Doug Bergeron's departure as CEO of VeriFone comes at a time when the point of sale terminal manufacturer disclosed that it has engaged in business dealings with Iran that may have been prohibited by recently enacted sanctions against the Middle Eastern country, as well as a recently filed shareholder lawsuit alleging securities fraud.
VeriFone made the disclosures in a 10-Q filing with the Securities and Exchange Commission for its fiscal first quarter 2013, less than two hours after the company announced Monday that Bergeron will step down on March 12. Its fiscal quarter ended Jan. 31.
When reached by phone, Bergeron said that he was proud of his tenure at VeriFone. "The company clearly has gained value over the past 12 years," he said, referring to the time since he helped Gores engineer a buyout of the terminal maker from Hewlett-Packard. "I didn't plan on working here for another 12 years...I have nothing but pride in everything that we accomplished here. There comes a time when you need, as I said, to pass the baton, let somebody else that has fresh eyes" take over.
Accompanying the San Jose, Calif.-based company's earnings statement, VeriFone said European subsidiaries of Point, the POS and e-commerce technology developer it acquired in 2011, were leasing six POS terminals to Iran's embassy in Sweden and two terminals to its embassy in Norway. One of the terminals was a VeriFone-branded terminal of U.S. origin and the company said it generated $1,730 in net revenue in FY1Q13 from the leases, which have since been terminated.
In the same statement, VeriFone also said employees of non-U.S. VeriFone subsidiaries provided technical support services to a third-party distributor based in Dubai, United Arab Emirates, "with reason to know that the services would assist the distributor in reselling certain VeriFone point of sale terminals out of its inventory to two Iranian entities, Bank Melli and Bank Mellat," VeriFone's statement reads.
"We have been in the process of making voluntary disclosure of these matters to [the Treasury Department's Office of Foreign Assets Control] and intend to cooperate fully with OFAC," said VeriFone communications director Andy Payment in an email. He declined to comment about what impact the Iran disclosures and lawsuit had on Bergeron's departure.
Bank Melli is the former central bank of Iran and the nation's largest financial institution. The U.S. State Department and an Oct. 2007 presidential executive order claim that it provides banking services to entities involved in Iran's nuclear and ballistic missile programs, allegations that the bank refuted. Like Bank Melli, Bank Mellat is also a state-owned financial institution, which the State Department said in 2007 "has facilitated the movement of millions of dollars for Iran's nuclear program since at least 2003."
"These activities by employees of our non-U.S. subsidiaries were conducted in contravention of VeriFone's export control and sanctions policies, which prohibit VeriFone and its affiliates from conducting any activities, transactions or dealings with Iran or Iranian counterparties," the VeriFone 10-Q reads, adding later, "VeriFone does not intend to continue this activity or to knowingly permit any activities with Iran or Iranian counterparties."
The company said it did not receive revenue from the technical support it provided and has since implemented additional compliance measures and controls to prevent the activities from recurring.
In an interview with PaymentsSource, Wedbush Securities analyst Gil Luria called the Iran disclosure "unfortunate."
"VeriFone was specifically asked six months ago, in September on a conference call, if they had dealings with Iran, and they said they did not and they had the controls to make sure that it didn't happen," he said. "So that makes it worse that they are now disclosing that they have had dealings there."
Indeed, in a transcript of VeriFone's FY3Q12 earnings conference call with analysts on Sept. 5, 2012, former chief financial officer Robert Dykes described VeriFone's measures to prohibit dealings in Iran and Syria.
"It was prohibited. Today, I'm pretty confident we don't sell terminals into those countries. We have controls. It's special software you can get for our Oracle system that would actually catch somebody if they put a ship to address of a prohibited country and then there are prohibited customers, State Department issues and the software picks up that type of thing as well," Dykes said during the call. "It's not to say that it couldn't get there via third- or fourth-party type situations, but our policing today is pretty thorough about those things."
The 10-Q also discloses a March 7 lawsuit filed against VeriFone, Bergeron, its recently appointed chief financial officer Marc Rothman and his predecessor Dykes, who retired in February.
"The claims are brought against us and certain of our current and former officers, and are based on allegations that we and the individual defendants made false or misleading public statements regarding our business, operations, and financial controls during the putative class period," the filing reads. "The complaint seeks unspecified monetary damages and other relief."
The lawsuit comes on the heels of a December 2012 Wall Street Journal report that the SEC was examining Bergeron's trades of VeriFone stock. In response to the allegation, VeriFone told the Journal that Bergeron did nothing wrong and in February, the U.S. Attorney and SEC ended their probes without action.
In 2007, VeriFone restated its earnings for 2007 and the first half of 2008 to fix accounting errors that cost Bergeron his title as board chairman.
Matthew Harris, an industry observer and managing director at Bain Capital Ventures, says the troubles at VeriFone are likely deeper than the latest revelations.
"I think VeriFone has and certainly had an opportunity to define the agenda, to focus on EMV, focus on innovation for large retailers and instead, they chose to chase Square and be distracted by micro-merchants and it cost them a year," he says.
"I think the board was disappointed by that, by that wasted year of distraction," Harris adds. "They are such a leading incumbent in the space; to let all this stuff happen on their watch is incredible."