Zynga Insiders Who Cashed Out Before The Stock Crashed

http://finance.yahoo.com/blogs/daily-ticker/zynga-insiders-cashed-just-stock-crashed-144334658.html

by larrys • 14 years ago

136 58 14 years ago

finance.yahoo.com

larrys3• 14 years ago

"I know many of these folks personally, including at the company's underwriters, and like and respect them. I think the last thing they would intentionally do is unload stock when they thought it was about to crash--especially when the amount they made in the sale, though huge, is still relative chicken-feed for them.

Also, all of these folks only sold a fraction of their holdings, so they've been hammered along with the rest of Zynga shareholders by the subsequent collapse."

The above is of course what is "below the fold" and the "to be sure" statement that is supposed to inoculate against accusations of being misleading.

But above the fold of course is the link bait title that draws you in and makes you think that something terribly wrong has happened with this cash out.[1] Missing of course is the amount of other stock or what their losses were.

An alternative piece that could have been equally good bait would have been perhaps "Zynga insiders who took a bath when the stock crashed" with the "to be sure" as "they also cashed out a small percentage of their holdings ..."

[1] Edit: I'm not making a judgement on whether what was done was wrong by the way I am only presenting my opinion on how this was written and an alternative version.

samstave3• 14 years ago

No matter what anyone says, to me, zynga is silicon valleys groupon. The worst company in the valley.

I like seeing them fail.

hkmurakami2• 14 years ago

The company does have honest employees, including designers and engineers (I know a few personally).

Yes, it can be argued, "It's their fault for working at an evil company in the first place", but it's tough for me to see the 'regular folk' suffer as well :(

larrys3• 14 years ago

"I like seeing them fail."

PG was just talking the other day about HN'ers who have feelings like that:

http://news.ycombinator.com/item?id=4293786

I'd be curious if you get a chance of your comments to that thread (particularly what I said I felt was a possible reason and PG's response).

Of course no matter which way you slice it it does make interesting watching. As they say in news "if it bleeds it leads". People love a good train wreck.

sajid• 14 years ago

It seems to me that insiders only dumped a fraction of their holdings because that's all they could get away with. If they could have dumped more, they would have.

zzzeek• 14 years ago

> Missing of course is the amount of other stock or what their losses were.

why on earth would that matter ? How much money did Martha Stewart go to jail for ? If they recouped 1% of their losses via insider trading, that's...insider trading !

ChuckMcM3• 14 years ago

The missing piece in this story is when the registration for this sale was put out. It isn't like you can just 'decide' to sell this many shares, my guess is that it is mentioned in the original prospectus somewhere that some point after the IPO these additional shares would be sold. That it occurred in the same quarter that the stock melted down means that they better have solid documentation and there are going to be lawyers sniffing around for a potential shareholder suit. If the paper trail is solid though no suit will materialize.

antr• 14 years ago

I sometimes wish that VCs had some legal responsibility when blogging about their portfolio companies too, specially when discussing valuations. They keep cheerleading on a clear conflict of interest, non-stop. Here is Fred Wilson:

"Pandora is at ~$1.5bn. LinkedIn is at ~$6bn. Groupon is at ~$15bn, Zynga is at ~$7bn, and TripAdvisor is at ~$3.5bn.

We can (and surely will in the comments) argue about these valuations. Some will say they are too high. Some will say they are too low. That's what makes a market. But in the aggregate, these valuations do not seem ridiculous to me. The public market investors are valuing these companies at prices that have some rationality to them." Source: http://www.avc.com/a_vc/2011/12/some-thoughts-on-the-ipo-mar...

When he says "...these valuations do not seem ridiculous to me." he is implicitly saying that their is (fundamental value) upside to the stock. Not in a million years could Fred Wilson sustain such argument with numbers. Implied growth rates just to value Zynga at ~$7bn means double digit growth (revenue and cash flow) for years, AND even higher growth rates are required if IPO investors want a return on their investment. Unfortunately his audience buys into the hype, regardless of the real economic value behind the companies, and for him to keep doing this on a clear conflict of interest demonstrates his low moral standards. These actions should not go unpunished, and are no different to any other legal "issues" that lawyers might pick up from the Zynga prospectus.

veyron• 14 years ago

" They keep cheerleading on a clear conflict of interest, non-stop"

That's their business model: they buy and then pump the companies in hopes that someone will buy stake from them at a higher valuation later. The nature of the VC model precludes multi-decade investments and incentivizes quick exits even if they blow up in others' faces

FW replied to a similar remark i made: http://news.ycombinator.com/item?id=4068495

ChuckMcM3• 14 years ago

Given that no fewer than 10 legal firms are queuing up lawsuits today (7/27) it seems like there may be some problems with the paperwork.

Judson• 14 years ago

Interesting to note that it was pretty well reported[0][1][2] that the bulk of this second Zynga offering would be for management and PE firms to get liquidity. This, though, is the money quote from the Reuters article that could have been a red flag (Though I'm honestly not sure how often it happens):

"Zynga waived a lock-up arrangement to facilitate the offering. Investors are typically expected to wait about six months after an initial public offering to sell their shares."

[0] http://www.cnbc.com/id/46833267/Zynga_Shareholders_Selling_4...

[1] http://blogs.wsj.com/deals/2012/03/14/zynga-shareholders-to-...

[2] http://www.reuters.com/article/2012/03/23/net-us-zynga-idUSB...

snorkel• 14 years ago

I suppose we should all be glad that some VCs were able hit a jackpot so soon, this is just what provides incentives for other VCs to keep investing in tech startups.

forgotAgain• 14 years ago

I disagree. If downstream investors decide that tech start-ups are a scam rather than a good investment the VC's will have no one to buy them out.

tatsuke95• 14 years ago

>"I suppose we should all be glad that some VCs were able hit a jackpot so soon, this is just what provides incentives for other VCs to keep investing in tech startups."

If I said: I suppose we should all be glad that some mortgage brokers were able to hit the jackpot so soon, this is just what provides incentives for other mortgage brokers to keep pushing home loans on people.

I'd be lynched.

I agree it's a dog-eat-dog world, and that investors have to know what they are getting into when this stuff goes public. But the fact that VCs are pumping this crap up then dumping it on the public (who end up taking a bath) is not a positive development. It sucks, because for every Zynga (or pets.com, or webvan) there are 5 great companies that these VCs are supporting. But how can the public continue to trust this system? Fool me once...

vtry3• 14 years ago

The investors should demand their money back.

corford• 14 years ago

From the article: "I think the last thing they would intentionally do is unload stock when they thought it was about to crash"

It looks like at least one law firm disagrees: http://www.marketwatch.com/story/newman-ferrara-llp-announce...

cs702• 14 years ago

It's hard for me not to compare the likes of Mark Pincus, who has been 'taking money off the table' from Zynga since before the IPO, to old-fashioned owner-CEOs like Warren Buffett, who has never sold a single share of his company, Berkshire Hathaway.[1]

[1] See http://www.berkshirehathaway.com/news/dec2799.html . Buffett is donating almost all his shares in annual chunks to the Bill and Melinda Gates Foundation, and the remainder to a few, much smaller charitable foundations, so he will never personally cash out.

lotharbot3• 14 years ago

For most investors, it's recommended that you minimize the amount of stock you own in your own company such that you reduce the risk of having both your job and your stock drop at the same time. When a company or industry gets hit hard, you often hear tales of people who lose their jobs and find their company stock has also tanked, and it's devastating. Whether you work for Zynga or Valve, I'd recommend taking money off the table and diversifying.

Berkshire Hathaway is special in that it's a holding company with extremely diverse holdings. It is, in essence, already internally making the sort of investments that I would recommend others make externally.

Point being, regardless of what you think of Pincus, he's doing what sensible investors should be doing at any company except for a Berkshire-type holding company.

runako• 14 years ago

I generally agree with your comment, but this

>> Berkshire Hathaway is special in that it's a holding company with extremely diverse holdings.

was not true when Berkshire was as old as Zynga is today.

anon8084• 14 years ago

minimize? what does that mean, how much? and who recommends? where are these rules written you're talking about?

usually people hold onto things they think are valuable and sell those they don't.

sometimes those that sell that which they don't think is valuable will use weasel words like 'diversification' and 'minimize exposure' to explain their actions so they don't have to admit they don't think what they're selling is very valuable.

ChuckMcM3• 14 years ago

Personally I suspect that once you have 100M in a treasury ladder or similar investment you've got the 'oops I've been fired' part covered. Sure you might have to sell off the high maintenance things but you can live a comfortable life indefinitely :-)

MichaelApproved• 14 years ago

Don't believe the hype. The rich avoid taxes by not selling shares. Instead they take out loans out against their shares.

"But how much income tax will Mr. Zuckerberg pay on the rest of his stock that he won’t immediately sell? He need not pay any. Instead, he can simply use his stock as collateral to borrow against his tremendous wealth and avoid all tax. That’s what Lawrence J. Ellison, the chief executive of Oracle, did. He reportedly borrowed more than a billion dollars against his Oracle shares and bought one of the most expensive yachts in the world.

If Mr. Zuckerberg never sells his shares, he can avoid all income tax and then, on his death, pass on his shares to his heirs. When they sell them, they will be taxed only on any appreciation in value since his death."

http://www.nytimes.com/2012/02/08/opinion/the-zuckerberg-tax...

mrgoldenbrown• 14 years ago

Pincus brags on camera about how he got started by putting malware on customer's computers. Why is it surprising that he would pull something shady now?

bkmrkr• 14 years ago

http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany...

http://www.sec.gov/Archives/edgar/data/1134069/0001209191120...

ouch

brianjyee• 14 years ago

I'm in the "insider trading should be legal" camp.

RyanMcGreal• 14 years ago

Flagged as irresponsible linkbait. The article itself acknowledges that these people "only sold a fraction of their holdings, so they've been hammered along with the rest of Zynga shareholders by the subsequent collapse."

neurotech1• 14 years ago

This is ridiculous! Zynga is an over-inflated bubble stock, simple as that. Every Retail Investor/Stock Broker/Investment Advisor should always be watching what the Insiders do. If a CEO of a company dumps significant amounts of their stock holdings, watch out. It's as simple as that.

If hypothetically, Larry Page & Sergey Brin sold off a large chunk of their stock, I'd be a sign to be careful of Google stock until the market reacts and the reasons are fully known.

joshu• 14 years ago

the VC insiders were likely going to sell based on the instructions of the LPs (either to distribute cash or stock) and not for any other reason...

ghshephard• 14 years ago

Because I have a friend working at Zynga, I'm sad that their stock is going down - but, given Zynga's business model of wholesale ripping off other people's game concepts, and slapping down their own art and calling it "new" (Dream Height versus Tiny Towers) - I'm actually pleased that their stock is taking a hit.

I've even heard it rumored that Pincus actually _encourages_ his team to take other people's game concepts, and change the trade dress/graphics art and market it under the Zynga name, rather than investing in creating brand new game concepts.

I worked at Netscape at the end when we decided to just wholesale clone Yahoo's portal, and create "Netscape.com" - people worked really hard, wall after wall was covered with mockups of Yahoo, and the equivalent netscape.com version - it was a thoroughly depressing place to work, and any engineer with a sense of self worth quickly departed.

I'm not saying there isn't a business model there - I'm sure there is - it's just not one I would hope the best engineers would aspire to.

iblaine• 14 years ago

It is common for 100% of all shares of an IPO to come from insiders and VC firms? Or should at least some of it come from the company itself?

teeja• 14 years ago

Whenever I read about these things, the words "milking machine" come to mind. Get enough cows in the barn and turn 'em on.

mkramlich• 14 years ago

If one sells stock for $200m cash, like Pincus did in this case, arguably one would be immune from being "hammered" later on. Assuming he does reasonably safe/wise things with that cash.

Zynga Insiders Who Cashed Out Before The Stock Crashed

Related Stories