66. During the Ql Earnings Call, in response to a question from an analyst

concerning the Company's growth outlook, Defendant Schappert said, "I think we're just saying

that the sequential growth rates will be higher in the back two quarters than in the second

quarter." Zynga Inc., Q1 2012 Earnings Call Transcript (April 26, 2012),

www.morningstar.com/earnings/PrintTranscript.aspx?id=40023688 ("Ql April 26, 2012

Earnings Call").


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67. On the same call. Defendants continued to set forth a falsely optimistic picture of

Zynga's growth prospects. For example, Defendant Pincus stated, "I think that we remain still

underpenetrated on the Facebook platform for web and PC," and Defendant Schappert stated,

"[w]e [ j continue to see FarmVille performing well, and we see good prospects for Farmvilte

andour existing games and new games for the remainder of the year, which is why we're excited

and comfortable raising guidance for the year." Ql April 26, 2012 Earnings Call.

68. The above statements by both Defendants were materially misleading (and failed to

disclose material facts) in that the Company's business was already heavily dependent on the

Facebook platform, it knew that growth in its existing games was slowing down at that time, and it

knew it was experiencing delays in launching new games.

THE TRUTH EMERGES

69. On July 25, 2012, Zynga issued a press release in connection with its Second

Quarter 2012 Financial Results, which were much lower than expected. Press Release, Zynga

Inc., Zynga Reports Second Quarter 2012 Financial Results (July 25, 2012),

http://www.investor.zynga.com/releasedetail.cfm7ReleaseIDs695419 ("July 25, 2012 Press

Release").

70. Year-over-year quarterly earnings per share dropped from $0.05 per share to $0.01

per share and net income. The Company also reported a net loss of over $22.8 million.

71. In the press release, theCompany lowered its' earnings guidance dramatically, after

havingraised its guidanceonly one quarter previous, stating:

We are lowering our outlook to reflect delays in launching new games, a fasterdecline in existing web games due in part to a more challenging environmenton the Facebook web platform, and reduced expectations for Draw Something.As a result, our updatedoutlook for 2012 is as follows (emphasis added):

• Bookings are projected to be in the range of $1.15 billion to $1,225

billion.


million.

• Stock-based expense is projected to be in the range of $410 million to

$430 million,


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$380 million, which includes the purchase of our corporate headquarters

building in April 2012.

• Our effective tax rate for non-GAAP net income is projected to be in the

range of 50% to 60%.

• Non-GAAP weighted-average diluted shares outstanding are projected to

be approximately 845 million shares in the fourth quarter of 2012.

• Full year 2012 non-GAAP EPS is projected to be in the range of $0.04 to

$0.09.

July 25, 2012 Press Release.

72. Inexplicably the new outlook was not only below the misleadingly optimistic

outlook presented in the first quarter earnings press release, but also it was below the guidance

provided in the 2011 year end earnings press release.

73. The lowered guidance at the end of the second quarter completely contradicted the

Company's previous repeated assertions that growth would "be higher in the back two quaiters

than in the second quarter."

74. The "faster decline in existing web games" was in complete contradiction to

Defendant Schappen's statement on the Ql conference call that, "we see good prospects for

Farmville and our existing games."

75. The "more challenging environment on the Facebook web platform" was in

complete contradiction to the Ql conference call statement by Defendant Pincus, which indicated

that Zynga was still underpenetrated on the Facebook platform for web and PC." SeeQl April 26,

2012 Earnings Call.

76. In sum, prior to its July 25, 2012 press release, Zynga materially misrepresented

and failed to disclose the true financial and business prospects for the Company.

77. During the Second Quarter 2012 Results Conference Call, Richard Greenfield, an

analyst for BTIG, posed the following question (or expression of disbelief) in response to the

surprisingly poor second quarter financial results and dramatically lowered outlook:


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I'd also love to get your sense, you sold stock, I think, on March 28 at $12 ashare. The company raised guidance in late April when you reported the firstquarter, and now you've cut guidance by a pretty large amount. Just you didn'tpre-announce; is there any reason for not pre-announcing and just how do youreact, or how should we react to this?

Zynga Inc., Q2 Second Quarter 2012 Results Conference Call (July 25, 2012),http://www.investor.zynga.com/events.cfm ("Q2 July 25, 2012 Results ConferenceCall").

78. Apparently Richard Greenfield was not the only analyst who got caught off guard

as a result of Defendants' misleading statements and omissions. Many, if not most, analysts

reduced their price targets by over 50% upon the disclosure of the Company's true financial

prospects.

79. The following is a list of several equity analysts and their changes in price targets as

a result of the truth being disclosed on July 25,2012:

Firm

Goldman Sachs

Robert W. Baird

BMO Capital

Barclays

Analyst

Heath Terry

Colin Sebastian

Edward William

Mark May

Previous Target

6/14/12-$13

7/18/12-$13

7/19/12-$10

6/18/12-$8

New Target

7/26/12-$4

7/26/12-$6

7/26/12 - $5

7/16/12 - $3

80. The day after the announcement, Zynga stock closed at $3,175 per share, a decline

of close to 40% from the previous trading day. It should also be noted that this represents a 68%

decline from the IPO price only seven months previous to the announcement.

81. More importantly, it represents a 73% discount to the Secondary Offering price of

$12, at which Zynga insiders successfully sold over $500 million of their personal Zynga shares;

the Individual Defendants' "pump and dump" scheme had worked according to plan. A chosen few

insiders were able to sell at artificially inflated prices, while individual investors and lower level

Zynga employees were left holding the bag.

82. Assisting the Individual Defendants in their scheme were the underwriters, led by

Goldman Sachs and Morgan Stanley, who were complicit in modifying the Individual Defendants'

lock-up agreements while collecting over SI 5 million in fees for the Secondary Offering alone.


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LOSS CAUSATION/ECONOMIC LOSS

83. During the Class Period, the Individual Defendants engaged in a scheme to deceive

the market and a course of conduct that artificially inflated Zynga's slock price and operated as a

fraud or deceit on purchasers of Zynga common stock by misrepresenting the Company's financial

condition and accounting practices. Once the Individual Defendants' misrepresentations and

fraudulent conduct were disclosed to the market, Zynga's stock price reacted negatively as the

artificial inflation was removed from it, declining from a high of over $15 per share just after the

IPO to under $3 per share today. As a result of his purchases of Zynga stock during the Class

Period, Plaintiff and other members of the Class suffered economic loss.

84. The Individual Defendants' false and misleading statements had the intended effect

and caused Zynga stock to trade at artificially inflated levels throughout the Class Period.

85. As investors and the market became aware of Zynga's prior misstatements and

omissions and that its financial statements could not be relied upon, Zynga's stock price reacted

negatively, damaging investors.

SCIENTER

86. The volume, circumstances, and timing of Zynga's materially false and misleading

statements as compared to the realities of its overall financial results and business operations

demonstrates a cogent and compelling inference of scienter. Defendants had both the motive and

opportunity to conduct fraud. They also had actual knowledge of the misleading nature of the

statements made or acted in reckless disregard of the true information known to them at the time.

APPLICABILITY OF PRESUMPTION OF RELIANCE:FRAUD.QN-THE-THE-MARKET DOCTRINE

87. At all relevant times, the market for Zynga's common stock was an efficient

market for the following reasons, among others:

(a) Zynga's stock met the requirements for listing, and was listed and actively

traded on the Nasdaq, a highly efficient market;

(b) During the class period, Zynga stock was actively traded, demonstrating a

very strong presumption of an efficient market;


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(c) As a regulated issuer, Zynga filed with the SEC periodic public reports

during the Class Period;

(d) Zynga regularly communicated with public investors via established market

communication mechanisms;

(e) Zynga was followed by several securities analysts employed by major

brokerage firms who wrote reports that were distributed to the sales force and certain

customers of their respective brokerage firms during the Class Period. Each of these reports

was publicly available and entered the public marketplace; and

(f) Unexpected material news about Zynga was rapidly reflected in and

incorporated into the Company's slock price during the Class Period.

88. As a result of the foregoing, the market for Zynga's common stock promptly

digested current information regarding Zynga fi-om all publicly available sources and reflected

such information in Zynga's stock price. Under these circumstances, all purchasers of Zynga's

common stock during the Class Period suffered similar injury through their purchase of Zynga's

common stock at artificially inflated prices, and a presumption of relianceapplies.

NO SAFE HARBOR

89. The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to any of the allegedly false statements pleaded in this complaint.

Virtually all of the specific statements pleaded herein were not forward-looking or were not

identified as "forward-looking statements" when made. To the extent there were any forward-

looking statements upon which Plaintiff bases his claims, there were no meaningful cautionary

statements identifying important factors that could cause actual results to differ materially from

those in the purportedly forward-looking statements. Alternatively, to the extent that the statutory

safe harbor does apply to any forward-looking statements pled herein. Defendants are liable for

those false forward-looking statements because at the time each of those forward-looking

statements was made, the particular speaker knew that the particular forward-looking statement

was false, and/or the forward-looking statement was authorized and/or approved by an executive

officer of Defendants who knew that those statements were false when made.


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90. The safe harbor does not apply to statements made, as here, in connection with an

initial public offering.COUNT I

(Against all Defendants For Violation of Section 10(b) of the Exchange Act (15 U.S.C. 77j(b))and Rule 10b-5 (17 C.F.R. § 240.10b-5))

91. Plaintiff incorporates Yfl 1-90 by reference.

92. During the Class Period, defendants disseminated or approved the false statements

specified above, which they knew or recklessly disregarded were misleading in that they contained

misrepresentations and failed to disclose material facts necessary in order to make the statements

made, in light of the circumstances under which they were made, not misleading.

93. Defendants violatedsection 10(b) of the Exchange Act (15 U.S.C. § 77j(b))and Rule

10b-5 (17 C.F.R. § 240.10b-5) in that they:

(a) employed devices, schemes, and artifices to defraud;

(b) made untrue statements of material facts or omitted to state material facts

necessary in order to make the statements made, in light of the circumstances under which they

were made, not misleading or

(c) engaged in acts, practices, and a course of business that operated as a fraud

or deceit upon Plaintiff and others similarly situated in connection with their purchases of Zynga

common stock during the Class Period.

94. Plaintiff and the Class have suffered damages in that in reliance on the integrity of

the market they paid artificially inflated prices for Zynga common stock and suffered damages when

that inflation was eliminated by disclosure of information that revealed the facts and conditions

hidden by Defendants' fraudulent statements and omissions, or the economic impact of those facts

and conditions. Plaintiff and the Class would not have purchased Zynga common stock at the prices

they paid, or at all, if they had been aware that the market price had been artificially and falsely

inflated by Defendants' misleading statements.

95. As a direct and proximate result of these Defendants' wrongful conduct Plaintiff and

the other members of the Class suffered damages in connection with their purchases of Zynga

common stock during the Class Period.


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COUNT II

(Against The Individual Defendants For Violation of Section 20(a) of the Exchange Act

(15 U.S.C. § 78t(a))

96. Plaintiff incorporates fl 1-95 by reference.

97. The Individual Defendants acted as controlling persons of Zynga within the meaning

of section 20(a) of the Exchange Act (15 U.S.C. § 78t(a)). By reason of their positions as officers

and/or directors of Zynga and their ownership of Zynga stock, the Individual Defendants had the

power and authority to cause Zynga to engage in the wrongful conduct complained of herein.

Zynga controlled each of the Individual Defendants and all of its employees. By reason of such

conduct, the Individual Defendants are liable pursuant to section 20(a) of the Exchange Act.

REQUESTS FOR RELIEF

98. WHEREFORE, Plaintiff demands judgment individually and on behalf of the Class

against Defendants, jointly and severally, as follows:

A. An order declaring this action to be a class action properly maintained pursuant to

the Federal Rules of Civil Procedure, including Rules 23(a) and (b)(3), certifying the Class, and

certifying their counsel as Class Counsel;

B. Against Defendants, jointly and severally, for damages suffered as a result of

Defendants' violations of the Securities Act, and/or awarding rescission under section 12 of the

Securities Act, in an amount to be proven at trial;

C. Awarding Plaintiff and the other members of the Class pre-judgment and post-

judgment interest, as well as reasonable attorneys' fees, accountants' fees and experts' fees and

other costs and disbursements; and

D. Awarding Plaintiff and the Class such other and further relief as may be just and

proper under the circumstances.


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JURY TRIAL DEMANDED

Plaintiff demands a trial by jury on all issues so triable.

Dated: August 6, 2012

ZYNGA SECURITIES LITIG: I9M0



FRANCIS M. GREGOREK

BETSY C. MANIFOLDRACHELE R. RICKERT

750 B Street, Suite 2770San Diego, CA 92101Telephone: 619/239-4599Facsimile: 619/234-4599


GREGORY M. NESPOLE

ALAN D. WEISS

270 Madison AvenueNew York, New York 10016Telephone: 212/545-4600Facsimile: 212/545-4653

Attorneys for Plaintiff

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