In Re: VeriFone Holdings

Under the Securities and Exchange Act of 1934, pleadings are adequate if, viewed holistically, the inference that a company was deliberately reckless in the manipulation of its financial statements is "at least as compelling as any opposing inference."

National Elevator Industry Pension Fund, on behalf of investors who purchased VeriFone stock, appealed the dismissal of its securities fraud class action against Verifone. National Elevator alleged that VeriFone officers engaged in intentional or deliberately reckless conduct when they manipulated financial statements in violation of several provisions of the Securities and Exchange Act of 1934. For several consecutive quarters, VeriFone’s senior management, in response to failing to meet financial goals, made “baseless multi-million dollar adjustments” to bring the company’s key metrics within expectations. When VeriFone announced that its financial statements contained errors and published new numbers, its stock dropped over 45%. This suit was subsequently filed. In dismissing all of National Elevator’s complaints, the district court held that it had failed to adequately plead scienter, as “each violation, viewed in isolation, [did] not compel the inference of scienter.” The Ninth Circuit reversed all but one of the dismissals, holding that National Elevator had properly pleaded the Securities and Exchange Act violations. It determined that all allegations of scienter must be considered holistically. As such, the inference that VeriFone was deliberately reckless in the manipulations of its financial statements was “at least as compelling as any opposing inference,” and was sufficient for the purposes of the complaint. AFFIRMED in part and REVERSED in part.