Facebook Should Put Zynga Out of Business Immediately

NEW YORK (TheStreet) -- As a Facebook (FB) long, I just want to see Zynga (ZNGA) go away.

The idea that Facebook or Amazon.com ( AMZN) should buy Zynga stinks of surface-scratch thinking from people who couldn't come up with an original idea to save their virtual farms or frontiers. In fact, Facebook, Amazon and any other company even loosely related to the new media space should do everything in their power to stomp out Zynga.

Zynga is bad for business. Zynga gives tech, startup culture and employee stock options a bad name. Zynga gives people who perpetuate the lame 'Web 2.0 Bubble' meme firepower.

Of course, Facebook drops in what we like to call "sympathy" every time Zynga announces what an inept company it is. That happened Friday when Mark Pincus's operation lowered expectations again and saw its stock crash by as much as 22%.

If regulatory agencies, teams and leagues require athletes to undergo random drug testing, there's no reason why we shouldn't subject corporate CEOs to the same type of scrutiny.

I have no issue at all with people getting rich. Most of the people I know or follow closely in the tech space appear to deserve every penny of it. They work hard. They innovate. They strive to change the world. Some actually do. I don't even have a problem with Netflix ( NFLX) CEO Reed Hastings getting fat, as he did prior to Netflix's crash, on stock options.

Insider selling of stock is a way of life, particularly in Silicon Valley. That's how executives and, increasingly, the rank-and-file get paid. I would cash in options as early and as often as I could regardless of how well the company I worked for was doing. Like any other investor, folks with options need to secure their futures and diversify.

That said, somebody -- like maybe the SEC (!) -- needs to step in at least occasionally to, at the very least, ask some questions.

As Business Insider nicely details, the institutions and individuals who sold ZNGA for $12 a share into the company's April secondary offering likely didn't do anything wrong.

As irked as I am with Pincus snagging $200 million in the secondary just months before reporting a horrendous quarter, I don't believe he did anything illegal. The timing looks terrible, but I have a hard time believing Pincus as well as others who profited set some grand scheme into motion with knowledge of the pending train wreck.

Honestly, the timing reflects more on what a crappy business Pincus runs than any moral or legal shortcoming. The story here is that Zynga management had -- and maybe still has -- such poor visibility, not that they duped investors with reckless disregard. Maybe I'm naive, but I don't take most people, including Pincus, for that type of egg.

On the odd chance I am naive, however, shouldn't the SEC step to the plate? Or does what happened with Zynga merely begin and end with the benefit of the doubt and the standard ambulance-chasing class action lawsuits?

It seems to me that if we're not going to give the athletes we randomly drug test, for example, the benefit of the doubt, we shouldn't give it to CEOs who collect $200 million prior to a stock crash. Why can't the SEC invade Pincus and Zynga's privacy like sports leagues and regulators invade an athlete's? After all, Zynga is a public company.

It's hardly crazy for investors to expect the SEC or the Justice Department or another government entity with some power to maybe ask Pincus, other insiders and the investment banks who underwrote the secondary for records of all pertinent communications leading up to, during and in the months after the secondary bonanza.

It's perfectly acceptable to go on a witch hunt against Lance Armstrong, but the government sees no reason to inquire with Zynga, to ask Pincus and the others involved a few questions.

If there's any justice in the world, they are, but we just don't know about it. Possible, but I'm not holding my breath.

Chances are nothing would come of it, but, even so, I would not consider an inquiry a waste of the public's money. What's a few more dollars? ZNGA shareholders already took a brutal beating; the government can use some tax revenue to make sure everything's on the up and up.

Ultimately, I would love to see Facebook take matters into its own hands. The company has already played a meaningful role in Zynga's implosion.

For as much as people dog Mark Zuckerberg for how he treats Facebook users, he did right by us with Zynga. The constant flow of Mafia Wars and Farmville requests on Facebook was starting to annoy those of us who are not social gamers. Zuck recognized this and tweaked things a bit so less of that junk crosses our feed.

It's time to take the next step. Hook up with real companies for the gaming aspect of Facebook. Use a two-pronged strategy that will put Zynga out of its misery.

One, start outbidding Zynga for the startups it brings into its perverse fold. Maybe if Facebook accepts these companies into its innovative and nurturing environment, it can prevent Zynga from running them into the ground.

Two, breathe some life into the old guard by cutting deals with a company such as Electronic Arts ( EA). There's nothing the people at EA would love more than to squash Zynga.

There's no turnaround happening at Zynga. Don't fall for arguments that the stock's a buy because somebody will take the company over, it will go private or because of its cash reserves. We've heard this song and dance before at companies that shall remain nameless.

At the time of publication, the author was long FB.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Rocco Pendola is a private investor with nearly 20 years experience in various forms of media, ranging from radio to print. His work has appeared in academic journals as well as dozens of online and offline publications. He uses his broad experience to help inform his coverage of the stock market, primarily in the technology, Internet and new media spaces. He has taken a long-term approach to investing, focusing on dividend-paying stocks, since he opened his first account as a teenager. Pendola, 37, is based in Santa Monica, Calif., where he lives with his wife and child.

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