Kenexa Faces Claim it Mislead Investors

A class action suit has been filed against Kenexa alleging the HR technology provider and RPO firm mislead investors in 2007 by not disclosing problems it was having with international sales and with its RPO business.

The action, brought in federal court in Pennsylvania by Coughlin Stoia Geller Rudman & Robbins LLP, claims that between May 8, 2007, when Kenexa issued its first quarter report and Nov. 7th of that year, when the third quarter financial report was released, it “failed to disclose material adverse facts about the Company’s true financial condition, business and prospects.”

As a result, the law firm claims that shareholders who bought stock between those dates lost value when on Nov 8th, the day after the third quarter results were announced, the stock plummeted 40 percent, dropping from $27.84 per share to $16.61 per share. That day, 8.4 million shares of the company traded hands. The average volume in the weeks before was around 300,000 shares.

A Kenexa spokesperson could not be reached for comment.

Coughlin Stoia is a 190-lawyer firm with offices across the country that specializes in class action litigation on behalf of investors and consumers.  The firm was lead counsel on behalf of Enron investors, suing banks and others that backed the energy firm. Coughlin Stoia has also played a key role in cases as diverse as an antitrust action against the NASDAQ exchange, settling it for more than $1 billion, and in litigation against tobacco companies.

In the Kenexa case, Coughlin Stoia says in a press release that the company:

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“… failed to disclose the following adverse facts, among others: (i) that sales cycles for the Company’s Employment Process Outsourcing (“EPO”) and assessments lines of business were lengthening, causing sales to be pushed out and revenue growth to slow; (ii) that the Company was experiencing problems with its international sales and would need to revamp that sales force; (iii) that the Company was experiencing problems with a significant EPO client such that the client was requesting to be released from its contract with the Company; and (iv) based on the foregoing, defendants lacked a reasonable basis for their positive statements about the Company, its earnings, operations and prospects.”

No specific amount of damages is detailed in the complaint.

Kenexa’s stock was trading at $13.47 at midday today, down 38 cents from Thursday’s close. For 2008 Kenexa reported losing $120.9 million, mostly due to a writedown of company goodwill, which many HR tech and services vendors have been doing. For the first quarter of this year, Kenexa posted a $33.6 million loss, after another goodwill hit of $33.3 million. Not counting the writedown and certain other minor one-time expenses, Kenexa would have had a $3.9 million profit from operations.

John Zappe is the editor of TLNT.com and a contributing editor of ERE.net. John was a newspaper reporter and editor until his geek gene lead him to launch his first website in 1994. He developed and managed online newspaper employment sites and sold advertising services to recruiters and employers. Before joining ERE Media in 2006, John was a senior consultant and analyst with Advanced Interactive Media and previously was Vice President of Digital Media for the Los Angeles Newspaper Group.

Besides writing for ERE, John consults with staffing firms and employment agencies, providing content and managing their social media programs. He also works with organizations and businesses to assist with audience development and marketing. In his spare time  he can be found hiking in the California mountains or competing in canine agility and obedience competitions.

You can contact him here.

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