Zynga Inc.’s (NASDAQ: ZNGA) market value will be down by 50% or more this year. A combination of a failed business model and insider sales have sunk the stock to $2.39 from a 52-week high of $5.89.

The maker of the Casino and Farmville games posted a drop in revenue from $203 million in the third quarter of last year to $177 million in the same quarter of 2014. Zynga posted a net loss $57 million, compared to break-even in the year-ago quarter. The fourth quarter is not expected to be any better. Management forecast:

• Revenue is projected to be in the range of $170 million to $200 million.
• The net loss is projected to be in the range of $51 million to $34 million.
• Net loss per share is projected to be in the range of $0.06 and $0.04, based on a share count of approximately 894 million shares.

There is no light at the end of the tunnel.

Stock sales by executives have riled investors, and this may lead to a major legal problem. According to Reuters:

Mark Pincus, the founder of video game company Zynga Inc, must face a lawsuit alleging he unfairly benefited by selling $192 million of stock in 2012 when other early investors were under a lockup agreement, according to a court ruling.

Also:

Lockup agreements control the supply of stock available for trading. Zynga barred investors who obtained their stock prior to the company’s initial public offering, in December 2011, from selling until May 28, 2012.

However, in March 2012 Zynga’s board waived the lockup for Pincus and four other directors, allowing them to sell stock almost two months earlier than originally expected, which the lawsuit alleged was worth $100 million.

Wall Street cannot fathom why the board would make such an obviously dubious decision.

During a year in which all three major indexes rallied sharply to record levels, Zynga’s fall stands out as a marker of the failures of its management and board.

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