We’re coming to the end of the SEC’s fiscal year, and that’s traditionally been a time when we’ve seen a lot of high-profile activity on the enforcement front. That looks like it may be the case this year, and it also looks like related party transaction disclosure is high on the list of the Division of Enforcement’s priorities. Last week, Meredith blogged about a recent RPT enforcement action and the SEC brought another settled enforcement action yesterday, this time targeting alleged shortcomings in related party transactions disclosure by Lyft. This excerpt from the SEC’s press release announcing the settlement summarizes the conduct alleged in its order:
According to the SEC’s order, prior to Lyft’s IPO in March 2019, a Lyft board director arranged for a shareholder to sell its shares to a special purpose vehicle (“SPV”) set up by an investment adviser affiliated with the same director. The director then contacted an investor interested in purchasing the shares through the SPV. According to the SEC’s order, Lyft, which approved the sale and secured a number of terms in the contract, was a participant in the transaction, and the director was a related person by virtue of his position and because he received millions of dollars in compensation from the investment adviser for his role in structuring and negotiating the deal. Lyft failed to disclose this information regarding the sale in its Form 10-K for 2019. The SEC’s order finds that the director left the Board at the time of the transaction.
Without admitting or denying the SEC’s allegations, Lyft consented to an order requiring it to cease and desist from committing or causing any future violations of Section 13(a) of the Exchange Act or Rule 13a-1 thereunder. The company also agreed to pay a $10,000,000(!) civil penalty.
The action provides a reminder that even if a transaction doesn’t involve payments between a company and a related party, disclosure may still be required. That’s because Item 404(a) requires a description of transactions since the beginning of the registrant’s last fiscal year in excess of $120,000 in which it was or is to be a participant, and in which a related person had or will have a direct or indirect material interest.
– John Jenkins