Facebook and Zynga, are in the wars. Executives of the online games firm (of FarmVille fame) have been accused of selling shares while hiding evidence of the company's weakness.
And a client and an analyst have raised doubts about Facebook's display-ad business, which brings in almost 90 percent of its money.
The double whammy was delivered yesterday by www.SiliconValley.com, a website of the San Jose Mercury News.
Limited Run, a New York-based startup for musicians, and artists, selling digital and physical products, said on its Facebook page on Monday that it had discovered 80 percent of the clicks on its Facebook display ads were from "bots," or automated programmes. It said it was leaving Facebook.
Advertisers pay the social network every time a user clicks on their display ads , so the accusation that clicks are from bots and not Facebook users could be devastating to the company's display-advertising business, said SiliconValley.com. .
The analyst raising doubts on Facebook's prospects was Bernstein Research analyst Carlos Kirjner. He published a note valuing Facebook's display-ad business at $19 a share, with $4 for potential future developments. Kirjner said that gave a price target of $23 a share, compared with the IPO price of $38 a share.
Facebook's stock fell fell as low as $21.61 on Tuesday before closing at $21.71, a 6.2 percent drop on Monday's closing price.
As for Zynga, it may have to go to court to prove that it did not know of revenue weakness in April, when executives and early investors sold shares for $12 apiece - bringing in $500 million.
A New York law firm yesterday brought the first of what Silicon Valley.com said was expected to be multiple lawsuits against the company , claiming insider trading.
Zynga stock closed below $3 for the first time on Tuesday, ending at $2.95.