When it comes to its IPO, Lyft is getting driven to the cleaners.
The ride-share company has agreed to pay a $10 million fine to resolve Securities and Exchange Commission civil charges that it failed to disclose that one of its former board members was paid to arrange a pre-IPO share sale between billionaires Carl Icahn and George Soros.
The transaction in question occurred just ahead of Lyft Inc.’s March 2019 initial public offering, in which Icahn sought to unload 7.7 million shares — or roughly a 2.6% stake in the company, the SEC said.
Initially, Lyft’s board rejected a big investor’s effort to sell a stake in the company, citing possible insider-trading issues due to the investor’s knowledge of details of the IPO, the SEC said. Prior SEC filings show that the investor in question is Icahn.
But then a person who sat on Lyft’s board proposed that the company allow this director, or an affiliate of his investment firm, to buy the shares. Prior SEC filings show the director involved was Jonathan Christodoro, a former Icahn Capital LP managing director.
The board agreed to allow that transaction, the SEC said.
Behind the scenes, however, Christodoro arranged for another investor to buy the shares at a significant discount to the expected IPO price, through a special purpose vehicle managed by Christodoro’s firm, that entities the other investor controlled would be invested in as limited partners, the SEC said. The other investor was George Soros, The Wall Street Journal reported at the time.
The transaction amounted to $424 million, or around $55 per share, the SEC said. Lyft
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later went public at $72 per share. Christodoro stepped down from Lyft’s board shortly before the company went public.
Lyft’s shares have since plummeted and trade for about $10.95 today.
For his role in arranging the transaction, Christodoro was slated to be paid $9.2 million in fees, although that figure was later negotiated down to a lower seven-digit figure, the SEC said.
Investigators say Christodoro never informed Lyft of his compensation agreement as part of the deal, and Lyft never filed 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 agreement announced Monday by the SEC is only with Lyft and does not name Icahn, Soros or Christodoro as defendants in the case.
Messages sent to representatives of Lyft, Icahn and Christodoro weren’t immediately returned. A representative for Soros declined to comment.