SEC Charges Lyft with Failure to Disclose Financial Interest in Pre-IPO Transaction

The Securities and Exchange Commission (SEC) has charged Lyft Inc. for not disclosing a company board director's involvement in a shareholder's sale of approximately $424 million worth of private shares of Lyft's stock before the company's initial public offering (IPO). Here's a breakdown of the key points in this case:

1. Background: 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) set up by an investment adviser affiliated with the same director.

2. Director's Involvement: The director then contacted an investor interested in purchasing these shares through the SPV. The SEC alleges that Lyft approved the sale and secured certain terms in the contract. The director was considered a related person due to his position and the fact that he received significant compensation from the investment adviser for his role in structuring and negotiating the deal.

3. Failure to Disclose: Lyft did not disclose this information about the sale in its Form 10-K for 2019, which is a required filing with the SEC. According to the SEC's order, Lyft was obligated to disclose that one of its directors had profited from a transaction in which Lyft itself was involved.

4. SEC's Action: The SEC took action against Lyft, finding that the company violated Section 13(a) of the Exchange Act and Rule 13a-1 thereunder. Section 13(a) of the Exchange Act requires companies to file accurate and complete reports with the SEC, including disclosures of material information.

5. Penalty and Resolution: Without admitting or denying the SEC's findings, Lyft agreed to a cease-and-desist order. Additionally, Lyft agreed to pay a $10 million civil penalty as part of the resolution of the case.

6. SEC's Stance: The SEC emphasized the importance of transparency and disclosure in transactions, especially close to a company's initial public offering. They stressed the need for investors to have access to critical information about such transactions.

This case serves as a reminder of the SEC's role in enforcing securities laws and ensuring that companies provide accurate and complete information to investors, particularly in the lead-up to significant corporate events like IPOs. Companies are expected to disclose any material information that could impact the decisions of investors.

Notes:

SEC Charges Lyft with Failure to Disclose Board Member’s Financial Interest in Private Shareholder’s Pre-IPO Stock Transaction