SEC Charges Lyft for Failing to Disclose Board Member’s Financial Interest in Pre-IPO Stock Transaction

SEC Charges Lyft for Failing to Disclose Board Member’s Financial Interest in Pre-IPO Stock Transaction


The Securities and Exchange Commission (SEC) has taken action against Lyft Inc., accusing the ride-sharing giant of failing to disclose pertinent information related to a significant pre-initial public offering (IPO) stock transaction involving a company board director. This enforcement action sheds light on the importance of transparency in corporate disclosures, especially concerning transactions close to a company's IPO.

According to the SEC's order, prior to Lyft's IPO in March 2019, a Lyft board director orchestrated the sale of approximately $424 million worth of private shares of Lyft's stock to a special purpose vehicle (SPV) established by an investment adviser affiliated with the same director. Subsequently, the director reached out to an investor interested in acquiring these shares through the SPV. The SEC's order reveals that Lyft, which not only approved the sale but also negotiated specific terms in the contract, played an active role in this transaction. The director's involvement was significant, not only due to his position but also because he received multimillion-dollar compensation from the investment adviser for structuring and overseeing the deal. Unfortunately, Lyft failed to disclose this crucial information concerning the sale in its Form 10-K for 2019. Importantly, the SEC's order notes that the director had resigned from 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 determines that Lyft violated Section 13(a) of the Exchange Act and Rule 13a-1. 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.

This enforcement action underscores the SEC's unwavering commitment to upholding transparency and ensuring that investors receive comprehensive information about transactions, particularly those that transpire in the vicinity of a company's IPO. It serves as a reminder to corporations of the importance of full and timely disclosures to maintain the integrity of the securities markets.