[fnpiop]

Even though Morgan Stanley denies short-selling, I'm really trying to understand the legal issue they'd be under even if they were.

The various news articles are terribly written (esp. the original nypost article), so here's what I can tell as someone with some knowledge of Lyft stock:

* Lyft's market standoff agreement is written loosely. Often such agreements enumerate a wide range of prohibited behaviors with the underlying stock during the lockup, banning all sorts of direct or indirect sells, hedges, hypothecation, etc. of the underlying stock. Lyft merely bans "selling or otherwise disposing" the company stock.

* Lyft has claimed (in emails to investors) that any transaction that transfers "economic interest" of the stock are prohibited.

So:

1. Via "https://nypost.com/2019/04/05/lyft-threatens-morgan-stanley-..., It looks like Morgan Stanley might have created a vehicle/security that inversely tracks Lyft. So the Lyft investors aren't per se shorting Lyft; MS is. This toes the line (as it is an indirect short), but I'd love to see legal experts weigh in.

2. Even then, I'm finding Lyft's position hard to rationalize. How does an agreement to ban sales bar any form of economic interest reduction? (e.g. buying puts, writing calls, hypothecating, etc.) I would think investors could execute equity collars on their Lyft position all they want per the agreement (and Morgan Stanley could be their counter-party), but Lyft is claiming otherwise.

[ikeboy]

>It says in relevant part that “our directors, our executive officers and holders of a substantial portion of our capital stock and securities convertible into our capital stock have entered into lock-up agreements …pursuant to which each of these persons or entities, with limited exceptions, for a period of up to 180 days after the date of this prospectus, may not, without the prior written consent of J.P.Morgan Securities LLC, (i)offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our Class A common stock or any securities convertible into or exercisable or exchangeable for our Class A common stock ... or (ii)enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Class A common stock or such other securities.” That captures not only share sales but also options, swaps and other hedging transactions, whether settled in cash or stock, and it is pretty standard language.

From https://www.bloomberg.com/opinion/articles/2019-04-04/token-...

[fnpiop]

EDIT: I actually read the S1 excerpt wrong.

Update: Note that it is carefully worded: "Our directors, executive officers and holders of a substantial portion of our capital stock and securities convertible into our capital stock".

What probably happened is that the company required holders of only a "substantial portion" of stock to sign updated agreements with the underwriters. Neither I nor any of my Lyft stockholding friends ever entered into such an agreement (and Lyft isn't claiming that we, as minor shareholders, did). So as far as I can tell, nothing blocks us from hedging with Morgan Stanley or otherwise.

(Original post was thinking the S1 is wrong; it is not)

[ikeboy]

Lyft wouldn't be getting upset with Morgan Stanley if all they did was allow minor shareholders who didn't sign agreements to hedge.

[ikeboy]

Source?

[fnpiop]

Unfortunately, the actual agreements generally aren't public information. I can't provide mine without risk of loss of anonymity.

Yes, this is a lame answer, but any viewer who has Lyft stock or has friends that do can verify for themselves.

[bcb1276]

The lock up agreement is publicly available on the SEC’s website (it’s a material contract and therefore required to be filed as an exhibit to the registration statement). The agreement itself is part of the Investors’ Rights Agreement. See section 2.12

https://www.sec.gov/Archives/edgar/data/1759509/000119312519...

[ikeboy]

Seems like it'll hit the courts eventually and then we'll find out if there's a loophole or not.

Lyft is certainly claiming there isn't one, and the S1 says the same. If the S1 is false they might have a securities fraud case on their hands.

[gjap1zq]

What year agreement do you have?

I also signed one - DM me if you want.

[ikeboy]

FYI, HN doesn't have DMs - you could put a throwaway email in your profile

[dragonwriter]

> Even though Morgan Stanley denies short-selling, I'm really trying to understand the legal issue they'd be under even if they were.

The issue (and, yes, the drafting of the agreement you point to may make this murkier than would generally be the case) sounds like tortious interferenxe. Supposing MS did create a shorting product for Lyft pre-IPO investors, and supposing that the pre-IPO investors are, as a class, prohibited from engaging with that product by contract with Lyft, and supposing MS knew about that prohibition, that would seem to be the issue.