Obalon Therapeutics, Inc.

Obalon Therapeutics, Inc. Accused of Implementing Inadequate Internal Controls Over Financial Reporting

On October 5, 2016, Obalon Therapeutics, Inc. held its initial public offering, issuing 5,000,000 shares and raising net proceeds of approximately $67.2 million. Obalon then attested in its prospectus and other public filings that its financial statements were prepared in accordance with United States generally accepted accounting principles. Obalon also emphasized substantial revenue growth and improvements in its gross margin in its financial reports throughout the class period. It therefore came as a surprise when Obalon revealed on January 23, 2018, that a whistleblower contacted KPMG LLP, the company’s independent auditors, to allege that Obalon had improperly recognized revenue during the company’s fourth fiscal quarter of 2017. As a result, Obalon canceled its previously announced offering of 5,454,545 shares of its common stock at a price of $5.50 per share and said that its Audit Committee would investigate the allegations. On this news, Obalon’s stock fell $1.73 to close at $3.46 on January 23, 2018, representing a nearly 77% decline from its IPO price of $15.00.

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