from Hacker News

Lyft threatens lawsuit against Morgan Stanley, accusing support of short selling

by gabbo on 4/6/19, 6:54 PM with 33 comments

• by fnpiop on 4/6/19, 11:47 PM

  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.

• by rongenre on 4/6/19, 9:56 PM

  Wow, when companies complain about short sellers, it's generally pretty dumb (and a sell signal), but this sounds like MS was trying to help people get around lockup agreements which is pretty bad behavior if true.

• by chollida1 on 4/6/19, 8:18 PM

  So I can see each pre I’ll investor in Lyft having a contract that prohibits shorting, though there are reports that the language is week enough that it’s possible that shareholders might actuallly be able to hedge their positions.

  But what possible charge could Lyft bring against ms?

  It’s not illegal for an investment bank to short a company nor is it illegal for them to write a bespoke contract that let The holder lock in a price for ther shares as long as they weren’t the ipo underwriter.

  It’s also not uncommon for a hedge fund to buy a bespoke put on a company Colton an investment bank, I mean writing this type of instrument is a part of their trading desks business.

  Also this fails a simple occam’s razor test once MS denied this.

• by NelsonMinar on 4/6/19, 8:25 PM

  Some other stories on this:

  https://nypost.com/2019/04/05/lyft-threatens-morgan-stanley-... https://techcrunch.com/2019/04/05/morgan-stanley-which-is-un... https://www.theinformation.com/articles/lyft-threatened-morg...

  The NYPost story includes the detail "We bought stock in a special acquisition vehicle and then the individual investors in the special acquisition vehicle shorted shares through Morgan Stanley ... Pre-IPO investors are contractually barred from reducing their “economic interest” in Lyft for six months, which includes shorting the stock. But sources say Lyft investors worked around the lock-up language by positioning the bets so that they won’t benefit from a decline or a rise in the stock. Instead, they simply lock in their IPO gains, which were significant."

• by miohtama on 4/8/19, 5:09 PM

  The underlying issue is that Lyft stock price is too expensive and earlier professional investors know it. They want to hedge their position before Lyft bubble bursts.

  If Lyft IPO price had been lower (... or more reasonable) this problem would not exist.