According to a BusinessWeek report - which cites documents included in filings by Pay By Touch to the US Bankruptcy Court for the Central District of California - Verifone's senior executives contacted executives of Pay By Touch's lead creditor, Plainfield Asset Management, about buying the biometric firm's assets.

Verifone's interest in the privately-held biometric outfit reportedly stems from Pay By Touch's success in signing retailers to its biometric technology - including The Co-operative Supermarket chain in the UK.

Pay By Touch has raised more than $300 million from hedge funds and venture capitalist and has made a number of acquisition in the last two years including rival biometrics outfit BioPay and Atlanta-based card payments processor CardSystems Solutions.

But the business case for biometrics at the PoS has not been easy to make and the firm had begun to shift its strategy towards the delivery of targeted marketing services.

Moreover, Pay By Touch is now embroiled in a legal storm that has pitched company founder and CEO John Rogers against Plainfield, according to press reports.

The hedge fund participated in a $163 million funding round in Pay By Touch in February and secured its portion of the loan with Pay By Touch shares owned by company founder John Rogers. The loan agreement enabled Plainfield to assume control of Rogers' stake in the event of a default.

In October Plainfield claimed that by failing to deliver its 2005 audited financial results by a 31 August 2007 deadline, Pay By Touch had defaulted on the agreement. The hedge fund then created a new board of directors.

On 18 October Pay By Touch's lawyers disputed Plainfield's action, but the hedge fund issued a new order that would have seen a new board appointed on 1 November. But on the day before this was due to happen, four Pay By Touch employees filed an involuntary petition aimed at forcing the company into bankruptcy and Rogers filed for Chapter 11 bankruptcy protection.

A Delaware court judge later issued a status quo order that put Thomas Lumsden of FTI Consulting in charge of the company. A trial over control of the vendor is set for 21 December 2007 in Delaware.

Details of Verifone's takeover approach were given in a letter dated 5 November sent by Pay By Touch's lenders that was included in the bankruptcy filings, says BusinessWeek.

However since then Verifone has run into its own trouble after it disclosed an accounting error that resulted in it overstating its pre-tax profit for the nine months ending 31 October by nearly $30 million in the first nine months of the year.

In September, VeriFone said nine-month pretax profit fell to $37 million from $69.9 million a year earlier because of costs associated with its takeover of Lipman Electronic Engineering in 2006. Revenue rose to $666 million, from $424 million, which included Lipman sales.

But in a statement released on 3 December, the eftpos vendor said that pretax profit was probably around $29.7 million lower than reported because it had made errors in valuing inventory in-transit as well as in allocating manufacturing and distribution costs to inventory.

VeriFone shares plummeted on news of the error, and the stock fell as much as $24.36, to a price of $23.67, before closing at $26.03 a share on 3rd December. Prior to this Verifone shares had risen 36% this year. The stock closed at $20.20 yesterday.