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December 12, 2007

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Reed, you got to love this. Last Tuesday (Aug. 19, 2008) Verifone Holdings held a news conference wherein the management stated that Verifone would meet analyst's projections. This caused the stock price to go up over 30%. However, if one studies the basis of this optimistic outlook at http://ir.verifone.com/phoenix.zhtml?c=187628&p=irol-newsArticle&ID=1188702&highlight= and deciphering the language, one easily concludes that these optimistic projections requires the addition of these following amounts (and other outrageous items) to projected GAAP net earnings:

cost of defending oneself in a legal suit = earnings to stockholders

cost of paying too much for an acquisition = earnings to stockholders

stock grants to the management and employees = earnings to stockholders

wear and tear on equipment = earnings to stockholders

losing patent coverage = earnings to stockholders

and lastly: corporate income taxes = earnings to stockholders

As you might imagine, business news outlets picked up the story without doing their homework. So many "fat cats" are unloading their shares so that the new stockholders will take the fall. It is important to note that after a very delayed restatement of earnings, due to previous accounting errors, Verifone has been and still is operating at a loss.

Question: As an attorney, could you comment if Verifone has found a scheme to deceive investors which is legal? Management is not hiding what they are doing, however their presentation of the strange accounting is way above the small investor's head.

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