SAN FRANCISCO (Reuters) - A U.S. appeals court on Friday revived a proposed securities class action against VeriFone Systems Inc over its 2007 restatement of results, ruling that the lawsuit properly alleged VeriFone Chief Executive Douglas Bergeron was “reckless” as to the truth of financial reports.
A three-judge panel from the 9th U.S. Circuit Court of Appeals in San Francisco unanimously reversed a lower court decision dismissing the litigation.
Representatives from VeriFone could not immediately be reached for comment.
VeriFone, a San Jose, California-based electronic payments company, facilitates secure transactions between consumers, merchants, and financial institutions. In November 2006, it acquired Lipman Electronic Engineering Ltd, an Israeli company, and began integrating its business with that of Lipman.
In three consecutive quarters, VeriFone’s preliminary internal reports accurately showed it had fallen short of its earnings and gross margins forecasts, the 9th Circuit panel wrote. Bergeron and the company’s former chief financial officer supervised accounting staff as they made “baseless multi dollar adjustments,” the court wrote.
“Each time, the CEO and CFO accepted the adjustments without question,” the court wrote, “representing publicly that a recent merger was driving the company’s success even as the adjustments grew in size and negatively impacted key metrics.”
VeriFone eventually restated results and argued that it was victim of a difficult acquisition complicated by incompatible systems, the court wrote, while a proposed class of plaintiff investors alleged fraud.
Sandy Svetcov, an attorney for the plaintiffs, said in an email that the Friday ruling was particularly welcome given his own deteriorating health.
“The court didn’t know, but this is a wonderful holiday gift for a guy whose just been told he has six months to live due to pancreatic cancer,” wrote Svetcov.
The case in the 9th Circuit is In Re: VeriFone Holdings Inc. Securities Litigation, 11-15860.
Reporting By Dan Levine; Editing by Gerald E. McCormick and Steve Orlofsky