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by nissimk 2631 days ago
Is there any rule or provision preventing them from short selling the stock in another account?
2 comments

Yes that would be a violation of their lockup agreement. They can’t buy/sell puts/calls either.
How would they be found out though?
Through KYC processes?

They could theoretically conspire with another person who runs the trade but eventually compensates the principal. They'd only be found out through regular white collar crime fighting measures: parallel construction from NSA sigint for example.

But how would Lyft know that an employee bought puts from E-trade? How is that information shared? I don't think there's any information being exchanged by every single brokerage to Lyft, is there? The lockup agreement is a contractual thing, it's not a legal document. I don't see how Lyft would have the legal rights to search.
How do the police know that you're cooking meth in your basement? They don't, but if you do something dumb or make a lot of money, they tend to find out.

It's the same here. Buying/selling options on Lyft as an employee is against their employment contract, and probably SEC rules. If they make a few thousand dollars doing it, chances are no one will find out.

If they make a few million, the SEC will probably look into that.

Why is the SEC involved, especially if there's no insider trading involved? What if a Lyft employee quit a few months ago, and then hedges her RSUs with puts? There's no insider trading involved, why would the SEC care?
The SEC is the one I would be worried about if I was a Lyft employee that was secretly hedging my locked up shares with put options.

Irregular options activity does get noticed and investigated, take a look at some SEC enforcement actions for insider trading: https://www.sec.gov/spotlight/insidertrading/cases.shtml

But breaking the terms of the lock up agreement isn't a crime, especially if there's no insider trading involved.

If a Lyft employee quits 2 months ago, and then buys puts on their lockup RSUs, I don't see how this is something the SEC cares about. At worst it's a contractual agreement between the employee and Lyft, no?

Some Google searching suggests enforcement would be after the fact so your scenario might well be permitted. Also found that Google searching "insider trading" may not be a good idea...
It's all linked via your SSA
Underwriters insist on a lockup period for a reason. Everyone asks about short selling and options, and the answer is always no.