Ridesharing giant Lyft Inc (NASDAQ:LYFT). has agreed to pay a $10 million fine to the Securities and Exchange Commission (SEC) over allegations it failed to disclose a pre-initial public offering (IPO) stock deal that profited a board member. The settlement, announced on Monday, comes after an investigation by the SEC into a $424 million share sale that took place ahead of Lyft's March 2019 IPO.
The SEC revealed that former board member Jonathan Christodoro, a former managing director at Icahn Capital LP, arranged a pre-IPO share sale between billionaires Carl Icahn and George Soros. This transaction involved 7.7 million shares, roughly 2.6% stake in the company, which were sold to entities controlled by Soros through a special purpose vehicle managed by Christodoro's firm.
Initially, Lyft's board had rejected an effort by Icahn to sell his stake in the company due to potential insider trading issues. However, Christodoro proposed that the company allow him or an affiliate of his investment firm to buy the shares. The board agreed to this transaction, but Christodoro then arranged for another investor, Soros, to buy the shares at a significant discount to the expected IPO price.
For his role in arranging the transaction, Christodoro was slated to be paid $9.2 million in fees, later negotiated down to a lower seven-digit figure. However, investigators found that Christodoro did not inform Lyft of his compensation agreement as part of the deal. Moreover, Lyft failed to file the required disclosures with the SEC declaring the insider transaction, which was a violation of federal securities regulations.
“The federal securities laws required Lyft to disclose that a director profited from a transaction in which Lyft itself was a participant,” said Sheldon Pollock of the SEC's New York office. “We remain vigilant in ensuring investors are not deprived of critical information about transactions occurring close to a company's initial public offering.”
The settlement does not name Icahn, Soros, or Christodoro as defendants in the case. Representatives of Lyft, Icahn, and Christodoro did not immediately respond to requests for comment, while a representative for Soros declined to comment.
This penalty is the latest development in a challenging period for Lyft, whose shares have plummeted since its IPO and traded at around $10.95 on Monday. As part of the settlement, Lyft agreed to cease and desist from further violations. However, the company has not admitted or denied the SEC's findings.
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