09:24 AM

Arrington Defends Zynga Scam Story From Top New York VC

Mike Arrington has hit back at Fred Wilson, New York city's leading VC, over allegations that he ignored facts in a news story about online scams that included Zynga, a top gaming company.

Zynga is one of a just few tech startups that is likely to have a successful IPO in 2010 -- at least that seems to be the consensus among its latest investors who piled into a recent $180 million funding round.

It hosts online games that are promoted on social networks, such as Facebook. However, it has been linked to scammy business practices in a series of articles published on TechCrunch late last year.

VentureBeat has a video of Zynga CEO Mark Pincus publicly admitting "I did every horrible thing in the book just to get revenues."

Mike Arrington criticized Zynga, as well as other companies, for knowingly benefiting from scams that bilked people out of millions of dollars through sham sales of services.

[Scamville: The Social Gaming Ecosystem Of Hell]

At the time, I wondered about the reaction of Zynga's A-list investors to the scandal, especially since CEO Mark Pincus had failed to stop scam ads appearing:

Zynga Credibility Evaporating - What's The Effect On Its Super Star VC Investors?

Fred Wilson, one of New York's top VCs at Union Square Ventures is also a lead investor in Zynga and although he replied to my post, he wouldn't say anything about the controversy -- until now.

Business Insider found an interesting exchange of comments on Mr Wilson's blog in which he defends Zynga and its CEO and says Mike Arrington did not look at the facts and that quotes were taken out of context.

- "nobody who got involved in that shitstorm took the time to really do the work and look at what Zynga did and did not do. or compare it to Google and everyone else who does way worse on a daily basis. the whole thing totally annoys me. it's not fair."

- "the 'scammy ads' thing is total red herring that everyone got excited about but is almost entirely irrelevant.

You can read more here:
TechCrunch's ScamVille "S---storm" Was "Unfair," Says Zynga Investor

Mike Arrington responded with:

...to deny that there was ever a problem is irresponsible. And to suggest that we didn't take the time to understand the facts is outrageous. In addition to the 22 posts where we spoke to dozens of sources on and off the record, I asked Pincus to go on video with me to tell his side of the story without editing. He declined.

Mr Wilson is probably wishing that he had remained silent. This whole issue of scam ads has now resurfaced and it can drag in more companies than just Zynga.

Mike Arrington has named Facebook as an accomplice to Zynga, and even Fred Wilson has fingered Google, writing, "...Google and everyone else who does way worse [than Zynga] on a daily basis."

It's very bad timing because Zynga is being dressed for a possible IPO later this year. Questions over the source and quality of its revenues will spook potential shareholders.

I think this is an excellent subject and one of Mike Arrington's best stories and I hope that other news organizations take an interest, such as the New York Times, and take the story further. If I had the resources I would launch a series of investigations because if you follow the money, this story touches many large companies.

I'm glad that Fred Wilson has re-opened this story because it could become one of the best of 2010.

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Please see:

The Dark Matter Of Internet Commerce - A Towering Pile of Scams - $1.4Bn And Counting...

Shocking: NYTimes Article On Virtual Goods Misses Huge Controversy

Zynga CEO Mark Pincus: "I Did Every Horrible Thing In The Book Just To Get Revenues"