Inside Gaming: Zynga Faces Shareholders Lawsuit, NGC Scolds Caesars, and Harry Reid Stepping Down

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Harry Reid

In this week’s installment of Inside Gaming, the struggling social gaming company Zynga faces a lawsuit being brought against them by their shareholders, the Nevada Gaming Commission lets Caesars know what they think about the company’s bankruptcy, and Senator Harry Reid surprisingly announces this morning he will not seek reelection in 2016.

Zynga Shareholders Allege Fraud, Allowed to Pursue Lawsuit

A United States District Judge ruled this week that shareholders of Zynga may pursue a lawsuit claiming the social game company hid from them relevant information about a decline in user activity, did not reveal how changes to Facebook would negatively affect demand for Zynga games, and over-estimated its revenue forecast.

Reuters reported yesterday that U.S. District Judge Jeffrey White in San Francisco ruled in favor of the shareholders being allowed to proceed after having dismissed an earlier version of the lawsuit in early 2013. “The lawsuit was based in part on at least a half-dozen confidential witnesses,” reports Reuters, “and White said their testimony supported the claim that Zynga management intended to commit fraud.”

In his ruling White elaborated that the “Plaintiff alleges that the officers at Zynga obsessively tracked bookings and game-operating metrics on an ongoing, real-time basis with regular updates on the activity and purchases by every user of every Zynga game,” yet did not share the information with them. “Confidential witnesses all corroborate that the updates on game users and spending data was readily accessible to Zynga’s management.”

The charge of an inflated revenue forecast refers to the one made for 2012. After setting a price of $10 per share of its IPO in December 2011, the share price would peak at $15.91 in March 2012 before dropping precipitously thereafter, falling below $3 per share by July 2012.

“Shareholders... also claimed that Zynga hid its weaknesses to enable insiders to sell $595 million of stock before a post-IPO lockup was to expire,” thus enabling them to “avoid a roughly 75 percent drop in its share price” that would occur from March-July 2012. Zynga is currently trading at $2.73 a share.

Head over to Reuters for more on the lawsuit and Zynga’s recent and current troubles.

NGC Dresses Down Caesars

The story of the increasingly complicated efforts of Caesars Entertainment Corp. to manage part of its industry-leading debt via filing Chapter 11 bankruptcy on its largest operating division slowly continues to play out in court. Meanwhile this week Caesars executives appeared before the Nevada Gaming Commission in order to obtain approval for certain administrative matters with the meeting also providing an occasion for the NGC to receive an update on the bankruptcy proceedings.

Vegas Inc reports how that meeting became an occasion for the NGC to “scold” Caesars, with Chairman Tony Alamo “call[ing] the bankruptcy case an embarrassment to Caesars and the state of Nevada,” referring as well to reports this week of Caesars employees no longer receiving retirement benefits.

Commissioner John Moran additionally expressed skepticism about Caesars executives continuing to receive bonuses amid the restructuring and bankruptcy, while Commissioner Randolph Townsend characterized “some of the decisions this company has made over time” as being “completely perplexing.”

Read more about Caesars’ status update to the NGC and the Commission’s response at Vegas Inc.

Sen. Harry Reid Will Not Run Again in ‘16

Finally, there is breaking news this morning that Senator Harry Reid (D-Nev.) has announced he will not be seeking reelection in 2016. The 75-year-old had previously indicated an intention to run for a sixth term as U.S. senator, but today cites health reasons as the cause for his decision to step down. Nearly three months ago, Reid suffered an accident while exercising in his home in which he broke ribs and bones in his face while affecting his vision in his right eye.

The announcement is of course significant with regard to the balance of power in the Senate as well as the battle for Reid’s seat next fall, with observers already speculating about the possibility of the state’s current Republican governor, Brian Sandoval, making a run for the office. Reid’s retirement will also earn notice in the gaming industry thanks to his frequent involvement in legislative battles concerning online gaming over recent years.

During December 2010 — just a few months before Black Friday — the poker world was focused intently on then Senate Majority Leader Reid and the possibility of his pushing through federal legislation to license and regulate online poker during the lame-duck session. Despite different versions of the bill being leaked and the apparent building of momentum toward such an occurrence, the legislation failed to move forward.

Then in 2012, Reid and Jon Kyl (R-Ariz.) proposed a new bill, The Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act, after having jointly penned a letter the previous summer urging the Department of Justice to redouble efforts to stop illegal offshore sites from serving U.S. customers. That legislation also failed to move forward.

More recently amid debates over the newly-proposed Restoration of America’s Wire Act (RAWA) — discussed just this week in a hearing of the House Judiciary Subcommittee on Crime, Terrorism, Homeland Security and Investigations — Reid’s position on the issue came under scrutiny again after an interview with the Las Vegas Review-Journal in December 2014 found him expressing an intention to support federal legislation to prohibit online gambling.

The article reports Reid’s intention “to try to carve out an exemption for poker in the Senate if the House... passed an online gaming ban,” with Reid alluding to his earlier failed legislative efforts by noting “Just to get poker alone is not going to work... we tried that.” The article also reports Reid denying a rumor that Chairman and CEO of the Las Vegas Sands Sheldon Adelson (and fierce RAWA supporter) had any “gentleman’s agreement” regarding Reid’s supporting RAWA in exchange for Adelson’s support for Reid’s then-anticipated 2016 reelection bid.

“Sheldon Adelson and I have been friends for a long time but on politics he and I don’t agree,” Reid told the LVRJ. “I’m glad he joined my position (on Internet gambling), but no, there was nothing,” he added, referring to the rumor of an agreement.

Visit The Wall Street Journal to read more about Reid and his decision to conclude a three-decade long career in the Senate.

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