Ride-hailing giant, Lyft, has agreed to pay a massive $10 million fine to the U.S. Securities and Exchange Commission (SEC) for its failure to disclose a board director’s involvement in a pre-IPO share sale, according to an announcement made on Monday.
Key Takeaway
Lyft has agreed to pay a
0 million fine to the SEC for its failure to disclose a board director’s involvement in a pre-IPO share sale. The board director arranged for a shareholder to sell shares to a special purpose vehicle set up by an investment adviser affiliated with the same director. Lyft approved the sale but did not disclose this information to investors. The director received significant compensation for his role in structuring and negotiating the deal. It is crucial for companies to disclose such information to investors.
Background
Prior to Lyft’s highly anticipated Initial Public Offering (IPO) in March 2019, one of the company’s board directors arranged for a shareholder to sell $424 million worth of private shares to a special purpose vehicle (SPV) established by an investment adviser affiliated with the same director. However, Lyft did not disclose this director’s participation in the transaction to investors.
According to the SEC, the unnamed director then contacted an investor who was interested in purchasing the shares through the SPV. The SEC further revealed that Lyft had approved the sale and had even negotiated several terms in the contract. It was also disclosed that the director received substantial compensation, amounting to “millions of dollars,” from the investment adviser for his role in structuring and negotiating the deal.
SEC Fine and Non-Disclosure
The SEC’s order revealed that the director in question left Lyft’s board at the time of the share sale. While the company agreed to pay the $10 million fine, it did not admit or deny the SEC’s charge. Sheldon L. Pollock, the associate regional director of the SEC’s New York Regional Office, emphasized the importance of companies disclosing such information to investors, stating, “The federal securities laws required Lyft to disclose that a director profited from a transaction in which Lyft itself was a participant.”
Lyft did not immediately provide a comment on the matter.
