Isilon Suffers Litigation Blitz

One of the risks of going public is the backlash that results if you don't meet investor expectations. Just ask Isilon Systems, which is suffering a small bombardment of class-action lawsuits claiming it failed to live up to goals publicized by corporate officers.

The latest volley, from Cohen, Milstein, Hausfeld & Toll P.L.L.C., accuses Isilon of having "no basis" for telling shareholders it would be profitable in 2007. The lawyers cite Isilon's recent financial reversals and accuse company management of "concealing" information from the investing public.

It's all par for the course. One can't diminish the importance of securities fraud litigation, but IPOs are as attractive to certain kinds of law firms as accidents are to ambulance chasers. And poor Isilon, now a textbook example of a mis-handled IPO, is looking a bit wrecked around the edges.

Publicly, Isilon is taking it on the chin. The firm continues to bucket along, claiming its installed base has more than doubled within the last 12 months to over 600 customers. And spokesman Jay Wampold says the suits, numbering about three or four so far, haven't interfered with business. Characterizing them as "nuisances" is fairly accurate, he claims.

Given the level of attention that e-discovery and the Federal Rules of Civil Procedure (FRCP) are getting these days, Isilon is hardly the only technology firm to be on the legal firing line. Chances are, if you're a public company that merged, consolidated, or went public recently, you're paying extra for legal help.But the number of cases like this has dropped. According to the Stanford Law School Class Action Clearinghouse, the number of class action filings for 2007 is estimated to be about 124, up about 7 percent from 2006. But the last two years have seen the lowest level of suits since 1996.

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