Lyft Inc (NASDAQ:LYFT)., the American ride-hailing company, has agreed to pay a $10 million penalty as part of a settlement with the Securities and Exchange Commission (SEC) over civil charges. The case emerged from allegations that Lyft failed to disclose a pre-initial public offering (IPO) share sale involving high-profile investors Carl Icahn and George Soros, which was orchestrated by a former board member.
The SEC announced on Monday that the contentious transaction occurred just prior to Lyft's IPO in March 2019. Carl Icahn, one of the involved investors, sought to sell approximately 7.7 million shares, representing a 2.6% stake in the company. Earlier SEC documents revealed that Icahn's proposed sale was initially rejected by Lyft's board due to potential insider trading concerns tied to his knowledge of the IPO details.
The situation took a turn when Jonathan Christodoro, a former managing director at Icahn Capital LP and then-board member, proposed that Lyft should allow him or an affiliate of his investment firm to purchase the shares. The board approved this transaction, but it was unbeknownst to them that Christodoro arranged for another investor, George Soros, to acquire these shares at a significant discount to the expected IPO price. This arrangement was executed through a special purpose vehicle managed by Christodoro's firm, with entities controlled by Soros invested as limited partners.
According to the SEC, this transaction amounted to around $424 million or approximately $55 per share. Later, Lyft went public at $72 per share. Christodoro resigned from Lyft's board shortly before its public listing. As of Monday, Lyft's shares are trading around $10.95.
Christodoro had initially agreed to receive $9.2 million in fees for facilitating this transaction. However, this figure was later negotiated down to a lower seven-digit amount. The SEC alleges that Christodoro did not disclose his compensation agreement related to the deal to Lyft. Furthermore, Lyft failed to submit the necessary disclosures to the SEC regarding this insider transaction, which is a violation of federal securities regulations.
Sheldon Pollock, a representative from the SEC's New York office, stressed that federal securities laws require companies like Lyft to disclose when a director profits from a transaction in which the company is involved. He added that the SEC remains committed to ensuring investors are not deprived of vital information about transactions occurring close to a company's IPO.
The SEC clarified that the settlement only involves Lyft and does not name Icahn, Soros, or Christodoro as defendants in the case. Representatives for Lyft, Icahn, and Christodoro have yet to comment on the matter, while a representative for Soros has opted not to comment.
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