The U.S. Securities and Exchange Commission (SEC) recently charged Lyft with failing to disclose the role of a member of its Board of Directors in a shareholder's sale of stock. Some of the pertinent facts include the following:

• A large Lyft shareholder had a nominee on the Board of Directors (director).
• The shareholder wished to sell shares, but could not do so because of material non-public information acquired by director.
• Director arranged a transaction pursuant to which an investment advisor with which he was affiliated would purchase the shares on behalf of a third-party investor.
• Director received compensation in connection with the transaction, which was not disclosed to Lyft.
• Lyft was a signatory of the stock transfer agreement and negotiated some terms in the agreement, as its consent was required for the transfer to take place.
• Lyft did not disclose the transaction.

In its cease and desist order, the SEC noted that Item 404(a) of Regulation S-K requires a description of transactions since the beginning of the registrant’s last fiscal year in excess of $120,000 in which the issuer was or is to be a participant, and in which a related person had or will have a direct or indirect material interest.

It appears that the SEC took the position that Lyft was a "participant" because it was a signatory to the agreement, even though it was not buying or selling the securities or receiving any consideration in connection with the transaction. This is a good reminder that the SEC takes an expansive view of the rules—in this case taking the position that Lyft was a participant even though it was not economically involved in the transaction and the director was not profiting from Lyft. Unfortunately for Lyft, failing to read the rules broadly resulted in Lyft having to pay a $10 million penalty to the SEC.