Zynga Makes Free-To-Play Games and Gets Revenue from the Sale

Essay

Zynga makes free-to-play games and gets revenue from the sale of virtual goods for things like extending play sessions, personalizing game environments, accelerating game progress and sending gifts to friends. The company experienced deep declines in its user base during 2011-2013. At one point, plaintiffs in a lawsuit charged that Zynga executives falsely pumped up revenue and prospects so that insiders and underwriters could dump $593 million in personally-held stock.
The lawsuit alleges that the company changed its accounting methods shortly before the initial public offering to inflate short term earnings while executives hid emerging problems. Assuming the charges are true, do you believe Zynga management engaged in earnings management? How do you evaluate the ethics of its actions?