My Size, Inc. has sued a group of activist investors for what the fit technology software provider says is misleading stockholders and waging an illegal proxy contest to seize control of the company board.
The defendants in the case are largely tied to two investment firms and their head executives: David Lazar, CEO of investment firm Custodian Ventures LLC; and Milton C. Ault III, CEO of Ault Capital Management LLC. Lazar and Custodian are listed as defendants alongside David Aboudi, Patrick Loney and David Natan (collectively known as the “Lazar defendants”). And the “Ault defendants” include Ault and Ault Capital Management LLC, as well as Ault Alpha LP, Ault Alpha GP LLC and Ault & Company, Inc., all of which are subsidiaries of Ault Global Holdings, Inc.
Custodian Ventures, which owns approximately 9.99 percent of My Size’s outstanding shares, nominated Lazar, Aboudi, Loney and Natan to the body measurement technology company’s board of directors in June. Ault owns 9.9 percent of My Size.
The nominations came as the investment firm said in a letter to shareholders that the creator of MySizeID oversaw “significant destruction of stockholder value.” The letter indicated that My Size Inc.’s stock price declined by a “staggering” 98.7 percent since going public in 2014. Custodian also attacked My Size for never having reported a profitable quarter, and pointed out that the software provider’s auditor raised “substantial doubts about the company’s ability to even continue as a going concern.”
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In the lawsuit, My Size asserts that the activist group has engaged in what it calls a “wolf pack” campaign over the past year to take control of the board through an unlawful proxy solicitation and by filing “false and misleading” Schedule 13D forms with the Securities and Exchange Commission (SEC). Schedule 13D forms are filled out when an investor acquires more than 5 percent of a company’s shares.
My Size asserts that the defendants violated Exchange Act proxy rules in their attempts to solicit votes without a proxy statement on file with the SEC.
In particular, My Size alleges Lazar used WhatsApp Messenger to contact at least one investor as part of an effort to solicit votes in favor of the slate of insurgent director nominees. Lazar went as far as to instruct the investor when they should purchase My Size shares, so that those shares could be eligible to be voted at the company’s upcoming annual shareholders meeting, the company said.
Filed in the U.S. District Court for the Southern District of New York, the suit alleges that the activist group failed to disclose that the true purpose underlying its security purchases was to merge My Size with another company.
My Size says it was left with no other option than to take legal action to enjoin the defendants from “misleading stockholders for their own benefit.”
“The board and management team have decided to take this extraordinary step to protect My Size for the benefit of all stockholders. We firmly believe that the activist group has purposefully misled stockholders for its own benefit and in doing so, has violated the federal securities laws,” said Ronen Luzon, CEO and founder of My Size. “We look forward to resolving this matter as quickly as possible, so management can turn its focus back to commercializing our cutting-edge technology and strengthening our market position. Following the addition of a seasoned industry executive to our board in August and the consolidation of our IP portfolio exclusively within the company, we believe My Size is well-positioned to seize greater market share and deliver value for stockholders in the coming quarters.”
In its complaint, My Size asserts that the activist group has carried out a number of unlawful activities.
The company claims that the defendants made “false and misleading” regulatory filings that failed to properly disclose the formation and membership of the activist group, alleging that the defendants failed to fully disclose that they had entered into one or more undisclosed contracts, arrangements, understandings or relationships to gain control of the company.
My Size also contends the activist group failed to disclose in its SEC filings that its purchases of the company’s securities were done to facilitate a “shell-style reverse merger” or other similar transaction, claiming that the activist would replace My Size’s current business with an entirely different one.
The measurement tool maker also pointed to an episode on Ault’s YouTube channel published the day after the filing of Ault’s Schedule 13D and Lazar’s second Schedule 13D/A. In the video, Ault said that he and Lazar collectively controlled 20 percent of the outstanding stock in the company and stated his belief that My Size “should merge with another public company very similar to Ikonics, (a screen printing and imaging solutions technology)…we are going to be pushing for them to take action and get the company into another business.”
My Size’s board intends to schedule the company’s annual shareholder meeting and will present its director candidates for election at the meeting in its proxy materials, which will be filed with the SEC in “due course.”