Embattled Echo Therapeutics (NSDQ:ECTE) issued a series of letters in recent weeks urging its shareholders not to vote in favor of activist investor Platinum Group’s nominee for the board of directors, saying that the candidate was chosen based on nepotism rather than merit.
Echo claimed that Platinum nominee Shepard Goldberg is the 1st cousin of the firm’s current board designee, Michael Goldberg. Echo further noted that Shepard’s background is primarily in heating and swimming pools, saying that "Shepard Goldberg brings to the Board no relevant medical device experience."
"We strongly believe that Shepard Goldberg would not have been named as a nominee if he was not the 1st-cousin and longtime business associate of Michael Goldberg," Echo said in a letter to stockholders last week.
Platinum Management is Echo’s largest shareholder, owning nearly 20% of the Philadelphia-based medical device maker. Echo in April revealed that Platinum had launched efforts to unseat CEO Robert Doman from the board by nominating Shepard.
Doman has been on Echo’s board since March 2013, and took over the company in August 2013 as interim CEO after the sudden departure of long-time chief Dr. Patrick Mooney.
Platinum is purportedly circulating "gold proxy cards" to shareholders to get votes in favor of Shepard’s nomination. Echo recommended that shareholders throw out the cards entirely and sign and return only the white proxy cards distributed by the Echo’s board.
"We believe that the Platinum Group is seeking to have its 2nd representative placed on your Board so it can have significant influence on the future activities of Echo, including its future debt and equity financing activities," according to Echo’s latest letter. "We believe that Platinum wants to prevent Echo from conducting any future debt or equity financings, even if such financings are in the best interests of all stockholders, since it is concerned that its 19.9% interest in Echo would be diluted if it did not choose to participate in such financings."
Echo has had a rough go over the past year. The company reported net losses of $19 million on $27,000 in sales during 2013 as it continued product development and clinical studies of its Symphony CGM System for the treatment of diabetes. The company announced a major restructuring last fall in which it laid off 1/3rd of its staff.
ECTE shares were up 3.6% to $1.75 as of about 3:40 p.m. EST today. The stock has lost more than 43% over the last month and is down about 44% since the start of this year.