Barely a month after the hosted CRM application services company issued its initial public offering of common stock, the company this week was sued by its new shareholders for misrepresenting its business performance. Schiffrin & Barroway LLP became the third law firm to sign on to the suit late Thursday.
Schiffrin & Barroway filed in the U.S. District Court for the Eastern District of North Carolina on behalf of those who purchased Salesforce.com stock between June 21 and July 21. It alleges that Salesforce.com chairman and CEO Marc Benioff and chief financial officer Steve Cakebread violated the Securities Exchange Act of 1934 by failing to disclose and misrepresenting adverse facts about the companys business performance, leading up to and after the June 21 IPO.
Specifically, the suit accuses the company of knowing or "recklessly" disregarding that its revenues and earnings per share were steadily declining, then concealing that decline from investors in order to boost the price of the IPO, which netted the company $126 million. It said Benioff and Cakebread "lacked a reasonable basis" for their positive statements about the companys growth and progress.
The issue came to light July 21, when Cakebread warned during the companys inaugural analyst day that Salesforce.coms revenues and estimates for its 2005 fiscal year would fall below analysts consensus estimates.
The companys stock plunged $4.36 per share that day to $11.70 per share, losing more than 27 percent of its value. The stock has since rebounded to nearly $13 a share. The stock began trading June 21 at $11 per share and had traded as high as $17.69 per share before the analyst day warning.
The suit seeks unspecified damages. Legal action has also been filed this week by the law offices of Charles J. Piven P.A. and Lerach Coughlin Stoia & Robbins LLP in District Court for the Northern District of California. All three firms specialize in shareholder lawsuits.
Salesforce.com officials could not be reached for comment on the legal action.
Other companies in the CRM space hit with shareholder lawsuits in recent years include Siebel Systems Inc., PeopleSoft Inc., Oracle Corp., Onyx Software Corp., E.piphany Inc. and Amdocs Ltd.