The suit was probably inevitable. As we first reported, the Sacramento-based firm of Kershaw, Cutter & Ratinoff has been looking for victims of scammy ads in games like Mafia Wars and Farmville to potentially file a class action suit. Less than a week later, the firm's suit has hit federal district court in Northern California.

You can read the initial complaint in full here.

Neither gaming startup Zynga nor social network Facebook actually originates the advertisements in question; instead, other companies take out ads in Zynga's games, which run on Facebook's network, and the two companies make reportedly large sums of money from the offers. Some of the ads trick users into signing up for unauthorized cell phone charges or expensive mail-order products like educational CDs, typically by disguising them as "free" offers or "free trials," or as part of an "online quiz." TechCrunch has run an aggressive series of articles, cataloged at the bottom of this post.

Zynga reportedly takes in close to one-third of its revenue from "commercial offers" like those, and Facebook does well too, as KC&R lawyers point out in their complaint. An excerpt (click to enlarge):

Swift's attorneys also point to Zynga CEO Mark Pincus' damning video confession that "I did every horrible thing in the book just to get revenues" in their complaint, indicating it will be a significant piece of courtroom evidence, just as we predicted.

The prospect of being on the hook for massive damages has to make both Zynga and Facebook's investors sweat. Facebook is the darling of Silicon Valley, with VCs having valued it in the billions of dollars, while Zynga counts the elite firm of Kleiner Perkins Caufield & Byers among its major investors. Yet both companies have come to rely on greasy advertisers for much of their revenue; in addition to the game-ad scammers, Facebook is also sells ad to marketers who resort to tactics like using stolen pictures of apparent underaged girls to promote their products. If the company's are found to be liable of helping con customers by working with these sorts of slimeballs, it's hard to say where the payouts might end.

Below, an excerpt of the scams allegedly perpetrated on the lead plaintiff in the case, Rebecca Swift.

(Top pic: Facebook CEO Mark Zuckerberg, by Raphaël Labbé)

[Full court filing]

TechCrunch publisher Mike Arrington began writing his high-profile posts exposing the misleading ads carried by Zynga on October 31. Four days later, according to documents filed with the SEC yesterday, Zynga began issuing shares as part of its latest $15 million round of financing that included firms like the gold-standard Silicon Valley shop Kleiner Perkins Caufield & Byers (past investments: Google, Amazon, Netscape, etc.), as PaidContent points out.

Of course, it took until Nov. 6 for video to emerge of Zynga CEO Mark Pincus admitting that some of the ads his company ran were "horrible." But we'd venture to guess that Zynga's investors, now into the startup for at least $54 million, would still have gone forward with their investment even that video emerged earlier. They care no more about Zynga's murky origins than they did about those of Zynga's chief clients like MySpace (born from a spam and spyware operation) and Facebook (which paid $65 million to settle claims it was founded on stolen technology). In Silicon Valley, the sins of the past are regularly washed away by infinite promise of the all-important future.

(Pic: Zynga CEO Mark Pincus, by Joi Ito)

Amid withering press from TechCrunch and other outlets, the Zynga CEO has finally removed scammy commercial offers from his company's online games, like Mafia Wars and Farmville. That's nice. But maybe the whole scandal could have been avoided if he'd taken a less skeptical take on his Harvard Business School ethics class. From his 2006 blog post about the class:

The school had this bullshit 3 week class called 'ethics' which we all took together at the outset of the program - guess it was to make sure we all had at least heard the term a few times and might feel more comfortable even using it...

Pincus goes on to tell how his amoral, investment-banker classmates defended a banker who left a sick Indian man behind to die in order to finish climbing a Himalayan mountain the banker had long wanted to conquer. Pincus accused his classmates of moral bankruptcy and became a black sheep, he says.

He was also aghast when a fellow student got off with a slap on the wrist after he was caught stuffing the ballot box in an election to head the school's Finance Club. Pincus thought he would be expelled or at least suspended for a year.

I'd soo love to know where that kid's career went and what he's doing today. He must be a major leader as he soo gets our system.

Pincus ended his blog post on an optimistic, pro-ethics note, saying that "this century's newest success stories" like Google, Bill Gates and eBay "are about authentic people taking responsibility and serving all stakeholders," i.e. acting ethically, donating money to charity, etc. Despite this conclusion, Pincus soon found himself on a darker path; he was soon doing "every horrible thing in the book to... get revenues right away" at Zynga, he told fellow entrepreneurs at a mixer earlier this year.

Said mixer wasn't the first time Pincus gave up a sleazy vibe; check out the tweets below from entrepreneur and former Valleywagger Alaska Miller. Apparently Pincus' ethics were derailed some time after he wrote that "authentic people" are the bright future of American business. It's hard to know whether to the blame that stumble on Pincus' obvious cynicism toward his Harvard ethics class — or on his failure to cling to his cynical conclusions more tightly through the years.

(Top pic: Pincus, by Joi Ito)

Sacramento-based Kershaw, Cutter & Ratinoff, LLP is looking for people who faced "unauthorized charges imposed on Facebook and MySpace users who participate in social games like 'Farmville' and 'Mafia Wars.'" The firm, which said it has launched an investigation into such scams, specializes in class action suits, among other areas.

Mike Arrington's TechCrunch has posted a series of articles on the issue of sleazy revenue models for online games, exposing the practice of sneaking mobile data subscriptions and pricey "learning CD" packages past players trying to earn online "points." Mafia Wars and Farmville creator Zynga gets a third of its revenue from such "commercial offers," while Facebook in turn gets 10-20 percent of its money from Zynga, according to Arrington.

Zynga has yanked some of its ads; Facebook, in turn, has suspended one of Zynga's smaller games. But there's evidence this issue could have been addressed much sooner. TechCrunch found video (below) shot this past spring in which Zynga's CEO said he "did every horrible thing in the book to, just to get revenues right away."

That sounded bad enough when it was reprinted on a tech blog; imagine how it's going to sound in court.

(Top pic: Zynga CEO Mark Pincus, possibly calling his lawyer, by Joi Ito.)

The Valley fad of social network games like Mafia Wars and Farmville disguise old-school scams, Mike Arrington has been demonstrating over at TechCrunch this weekend. High-revenue don of social networking games Zynga, which makes the aforementioned Mafia Wars and Farmville, gets one-third of its revenue from various shady "commercial offers" and lead-generation systems, Arrington reports. Here's how HotOrNot founder James Hong described the social networking cash scene in a TechCrunch comment:

The offers that monetize the best are the ones that scam/trick users.... i'm pretty sure most of the money ended up getting our users hooked into auto-recurring SMS subscriptions for horoscopes and stuff.

Examples, via TechCrunch:

• "Users are offered in-game currency in exchange for filling out an IQ survey... They are told their results will be text messaged to them... and are texted a pin code to enter on the quiz. Once they've done that, they've just subscribed to a $9.99/month subscription."
  
• "Users are offered in game currency if they sign up to receive a free learning CD... The user is told they pay nothing except a $10 shipping charge. But the fine print, on a different page from checkout, tells them they are really getting a whole set of CDs and will be billed $189.95 unless they return them."

There's an entire thriving "ecosystem" devoted to these sort of "deals," the sort of thing that in a different context might just be called a "crime ring." It's a profitable network, at least for the people at the top: Arrington estimates Facebook might be taking in $50 million per year from Zygna alone.

So, social networks are basically turning in to just another snakeoil sales channel in the mold of late-night 1-800 number commercials. Which sucks not only for the marks who've been duped but, ultimately, for Facebook's investors, since taking this sort of easy cash reduces internal pressure to come up with some sort of truly innovative revenue stream.

Not to mention what it does to user trust: Who's going to want to hand over their credit card information or even cell phone number to the likes of Facebook amid all these scams? (Answer: People who passed their "IQ test" with flying colors and a useless $10/month subscription.)

That's interior designer Ken Fulk's good fortune, according to an article by Deborah Schoeneman in this month's C magazine (think W for California — the article is not online but you can always order a subscription). Ridiculously wealthy startup founders just hand Fulk large bundles of money — or even a blank check — and set him loose. Why second guess your designer when your life is spent buried in software subroutines or analyzing internet business models?

Mark Pincus, the Harvard MBA founder of local networking site Tribe.net and social gaming network Zynga, and his wife "never consulted with their decorator on so much as a paint chip or swath of fabric" for their Cole Valley home. Programmer Michael Birch, who with wife Xori sold the social network Bebo to AOL for a ridiculous $850 million, gave Fulk an "elastic budget" for re-doing their $30 million Pacific Heights mansion, specifying only that Michael wanted a full-service pub imported from London.

How did the projects work out? Wonderfully, if you're in love with electric-blue lacquered walls, animal heads, and very loud stripes. zebra-print rugs and muddy-looking busts on your coffee table. Examples of Fulk's handiwork, from C, in the gallery below. The last item includes a description of Fulk's insane closet.

(UPDATE: This post originally contained a picture of Fulk's own place mis-labeled as Pincus' place. We have corrected it.)

Tribe.net founder Pincus' place in Cole Valley.

Bebo founder Michael Birch's mansion in Pacific Heights.

Designer Fulk. According to C, his own loft is decorated with "lots of taxidermy, vintage furniture and portraits. Instead of a closet, his clothes hang on a rack sheathed in black bags to protect them from the sun. Each bag is affixed with a Polaroid of the outfit inside. His name is printed on the bags as if it were a fashion label."

Zynga makes its games easier to win for users who successfully spam their friends into signing up to play. See the above image for how Zynga does this with Attack, its version of world-concquering game Risk. The problem for Zynga and its new investors: The executives who run Facebook's platform don't like this kind of viral growth. In a blog post Monday, Facebook's Paul Jeffries explained:

Facebook is about empowering and connecting people through the sharing of information. That’s undermined if users who receive an invitation or other communication suspect it was sent for an ulterior motive, such as gaining points in a game.

Yesterday, Jeffries' thoughts became rules for the Facebook platform. According to Inside Facebook,

Applications are no longer allowed to “create artificial or inappropriate incentives to use Facebook features (including, for example, sending requests and adding profile boxes).

In the past few weeks, Facebook has temporarily banned apps by top widgetmakers Rock You and Slide, and has punished other popular app makers too, making it clear that widgetmakers which break Facebook's ever-changing platform rules — "crack its code," so to speak — don't get away with it anymore.

That is, unless they're announcing funding from Kleiner Perkins on a day dedicated to convincing Facebook developers that such a sweet deal could happen for them, too.

"VideoEgg is the bait and switch. CPM is bullshit, and [Facebook's] Social Ads are bullshit," said Mark Pincus during a panel on Facebook applications at the annual Game Developer's Conference. Pincus said he was lucky to get 5 cent CPMs on his apps. What Pincus didn't mention: His competitors at Social Gaming Network are making at least $100,000 a month from their Warbook application — all from VideoEgg-run advertising campaigns.

The venture is called the Zynga Game Network and it's the company behind social network apps such as "casual games" Poker, Attack, and Battleship. So far, Zynga makes all its money by promoting other applications, earning 50 cents each time a user installs one on their profile.

Pincus told the New York Times Zynga has already broken even and has not yet tapped into any of its venture capital. Users click on about 50,000 links to application install pages each day.

Let us know when Coca-Cola buys ad space. Until then, the Facebook application platform will remain a viable economic ecosystem like the Hapsburgs were a model of genetic diversity.

I had an amazing 6 course meal (hers and mine) and then realized she was too sick and passed out for me to propose. At one point Ali woke up to say 'I'm glad were not getting engaged tonight!'
—
Luckily, the chocolate desert brought her back. We stopped in the vip salon for tea and fruits, and with her forming whole sentences I realized she could now coherently accept a proposal.

• Blogger Michael Arrington holds his New York City TechCrunch party at BED, the bar/restaurant furnished with beds instead of couches, once featured on Sex in the City. One Yelp reviewer says, "It's a definite must for the bridge-and-tunnel crowd." Expect plenty of confusion as the selective bouncers reject Arrington's more unfashionable guests. [TechCrunch]
• Meanwhile, Arrington keeps collecting blog enemies, including Paul Stamatiou, who puts Arrington at the top of his list of insufferably ignorant bloggers with undeserved fame. [Drums n Whistles, Paul Stamatiou]
• How do startup founders prepare for fawning profiles in the mainstream press? By getting fawning profiles in the college press. Most ridiculously laudatory line: "Gregarious and not exactly shy, Afrooz has already assembled a respectable number of Facebook friends at Berkeley, despite living off campus." [UC Berkeley News]
• MySpace gets ready to scrub copyrighted music from the site — not such a big deal since every band puts its own music up there anyway. [Reuters]
• Tribe.net founder Mark Pincus gets an e-mail from the head of yesnomaybe.com. The new dating site begs the males dominating its user base to sign up their hot female friends. As Mark notes, what a lame plan — and free premium accounts for women is a sure sign of a lousy dating site. [Mark Pincus]
• A Forbes writer brilliantly spins the plague of awful startup names (Pluggd, Gabbr, Wufoo) as a sign of prudent spending — these unregistered domains cost their new owners about eight bucks a pop, instead of the $10,000 demanded for URLs like plugged.com. [Forbes]
• Local video blog Geek Entertainment TV interviews Apple co-founder and Segway enthusiast Steve Wozniak about the company's recent recall. [GETV]

It isn't, naturally — it's more likely just that the paper naively picked up a revenge story from businessman Murry Gunty. See, Pincus blogged about his classmate Gunty this January, recounting some old college ethical scandal and citing Gunty as an example of an unpunished bad businessman. Gunty wasn't happy, so he called Six Apart — the people who host Pincus's blog — to tell Pincus to take down his article or remove Gunty's name.

Pincus, liberal First-Amendment-Rights-believing hippie that he is, said no. Six Apart's execs checked out the situation, decided Pincus was right, and stopped bothering him. A few weeks later, the Washington Post turned it into a story of how bloggers can wreak havoc on someone's reputation.

The Post says Gunty declined to be interviewed for its new story, but Pincus accuses Gunty of hiring a PR firm to get this story published. Geez, if Gunty did that, he really got screwed, since the Post calls him out for censorship and raises the whole unsavory issue to the public again.

So Pincus is acting like a paranoiac, and even his blog commenters are arguing that the Post piece was really pro-Pincus. Looks like you can't rile up a mob like you used to.

This is a stupid move for Pincus. First off, he could have passed this off as a positive article just by picking different excerpts. Chalk that one up to his lack of slick PR ability. Second, this is especially bad timing since he's recently re-entered the public eye by returning as Tribe's CEO just a few weeks ago. He's exposing the tired "old vs. new" trick, which bloggers don't buy any more, and that can't help his popularity among the insular crowd at Tribe (where many members know and love Mark).

In any case, Mark shows the responsiveness that makes Tribe users love him, posting a comment on his own post acknowledging other commenters' points. Chances are this is just a hiccup for a happy hippie.

(Update: Edited for clarity)
Hard-Learned Lesson: Don't Try to Censor A Blogger [Washington Post]
I got skewered today in the washington post! [Mark Pincus]

• Not to be Tribe.net's bitch or anything, but I'm looking forward to the redesign they're launching today (according to a source). That'll be the first big change now that founder Mark Pincus took back the company. [Tribe]
• The TechCrunch blog network is launching a site about enterprise services soon, blogger Nik Cubrilovic confirmed. We just don't know when, or what it's called (BizCrunch? Crunchacle?).
• Meanwhile, marketer Jennifer Rice is the new, as-yet unannounced general manager of TechCrunch proper. On her blog, Rice says: "My clients hire me for one or more of the following reasons. 1. Revive a stagnating brand." [About Jennifer Rice]

Guest feature by Beth Gottfried

In a reality-show-stopping theatrical move worthy of Survivor, Mark Pincus, Founder of Tribe Networks, Inc., an online classified and social networking site (think "Craigslist meets Friendster") ousted former CEO Jan Gullet (a suit from Pepsi and Procter & Gamble), and the Board at Tribe this past week and announced his reclamation of his post via blog. Originally the post was thought to be a hoax, as reported by TechCrunch, but it's since been confirmed that "The Ants (or Mark) Took Over" and everyone is euphoric, with the exception of Jan, the Board, and possibly alleged Tribe's would-be buyer, NBC who may or may not be shitting bricks, or anthills as the analogy goes. Anyway, Mark is the sole queen of said anthill now.

While little is known about the new and improved business plan, Pincus seems eager to get Tribe's focus back to grown-up communities. And yes, most likely the aging Baby Boomer demographic. Insiders say, "Mark is holding his cards close to his chest. He and six engineers have worked on a business plan since May. He doesn't have any marketing, sales, or administration folks." We all know that adage about too many cooks in the kitchen. As to whom Mark might be working with, speculation also points to Elliot, Tribe's former designer under Marc, who had the following to leak: "I predict it's going to feel like everything old is new again around here." Something tells us he knows a bit more than he's letting on.

Sharing in Elliot's enthusiasm for the return of Mark (and his faithful canine companion Zinga) are a good many of Tribe users who have shown bucketloads of love for the man who brought the concept of Free lovin' and Meet-Ups into harmony. Hey, it beats Jan Gullet's corporate Tribe mission statement rhetoric: "Personal satisfaction from high-touch human relationships."

Warm fuzzy feelings aside, Pincus has his work cut out for him, not unlike Steve Jobs when he had to resume his duties with Apple after a disastrous hiatus involving CEO John Sculley. The takeaway for Jobs and Pincus: Never hire a Pepsi Exec to do a visionary's work.

The major concern in Mark's return is the viability of Tribe as a social networking site and whether it can exist and thrive on a global level. Tribe power-userEran Globen asserts that the allure of the site as a community gathering device is mostly a San Francisco/West Coast Neo-Hippie fad that never really took off elsewhere, perhaps largely because the site is dependent on the intimate relationship between Pincus and his community of users, which includes attending events and bonding with Tribesters personally.

Globen also contends that Tribe's best option is to go the way of technology platform as an outsourced community tool and to work on improving upon existing platforms, such as modular user profiles (users can already embed profiles from sites like Flickr) with inherent feeds to weed out useless info, synchronized calendars with Google and Outlook, and broader syndication for events. Tribe insiders say Globen may as well have read their internal plan — they're about to do all he said.

Globen's insights also shed light on the the Tribe Called Quest for Money, namely the impending NBC deal. How will this new corporate make-over effect the standstill (sorry, the "Due Diligence process")? NBC previously bought iVillage and stated that they were after Tribe's platform. With Pincus back at the helm and more Tribe confidence weighing in, it's conceivable that there will be more money by way of investments and that Pincus will work on improving upon Tribe's existing technologies (and that $5 million rumored valuation).

Given who he is and what he stands for, we think it safe to say that Pincus will nurture his Tribal conquest a bit longer before selling out to the highest bidder, which will most likely not be NBC.

Where Could Tribe Go? [Eran Globen's blog]
Earlier: Holy shit, Mark Pincus saves Tribe! [Valleywag]
Photo by JD Lasica, Creative Commons license [New Media Musings]

• CEO Jan Gullett, laregely derided as a corporate tool (pictured) by Tribe's more outspoken anarchohippies, is so out. Hell, they'll probably frog-march him out of the office.
• Tribe is back to focusing on adults, since the teens have long since fled to MySpace.
• No more "big stupid masthead," as Mark said on his blog.
• Mark says he's the only board member. He's building his new business plan with his engineering team, and he has no marketing team. Foolhardy? Maybe. Refreshing? Hell yes.

Former Tribe leader Pincus back at helm; pledges "new direction" [SiliconBeat]
Earlier: Holy shit, Mark Pincus saves Tribe! [Valleywag]
And: Tribe update #1: Yes, Virginia, there is a takeover. [Valleywag]