Ridesharing company Lyft Inc. has agreed to pay a $10 million civil penalty to resolve Securities and Exchange Commission (SEC) allegations that it failed to report a board director’s involvement in a $424 million private share sale before the company’s initial public offering (IPO).
In a Sept. 18 statement released, the SEC said that prior to the company’s IPO in March 2019, a Lyft board director orchestrated a deal allowing a shareholder to offload approximately 7.7 million shares of stock to a special purpose vehicle (SPV) set up by an affiliated investment adviser. The same director, whom the regulator did not name, then approached an investor interested in acquiring the shares through the SPV.
The SEC claimed that Lyft was directly involved in the deal, having approved the sale and negotiated a number of the contract’s provisions. It said that the director was considered a related person due to his position and the millions of dollars he received from the investment adviser for his role in structuring the deal.
The SEC alleged that Lyft failed to disclose the transaction and the director’s material interest in that sale in its 2019 Form 10-K filing, or in any subsequent Exchange Act filings. The regulator also found that the director had left the board at the time of the transaction.
“The federal securities laws mandated that Lyft disclose a director’s financial gain from a transaction in which Lyft itself played a significant role,” said Sheldon L. Pollock, Associate Regional Director of the SEC’s New York Regional Office. “We are committed to safeguarding the interests of investors by ensuring they have access to essential information concerning transactions close to a company’s IPO.”
Without admitting or denying the allegations, Lyft agreed to a cease-and-desist order.