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Software Firm Taleo Hit With Shareholder Suit

A lawsuit was filed November 14 in the U.S. District Court for the Northern District of California, accusing Taleo of a scheme to defraud investors.

November 21, 2008
Related Topics: Human Resources Management Systems (HRMS/HRIS), Finance/Taxes, Miscellaneous Legal Issues, Latest News
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HR software company Taleo is facing a shareholder lawsuit after the company missed a deadline for filing a financial report last week and saw its stock drop by nearly 30 percent.

A lawsuit was filed November 14 in the U.S. District Court for the Northern District of California, accusing Taleo of a scheme to defraud investors.

The suit was filed by the Vermont-based law firm Johnson & Perkinson. In a press release this week, the firm said the complaint alleges that Taleo “misled or failed to inform the investing public regarding the company’s historical and current accounting practices with respect to the timing for recognition of application and consulting revenues under generally accepted accounting principles in the United States (GAAP).”

By improperly accelerating revenues, the law firm claimed in its statement, “Taleo was able to present to investors a rosier picture of its financial condition than the appropriate revenue figures would have depicted.”

Nate Swanson, Taleo’s head of investor relations, called the litigation “without merit and premature.”

Taleo is among the leaders in the fast-growing market for talent management software, which refers to applications for key HR tasks such as recruiting and employee performance management.

Shareholder lawsuits are not uncommon in the wake of sudden stock drops.

Taleo shares fell $3.22, or 29 percent, on November 11. That was the day after Taleo disclosed it would not file its Form 10-Q report for the quarter ended September 30 with the Securities and Exchange Commission by the November 10 due date. Taleo also said its independent accounting firm asked it to re-evaluate whether the company’s practices with respect to the timing for recognition of application and consulting revenues were appropriate. Taleo said it is reviewing the issues raised by its auditors to determine if an alternative accounting treatment should be adopted.

Stock prices of other publicly traded talent management companies have fallen in recent weeks. But shares of SuccessFactors, Salary.com and Kenexa have not dropped as dramatically as Taleo’s did November 11. On November 4, shares of Kenexa fell $2.09, or 23 percent, to $6.85, after the company said its third-quarter net income slipped by 24 percent, to $5.4 million.

Kenexa chief executive Rudy Karsan also said that during the last several weeks of the quarter, “the business environment deteriorated further and caused customers to pause as they evaluated how the changing economic climate would impact their business.”

On Tuesday, Taleo said it received a letter from the Nasdaq Stock Market on November 13 indicating that because of the delayed 10-Q filing, Taleo is not in compliance with Nasdaq’s continued listing requirements. The letter advised that Taleo has 60 days to submit a plan to Nasdaq to regain compliance.

Taleo said it is “working diligently to complete the preparation of the Form 10-Q, and intends to timely submit a plan to regain compliance to Nasdaq.”

—Ed Frauenheim

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