VeriFone Holdings, Inc., a Delaware corporation with its principal place of busi
ID: 335416 • Letter: V
Question
VeriFone Holdings, Inc., a Delaware corporation with its principal place of business in San Jose, California, designs, markets, and services electronic payment transaction systems. In 2006, VeriFone acquired Lipman Electronic Engineering Ltd. In 2007, VeriFone publicly announced that it would restate its reported earnings for the prior three fiscal quarters. Earnings had been materially overstated due to accounting and valuation errors made while Lipman’s inventory systems were being integrated with VeriFone’s. After that restatement announcement, VeriFone’s stock price dropped over 45 percent. The next day, Charles King, a VeriFone shareholder filed a derivative action on behalf of VeriFone against certain of its officers and board of directors, asserting various federal securities fraud claims. A few months later, King demanded that VeriFone permit him to inspect the company’s books and records, including VeriFone’s Audit Committee Report, which contained the results of an internal investigation of VeriFone’s accounting and financial controls conducted after the 2007 restatement announcement. VeriFone refused to grant to King access to the Audit Report on the grounds he lacked a proper purpose under Delaware law because he had previously elected to bring a derivative action. Was VeriFone correct?
Explanation / Answer
In Delaware’ General Corporation Law, Section 220 exhibits that the shareholders owe limited rights to inspect the books and financial records of the companies. This right has a pre condition that the shareholder must have a proper purpose for seeking such kind of inspection.
Charles King, a shareholder of VeriFone Holdings wanted to inspect the company’s books and financial records with the objective of investigating corporate mismanagement. This objective fulfills the pre-requisites of Section 220 of the Delaware Law and so, King was eligible to perform the inspection.
VeriFone Holdings was incorrect in refusing the grants to King. As per the company, he did not have a valid purpose for such investigation and earlier had even filed for derivative action. However, the court dismissed its plea and King was granted access to investigate, as his purpose for investigation was authentic.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.