Two law firms have filed shareholder suits accusing Taleo of misleading investors. About 10 other law firms have issued press releases related to the litigation—in most cases alerting Taleo investors that they could become lead plaintiff in the matter.

Such plaintiff attorney actions are common in securities litigation, as firms seek the role of lead counsel, said Kevin LaCroix, a partner in Beachwood, Ohio-based OakBridge Insurance Services, which helps firms buy liability insurance.

“They’re trolling for plaintiffs,” LaCroix said. “It’s a complicated race to the courthouse.”

It’s not uncommon for companies to face shareholder suits after their stock drops sharply—something Taleo experienced November 11, the day after it announced the accounting review. In many instances, the lawsuits are quickly dismissed, LaCroix said. But there’s still something of a stain on firms.

“It’s not good publicity,” LaCroix said.

Taleo is one of the leading players in the fast-growing field of talent management software, which refers to tools for key human resources tasks such as recruiting and employee performance management. Over the past 15 months, Taleo has made a splash with its performance management software, its acquisition of rival Vurv Technology and its plans to develop an online hub for talent management matters.

Less positive publicity began November 10. That’s when Taleo said 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 was reviewing the issues raised by its auditors to determine if an alternative accounting treatment should be adopted.

The next day, shares of Taleo fell nearly 30 percent, closing at $7.83. On Thursday, December 18, Taleo shares closed at $7.41, down 6 percent from their closing price Wednesday.

On November 14, Vermont-based law firm Johnson & Perkinson filed a lawsuit in the U.S. District Court for the Northern District of California accusing Taleo of a scheme to defraud investors.

Just over a month later, on Wednesday, December 17, the Radnor, Pennsylvania, law firm of Barroway Topaz Kessler Meltzer & Check also said it filed a shareholder suit against Taleo. Its suit, it said, accuses Taleo of failing to disclose and misrepresenting “materially false and misleading” financial statements.

Nate Swanson, Taleo’s head of investor relations, gave the same response to the Barroway complaint as he did to the earlier Johnson & Perkinson suit. “We think the suit is without merit and premature,” Swanson said.

He added that Taleo continues to work with its accounting firm, Deloitte & Touche, and that Taleo accounting policies have not changed since before the company went public in 2005.

LaCroix said plaintiff attorney firms in securities litigation seek to represent the shareholder with the greatest financial loss, who may get to serve as lead plaintiff in a class-action case. Over the course of five years, roughly 10 percent of publicly traded firms get hit with shareholder lawsuits, LaCroix said. But about 40 percent of those suits are tossed out on an initial motion to dismiss the case, he said.

Securities issues can become a bigger deal if the U.S. Securities and Exchange Commission decides to investigate a firm. Executives also can find themselves distracted by a big legal hullabaloo. “It can be a burden,” LaCroix said.

—Ed  Frauenheim 

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