Masimo has filed a lawsuit against its founder and former CEO Joe Kiani and investment firm RTW Investments, accusing them of illegally manipulating a recent shareholder vote.
The suit, filed in the New York Southern District federal court, alleges Kiani and RTW orchestrated an “empty voting” scheme to boost RTW’s voting power without corresponding economic risk. The company claims the scheme played out to keep Kiani on Masimo’s board.
Kiani and RTW couldn’t immediately be reached for comment.
Masimo’s complaint centers on allegations that Kiani and RTW formed an undisclosed voting group to artificially increase RTW’s influence before a proxy battle, violating federal securities laws. The lawsuit claims Kiani, who recently faced criticism from shareholders over his governance, colluded with RTW to temporarily inflate the firm’s voting stake to nearly 10% by acquiring shares ahead of key voting dates and then reducing ownership shortly afterward.
The lawsuit describes the scheme as “empty voting,” a tactic where voting power is increased without a genuine economic stake. According to the complaint, RTW could do this by purchasing shares to raise its voting percentage, only to offset the economic exposure by selling an equivalent amount of stock short. Masimo alleges the strategy shielded RTW from any significant risk in case of a stock price drop while allowing it to retain substantial voting power.
“Though unsuccessful, the practice of intentional empty voting presents a grave threat to shareholder democracy that should not be condoned under the federal securities laws,” the Masimo complaint states.
Masimo argues that Kiani’s actions, allegedly made in coordination with RTW, distorted the election process and circumvented federal disclosure rules meant to ensure transparency in corporate governance.
A failure to disclose group status and influence on proxy advisors
Under federal securities law, groups formed to influence corporate votes must disclose their combined ownership if it exceeds 5% of a company’s shares. The lawsuit claims that Kiani and RTW, holding up to 19% of Masimo’s voting power during the election, failed to make required disclosures. The undisclosed group was allegedly formed after activist investor Politan Capital Management announced in March it would nominate two independent candidates for Masimo’s board, challenging Kiani and his handpicked nominee.
The lawsuit also alleges Kiani violated fair disclosure regulations by selectively sharing confidential company information, including key voting dates, with RTW. Masimo claims Kiani communicated regularly with RTW executives through encrypted messaging services, providing details that aided in executing the empty voting strategy.
The complaint describes RTW’s efforts to sway prominent proxy advisory firm Glass Lewis by representing itself as a 9.9% shareholder despite publicly disclosing only a 2.8% stake. Glass Lewis, along with another influential firm, ISS, ultimately recommended that shareholders vote for Politan’s nominees. Glass Lewis noted that if RTW had engaged in empty voting, it would be “a highly inappropriate manipulation of the shareholder franchise” and warned that such actions could damage Masimo’s corporate credibility.
With the vote approaching and facing recommendations against him, Kiani allegedly directed the board to push back the voting record date and reschedule the shareholder meeting from July to September. Masimo claims that Kiani used the delay to allow RTW to repeat the empty voting tactically, temporarily increasing its voting power for a second time to attempt to secure his board seat.
Legal action and Masimo’s requested remedies
Masimo’s lawsuit seeks a court order declaring Kiani and RTW an official voting group under securities law and requiring them to disclose such affiliations in future elections. It also asks the court to order the disgorgement of any profits RTW made through short-swing trades related to its empty voting.
To strengthen its case, Masimo’s lawsuit additionally requests the court to declare that Kiani and RTW violated Section 13(d) of the Securities Exchange Act by failing to disclose their group status once their combined ownership exceeded 5% of Masimo’s stock. The complaint argues that Kiani and RTW should be recognized as “statutory insiders” and that, as such, they are legally obligated to disclose any short-swing trades under Section 16 of the Exchange Act.
The complaint also asserts that Kiani’s disregard for corporate governance standards has undermined shareholder confidence in Masimo’s leadership. It marks a significant escalation in tensions between Masimo and its former CEO, highlighting longstanding shareholder concerns over Kiani’s governance and alleged self-interest in decision-making.
Masimo is asking for an injunction to prevent Kiani and RTW from repeating these alleged tactics in future proxy contests, which threaten fair shareholder representation. Masimo has also called for all short-swing trading profits to be returned, citing these actions as illegal and damaging to Masimo’s corporate credibility.
Masimo claims close personal, and financial ties between Kiani and RTW
In the lawsuit, Masimo alleges that Kiani’s close personal and financial ties with the investment firm’s principals influenced the coordinated attempt to sway shareholder votes. Kiani is reportedly a personal investor in RTW-managed funds and a close associate of RTW executives, including Naveen Yalamanchi, who oversees RTW’s medtech investments. According to the suit, Yalamanchi is the only shareholder known to have flown on Masimo’s corporate jet with Kiani, and the two maintain close social and professional ties in the Orange County business community.
The complaint also highlights Kiani’s connection to RTW founder Roderick Wong, who invited Kiani to speak at a healthcare finance course he teaches at New York University. Masimo claims these relationships were pivotal to the alleged voting manipulation scheme, with Kiani sharing confidential information about Masimo’s proxy contest with RTW.
Masimo’s lawsuit contends that Kiani’s personal alliance with RTW motivated the investment firm to support his bid to retain a board seat, describing it as part of a coordinated effort to bolster Kiani’s control over the company’s governance.
