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The stockholder of a company that makes weight loss technology has filed a lawsuit to block its merger with another weight loss company, saying stockholders don’t have enough information to vote.
Plaintiff Susan Finger, a shareholder of Obalon, filed the lawsuit against Obalon Therapeutics, Inc. and its board of directors Thursday in a California federal court, alleging violations of the Securities Exchange Act and of Securities Exchange Commission (SEC) rules.
Finger is asking the court to block an upcoming vote on the proposed merger between Obalon and ReShape Lifesciences Inc.
Obalon is a medical device company focused on developing medical devices to treat people with obesity. ReShape is a weight-loss solutions company offering products and services that treat obesity and metabolic disease.
Finger says on January 20, 2021, ReShape issued a press release announcing that it had entered into an Agreement and Plan of Merger with Obalon.
Upon the merger, current holders of ReShape shares would own 51 percent of the outstanding common stock of the combined company immediately after the merger and current Obalon shareholders would own 49 percent, Finger says.
On March 3, Obalon filed a Form 424B3 prospectus with the SEC recommending Obalon stockholders vote in favor of the merger. However, Finger says the prospectus omits or misrepresents material information concerning Obalon and ReShape’s financial projections.
“Defendants filed a materially incomplete and misleading Prospectus with the SEC and disseminated it to Obalon’s stockholders,” the lawsuit states. “The Prospectus misrepresents or omits material information that is necessary for the Company’s stockholders to make an informed decision whether to vote in favor of the Proposed Transaction.”
Finger said without having the information prior to the stockholder vote on the merger, she and other Obalon stockholders will be unable to make an informed decision whether to vote in favor of the merger, “and are thus threatened with irreparable harm warranting the injunctive relief sought herein.”
She also alleges that Obalon insiders are the primary beneficiaries of the merger, not its public stockholders.
“The Board and the Company’s executive officers are conflicted because they will have secured unique benefits for themselves from the Proposed Transaction not available to Plaintiff and the public stockholders of Obalon,” she says.
She says, unless the vote is blocked, Obalon’s public stockholders will be irreparably harmed because the prospectus’ material misrepresentations and omissions prevent them from making a sufficiently informed decision on the merger.
“Plaintiff seeks to enjoin the stockholder vote on the Proposed Transaction unless and until such Exchange Act violations are cured.”
If the merger does go ahead, Finger is asking that the court rescinds the decision or awards her damages. She’s also seeking legal costs and a jury trial.
Meanwhile, class action lawsuits brought under the Securities Exchange Act can sometimes end in large settlements. In 2012, Citigroup, Inc. reached a $590 million settlement with shareholders to resolve allegations it committed securities fraud.
Also in 2012, a securities lawsuit against Goldman Sachs Group, Inc., Bank of America, and several other large firms resulted in an $18.5 million settlement.
What do you think of this securities class action lawsuit against Obalon? Let us know in the comments!
Finger is represented by Joel E. Elkins and Richard A. Acocelli of Weisslaw LLP.
The Obalon Merger Securities Act Lawsuit is Susan Finger v. Obalon Therapeutics Inc., Case No. 3:21-cv-00798-WQH-AGS, in the U.S. District Court Southern District of California.
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