It is a reflexive action, almost seemingly involuntary.

A company restates prior results for some reason. Investors then dump the stock, which in turn plummets in price.

Then, quicker than you can say "contingency fee," the plaintiff bar rushes to the courthouse to file a round of lawsuits seeking recovery of the paper losses, claiming intentional misconduct by management.

Alas, this is what happened several years ago after VeriFone Systems announced it would need to restate its financials for the first three quarters of its 2007 fiscal year, citing accounting errors. At the time, the electronic payment equipment supplier said the errors were related to the valuation of in-transit inventory and allocation of manufacturing and distribution overhead to inventory, each of which affects VeriFone's reported costs of net revenues. So, the restatements were required to correct errors that overstated previously reported inventories.

Then, as happens frequently, VeriFone also said it needed to correct other unrelated errors detected in the course of its review.

The stock then more than halved on the news.

The lawyers rushed to the rescue, claiming the company violated the Securities Exchange Act of 1934.

However, several days ago, VeriFone announced it received notice that the United States District Court for the Northern District of California dismissed, with prejudice, the Amended Complaint in a shareholder derivative lawsuit filed in December 2007 against certain of the company's present and former directors and officers.

The company said the Court determined that "the plaintiff failed to make proper demand and provided no substantial reason to question the disinterestedness or independence of a majority of the company's board of directors."

Since the Court dismissed the case with prejudice, the matter is closed and the plaintiffs cannot amend their pleadings.

"We are extremely pleased with the Court's ruling as we believed from the beginning that this case had no foundation," said Douglas G. Bergeron, Chief Executive Officer of VeriFone. "We believe the Court properly recognized the right of the board of directors to manage the company's affairs."

The restatement did result in some changes. In April 2008, Barry Zwarenstein resigned as CFO of VeriFone.

The company also said at that time the Securities and Exchange Commission had requested documents and plans to interview several current and former VeriFone officers and employees.

It also said it discovered additional errors since its initial announcement that it would restate results.

In fact, the company said at that time an internal investigation confirmed that incorrect manual journal and elimination entries were made for inventory-related matters, that existing policies for manual journal entries were not followed, and that insufficient review processes and controls were in place to identify and correct the errors in a timely manner. In short, the company conceded that it did not have effective internal control over financial reporting.

Among remedial measures, VeriFone fired its supply-chain controller and promised to boost inventory supervision. It also promised to increase its accounting and finance staff and further segregate duties between the financial planning and the accounting and control functions. The company also said at the time it planned to implement enhanced information technology/enterprise resource planning systems to handle the increased size and complexity of VeriFone's businesses.

In addition, the company separated the roles of chairman and CEO.

Then in September 2009, VeriFone settled civil charges brought by the SEC, noting in a press release that the SEC's complaint recognized that the company's restatement resulted principally from incorrect inventory accounting adjustments made by a former employee, but did not accuse the company of intending to misstate its financial results or to mislead anyone.

Without admitting or denying the SEC's allegations, VeriFone agreed to a permanent injunction against future violations of certain reporting, books and records and internal accounting control provisions of the federal securities laws. No other charge or monetary penalty was assessed against VeriFone, which cooperated fully with the Commission's investigation.

The upshot: The company admitted it made some mistakes, they were not intentional and there was no fraud committed. It made certain changes to its processes, fired some people.

The biggest losers: Shareholders at the time, and the contingency lawyers.