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Zynga's COO May Lose Creative Control as New Double Lawsuit Surfaces

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As growth continues to slow in Farmville's hometown, better known as Zynga (NASDAQ: ZNGA), Chief Operating Officer John Schappert may have lost his role - one that required growth revival for the floundering company along with product oversight. The news coincides with two lawsuits that shareholders recently filed against the game maker, claiming that it kept financial struggles a secret from those invested.

According to Businessweek, Schappert's loss of creative control is part of an overhaul that Chief Executive Officer Mark Pincus started in early July. While the news has yet to be confirmed by Zynga itself, Schappert has, “lost support within the company and taken some of the blame for underperformance.”

As anti-climactic as an overhaul may seem, it is certainly interesting that Zynga chose to cut Schappert's duties as the company once felt he was so right for the job that it lured him away from his previous position at Electronic Arts (NYSE: EA) just about one year ago. However, Zynga shares are down almost 70 percent in just the last 365 days alone, signaling that something definitely needs to change for the company to stay afloat.

Investors have taken notice to the problems plaguing the social game service as well, placing direct blame on the company's lack of honesty.

Two stockholders in specific are, “taking the company to task for allegedly concealing threats to its business and sales growth, such as Facebook platform changes that made it easier for users to find rival games,” Reuters reports.

The lawsuit follows Zynga's dismal full year outlook, as the company slashed 2012 EBITDA guidance in half during its second quarter earnings report on July 26. While surely much of the responsibility concerning declined bookings and poor results in general can be tagged to the game maker's management, Facebook (NASDAQ: FB) has played a part in bringing down its infamous gaming platform.

Fortunately for the social network, lawsuit-happy shareholders do not care to punish both companies. Zynga is taking the brunt of the heat for “misrepresenting” or “failing to disclose material adverse facts” to investors.

The innovator behind Mafia Wars and Petville has a lot of explaining to do, and clearly some managerial changes to make. As analysts and shareholders await comment from the company itself, Zynga continues on its steadily decline.

Zynga closed Tuesday at $2.95, down 68.65 percent year-to-date.

Posted-In: BusinessWeek farmvilleNews Topics Legal Management Tech General Best of Benzinga

 

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