SEC gets $10m from Lyft over failure to disclose $424m pre-IPO stock sale
Board member sold off stock just before listing, Lyft forgot to mention it
Ride sharing firm Lyft has agreed to pay the US Securities and Exchange Commission $10 million to settle charges that it failed to report a company director's role in a massive pre-IPO stock deal.
According to the SEC, an unnamed former member of Lyft's board of directors helped facilitate the sale of $424 million in company shares in the days leading up to Lyft's initial public offering in March 2019, generating nearly $10 million in commission. Lyft should have reported that sale in its 2019 annual report, but no mention of the massive pre-IPO deal was made "though the [report] disclosed a number of related person transactions," the SEC said.
"Neither the sale of the shareholder's stake nor director's expected compensation from his role were disclosed in any subsequent Exchange Act filings," the Commission added.
The board member involved in the sale left their seat as a condition of the share sale, and their identity isn't disclosed in the SEC's complaint [PDF]. Lyft hasn't responded to that or other questions from The Register.
Pre-IPO frenzy leads to $10m fine
As is often the case when a private company goes public, Lyft shareholders who had invested prior to the Company's 2019 IPO were asked to 180-day lock up agreements pledging to hold their shares for six months before selling after the company went public.
One shareholder decided they wouldn't sign the agreement and wanted to sell its shares before the IPO. The board rejected the shareholder's first proposal to sell its shares over concerns of the appearance of insider trading, leading to the board member central to the whole affair proposing the shareholder sell its stake in Lyft to a director or a director's affiliate in a private transaction.
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"In early March, [the board member] reached out to an unaffiliated potential Investor to see if it would be interested in purchasing the shares prior to the IPO," the SEC said. The board member, shareholder and investor came to an agreement "in a matter of days" to form a special-purpose vehicle (SPV) to handle the sale of the stock to the investor.
The board member, the SEC said, served as an employee to the investment advisor as part of the transaction, receiving both a fixed salary and bonus for the deal, neither of which were disclosed to Lyft. According to the SEC, the board member stood to make $9.8 million, but that was ultimately negotiated down to a lower figure.
Despite the board member's nondisclosure, "Lyft was a signatory of the Stock Transfer Agreement, as its consent was required for the transfer to take place," the SEC said. As such, it knew about the deal and had a duty to report it.
Lyft's failure to do so means it'll have to fork over that $10 million - not great when the company posted $114m in losses last quarter - within 10 days.
It's unclear if the former board member did anything wrong in their failure to disclose their monetary gain from the stock sale, and if so whether they'll be separately charged. The SEC declined to comment on the case, including whether a separate complaint was coming for the former board member. ®