• United States
by Elizabeth Montalbano class-action suit dismissed

Dec 23, 20052 mins
Enterprise ApplicationsLegal

A federal judge in California has dismissed with prejudice a shareholder class-action lawsuit against, according to court documents filed Thursday. A dismissal with prejudice means the claims can never be brought against the defendant again.

U.S. District Judge Jeffrey White ruled Thursday that plaintiffs in a July 2004 suit failed to prove claims that Chairman and CEO Marc Benioff and CFO Steve Cakebread violated the Securities Exchange Act of 1934 by misleading shareholders prior to the company’s initial public offering (IPO).

The suit was originally filed in the Federal Court of the Northern District of California, one of several filed in that district that month with similar claims. The cases were eventually consolidated; White’s ruling applies to those cases.

Judge White ruled that Benioff and Cakebread did not violate the Securities Exchange Act by failing to disclose prior to the company’s June 21, 2004, IPO a forecast that’s fiscal 2005 revenue would not meet Wall Street expectations. That announcement, made by the company on July 21, sent the stock plunging from $16.06 to $11.05, just 5 cents above the IPO price.

The Securities Exchange Act “imposes no duty to disclose internal forecasts in the context of an initial public offering,” Judge White wrote in his ruling.

Thomas Morrison filed the initial complaint on behalf of all shareholders who purchased’s stock between June 21, 2004 and July 21, 2004.

One of the issues raised in that filing was a Benioff interview that appeared in The New York Times before the IPO. After the interview, the U.S. Securities and Exchange Commission made the company go through a cooling-off period, which delayed the IPO. During that delay, the company did not retract the statements made in the article or give potential shareholders any indication that the company would not perform as expected after its IPO, Morrison claimed in the original filing.

When did go public on June 21, the IPO price was $11, rising to $17.20 on the first day of trading. However, on July 21, the stock plunged on the earnings warning.

Morrison claimed in his original filing that executives knew the company would not perform as expected, yet did not disclose that information pre-IPO, thus violating the Securities Exchange Act. could not be reached immediately for comment Friday.