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.
>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.
> 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.
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.
For someone who knows nothing about shares, why is it a sell signal? I'd always assumed the issue was just that it was juvenile, not necessarily a cause for concern.
So do you think lock up agreements themselves are a sell signal as well ? They threaten legal action on short selling (even worse than just complaining).
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.
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."
Obviously, if the investor engages in a transaction that leads to them to not benefiting from a rise in the stock, they've reduced their economic interest!
The answer (as I note elsewhere) is that the investors believe Lyft's lock-up language does not per se bar them from reducing "economic interest". The loose agreement only bars selling and presumably short-selling shares.
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.
fnpiop|7 years ago
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|7 years ago
From https://www.bloomberg.com/opinion/articles/2019-04-04/token-...
dragonwriter|7 years ago
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.
rongenre|7 years ago
wyattpeak|7 years ago
naveen99|7 years ago
chollida1|7 years ago
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.
iakh|7 years ago
> tortious interference with the lock-up agreements
NelsonMinar|7 years ago
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."
bobcostas55|7 years ago
Sounds like they were reducing their economic interest.
fnpiop|7 years ago
Obviously, if the investor engages in a transaction that leads to them to not benefiting from a rise in the stock, they've reduced their economic interest!
The answer (as I note elsewhere) is that the investors believe Lyft's lock-up language does not per se bar them from reducing "economic interest". The loose agreement only bars selling and presumably short-selling shares.
naveen99|7 years ago
ackbar03|7 years ago
miohtama|7 years ago
If Lyft IPO price had been lower (... or more reasonable) this problem would not exist.