A shareholder lawsuit alleges current and former VeriFone executives made false and misleading statements about the company's financial performance to artificially inflate the stock price—duping unsuspecting investors and allowing executives to cash in millions of dollars' worth of stock.
The complaint was filed in federal court in San Jose, Calif. on March 7 and names VeriFone, then-CEO Doug Bergeron (who announced his abrupt departure from the company on March 11), former chief financial officer Robert Dykes and his successor, current CFO Marc Rothman. Attorneys for plaintiff Scott Sanders will seek to have the lawsuit certified as a class action that includes investors who purchased VeriFone stock between Dec. 14, 2011 and Feb. 19, 2013.
A VeriFone spokesperson said the company does not comment on pending litigation.
"Defendants were personally motivated to make false statements and omit material information necessary to make the statements not misleading in order to personally benefit from the sale of VeriFone securities from their personal portfolios," reads a copy of the complaint provided to PaymentsSource by the plaintiff's attorney. "During the Class Period, Company insiders sold 247,805 VeriFone shares for gross proceeds of more than $11 million."
The lawsuit alleges that the point of sale terminal maker did not properly execute plans to adopt a subscription-based business model, "masked the Company's sharply declining revenue base" through acquisitions, was inappropriately recognizing revenue that should have been deferred, and lacked adequate internal and financial controls.
The lawsuit was filed just days before VeriFone disclosed that during its fiscal year first quarter 2013 that ended on Jan. 31, it had business dealings in Iran and at two Iranian embassies in Europe. These activities may have been prohibited by recently enacted sanctions against Iran, and the admissions appear to contradict earlier statements made by Dykes, the former CFO who retired in February.
In a transcript of VeriFone's fiscal third-quarter earnings conference call with analysts, Dykes described VeriFone's measures to prohibit dealings in Iran and Syria.
"Today, I'm pretty confident we don't sell terminals into those countries," Dykes said during the Sept. 5, 2012 call. "We have controls."
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.
The lawsuit seeks unspecified damages for the shareholder allegations, which attorneys claim violate federal securities laws.
"Had Plaintiff and the other members of the Class known the truth, they would not have purchased or otherwise acquired said securities, or would not have purchased or otherwise acquired them at the inflated prices that were paid," the complaint reads, adding later, "As a direct and proximate result of defendants' wrongful conduct, Plaintiff and the other members of the Class suffered damages in connection with their respective purchases, acquisitions and sales of the Company's securities during the Class Period, upon the disclosure that the Company had been disseminating misrepresented financial statements to the investing public."