In a new report last week, we learned that the Securities and Exchange Commission (SEC) has launched an investigation into RTW Investments over its role in an “empty voting” scheme related to the Masimo Corp. proxy battle which concluded in September at the Masimo Annual Stockholders Meeting. Masimo, now under new board management, has accused former CEO Joe Kiani and RTW of colluding in an empty voting scheme to try and manipulate a board election in their favor and deprive shareholders of their voting rights.
See more on this news about the SEC, Masimo, Joe Kiani, and RTW
Bloomberg News reported last week that the SEC is now actively investigating RTW Investments, which it describes as a $6.5 billion hedge fund company, over its actions taken during the proxy battle between Masimo’s then-CEO Joe Kiani and Politan Capital Management CIO Quentin Koffey. I reported extensively on the proxy war at Masimo – owner of audio giant Sound United – and on the efforts of activist investor Quentin Koffey to elect a slate of directors for the Board that is independent of influence by Kiani.
The report noted that RTW was founded by Roderick “Rod” Wong, who is said to be a friend of Joe Kiani’s. RTW says it is cooperating with the SEC’s investigation. In a letter to investors about the matter, RTW told investors that “the existence of a probe doesn’t mean laws were broken.”
RTW Says It Is Cooperating with the SEC Investigation
In the same investor note, RTW also characterized the SEC probe as a “fact-finding investigation.”
Masimo and the SEC declined Bloomberg’s request to comment on the matter. However, RTW’s attorney, Sanford Michelman, said the firm “looks forward to helping the SEC understand the facts.”
In Strata-gee’s extensive coverage of the Masimo proxy battle, the main dispute centered around an election to fill two available seats on Masimo’s Board. Two of the candidates for the board seats were nominated by Masimo management at the time – one of whom was Joe Kiani himself – while another two board candidates had been nominated by activist investment firm Politan.
The Proxy Battle for Board Seats Would Determine Control of the Company
Since Politan had already won two seats on the board in an election the previous year, if the Politan-nominated candidates won again this year, the activist investor would hold four seats for a majority of the board. This would give them control of the company.
During the proxy battle, Politan reported that it had detected an empty voting scheme, which I wrote about here. In a follow-up report, I share more about this empty voting scheme. Then, on the eve of the actual board election, Politan filed a lawsuit against Joe Kiani and RTW, saying that Kiani was conspiring with RTW to swing the vote to management’s side – against the interests of investors.
Politan: RTW Conspiring with Kiani Created an Insider Group
While I am not a lawyer, my understanding is that empty voting by a party is not by itself necessarily an illegal maneuver. However, Politan says it has evidence that Joe Kiani, a Masimo executive at the time, conspired with an outside entity (RTW) to participate in the scheme. In so doing, Politan says that turned the alleged conspirators into an insider group that has greater legal obligations in terms of disclosure.
It is possible that this is the part of the whole story that interests the SEC.
According to last week’s report, RTW’s attorney said, “The dispute between Masimo and Joseph Kiani has nothing to do with RTW.” He also said the hedge fund has filed a motion to dismiss the lawsuit (with Politan).
More May Come of This Development
Stay tuned, there may be more emerging from this story…
Learn more about Masimo by visiting masimo.com.
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