Salesforce.com execs accused of misleading shareholders

A group of Salesforce.com shareholders has filed a class-action lawsuit against the online software provider, alleging that it misled investors to prop up its IPO price.

The suit was filed last week in the US District Court for the Eastern District of North Carolina on behalf of investors who purchased shares during the company's stock launch last month. It's the third shareholder suit to target Salesforce with essentially similar allegations.

The complaint, introduced by law firm Schiffrin & Barroway, alleges that Salesforce and two executives - Marc Benioff, company founder and CEO, and Steve Cakebread, board director - failed to disclose "adverse" pertinent information to investors.

"The company knew or recklessly disregarded the fact that its revenues and earnings per share were steadily declining," the lawsuit alleged. "The defendants concealed the aforementioned facts from the investing public, in order to boost the price of the IPO, which netted the company $126m."

Salesforce.com declined to comment for this story.

Salesforce, a services company that delivers customer relationship management software over the web, last month launched one of the most successful and closely watched tech stock offerings in recent years. Investors snapped up the stock, which ended its first day of public trading with a whopping 56 per cent gain.

But last week, the company's share price plummeted 27 per cent after it forecasted revenue of $165m and earnings of three cents a share for fiscal year 2005. Those figures fell short of a Thomson First Call average of analysts' estimates of $175m in revenue and earnings of six cents a share.

Two other law firms - Charles Piven and Lerach Coughlin Stoia & Robbins - have separately begun pursuing class-action cases against Salesforce and one or more of its officers and directors. Piven filed its suit last Tuesday and Lerach its case last Monday in the US District Court for the Northern District of California. Both claim that the defendants made materially false or misleading statements about the Salesforce's financial prospects.

Shares of Salesforce closed at $13.01 on Friday - roughly 18 per cent above its offer price of $11 a share.

Salesforce, however, is not alone in experiencing a sharp decline in its share price after its IPO. Internap Network Services gained 25 per cent on its first day of trading in February, but on Friday its stock traded at 43 per cent below its initial price. Atheros Communications' stock posted a gain of 26 per cent on launch, but has tumbled to around 49 per cent of its offering price.

The lawsuits are the latest challenge for Salesforce in its IPO process. The company postponed the offering a couple of times after the Securities and Exchange Commission requested that it realign its accounting methods for its sales commissions, and it had to go through a "cooling off" period after a high-profile article was published in The New York Times.

Dawn Kawamoto writes for CNET News.com