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Ride-hailing app Lyft has agreed to pay a $10mn penalty to the Securities and Exchange Commission to settle an investigation into disclosures relating to the sale of Carl Icahn’s stake in the company ahead of its initial public offering in 2019.
The Wall Street regulator said Lyft failed to disclose that Jonathan Christodoro, a director on the company’s board until March 2019, had made millions from arranging the sale of Icahn’s 2.6 per cent stake in the ride-hailing group.
Christodoro, whom Icahn installed as a board member as part of his $100mn investment in the company in 2015, received millions of dollars for executing the deal just before the ride-sharing group made its public market debut, the SEC alleged.
According to the SEC, a Lyft board director arranged for a large shareholder to sell its stake in the company to a special purpose vehicle set up by an investment adviser which with the director was affiliated.
The regulator did not name the board director or the shareholder but two sources familiar with the matter confirmed they were Christodoro and Icahn Enterprises, respectively.
The SEC and Lyft declined to comment as did a representative for Icahn and Christodoro’s attorney.
The SEC’s action stems from what the regulator alleges was Lyft’s failure to disclose a fee that Christodoro had negotiated as part of Icahn’s sale of the block of 7.7mn Lyft shares.
According to the SEC’s order, Icahn had told the company he wanted to sell half of his investment prior to the listing. He did not sign a customary “lock-up” agreement that would have prohibited him from selling shares when the company began trading on public stock markets.
Lyft formed a special committee that weighed risks of the sale surrounding insider trading and conflicts of interest due to Christodoro’s board seat, according to the order.
To overcome the risks, Christodoro recommended an arrangement where Icahn would sell his entire 2.6 per cent stake to him in a private transaction before Christodoro found a third party buyer. Lyft supported the arrangement, according to the SEC’s complaint.
Icahn sold the shares for roughly $424mn to the vehicle, of which Christodoro was an employee and “received both a fixed salary and compensation . . . relating to his work bringing investment opportunities”, the SEC claimed. He “did not disclose his compensation or his material interest in the transaction to Lyft”, according to the regulator.
Christodoro negotiated to receive 50 per cent of the management fees and 85 per cent of the performance fees stemming from a pre and post-IPO gain amounting to millions of dollars, the SEC said. He was due to receive $9.8mn as part of the agreement but the figure was negotiated down to a “lower seven-figure amount” by the purchaser of the shares, it added.
The share price of Lyft, which went public at $72 per share, has collapsed amid heavy losses. Its stock now trades at about $10 per share, having declined more than 80 per cent since the 2019 offering.
Christodoro has held directorships on several corporate boards and was a part of some of Icahn’s largest activist campaigns in recent years. He joined Icahn’s hedge fund in 2012 and was nominated by the octogenarian billionaire activist investor to a serve as a director of companies including AIG, PayPal Holdings and Xerox.
He left Icahn’s firm in 2017 and later became chair of a special purpose acquisition vehicle, which last year abandoned a $2.2bn merger with financial technology company Acorns that would have led to the start-up being traded on the New York Stock Exchange.
Christodoro remains on PayPal’s board of directors and is a director of dozens of mutual funds and exchange traded funds, according to financial filings.
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