The Securities and Exchange Commission (SEC) has taken action against Lyft Inc. today, alleging that the company failed to disclose a board director’s involvement in a shareholder’s sale of approximately $424 million worth of private Lyft stock before the company’s initial public offering (IPO).
According to the SEC’s findings, prior to Lyft’s IPO in March 2019, a director on Lyft’s board arranged for a shareholder to sell their shares to a special purpose vehicle (SPV) established by an investment adviser associated with the same director. Subsequently, the director reached out to an investor interested in purchasing these shares through the SPV. The SEC’s investigation revealed that Lyft, which had approved the sale and negotiated specific terms in the contract, was actively involved in the transaction. The director, due to his position and the substantial compensation he received from the investment adviser for his role in structuring and negotiating the deal, was considered a related person. However, Lyft did not disclose this information about the sale in its 2019 Form 10-K. It’s worth noting that the director had left the board at the time of the transaction.
Sheldon L. Pollock, Associate Regional Director of the SEC’s New York Regional Office, emphasized, “The federal securities laws required Lyft to disclose that a director profited from a transaction in which Lyft itself was a participant. We remain vigilant in ensuring investors are not deprived of critical information about transactions occurring close to a company’s initial public offering.”
The SEC’s order found that Lyft violated Section 13(a) of the Exchange Act and Rule 13a-1 thereunder. Without admitting or denying the SEC’s findings, Lyft has agreed to a cease-and-desist order and to pay a $10 million civil penalty.
The SEC’s investigation was carried out by Theresa Gue and Adam Grace of the New York Regional Office, Andrew Dean of the Asset Management Unit, and Joshua Brodsky of the Complex Financial Instruments Unit, under the supervision of Mr. Pollock.