Morgan Stanley is trying to distance itself from its role in helping early Lyft investors bet against the ride-hailing company after Lyft threatened to sue them and report them to regulators, The Post has learned.
On Monday, The Post reported that Morgan Stanley, the lead underwriter for Uber’s upcoming IPO, had been helping Lyft’s pre-IPO investors protect against a decline in the stock — despite “lock-up” agreements intended to block those investors from betting against the company in the wake of its public stock offering.
Three sources — including an insider at Morgan Stanley and a pre-IPO investor who hedged through the bank — confirmed that Morgan Stanley was involved in the bets.
On Thursday — three days after The Post story ran — Morgan Stanley requested that the story be updated to include a statement denying the bank participated in hedging activity tied to Lyft.
“Morgan Stanley did not market or execute total return or hedging products, or any short product on Lyft shares,” the statement said. “We did not execute, directly or indirectly, a short sale for anyone identified by the company or otherwise known to us to be the subject of a Lyft lock-up agreement.”
But sources, including the pre-IPO investor who hedged through Morgan, continue to insist the hedges happened.
“We bought stock in a special acquisition vehicle and then the individual investors in the special acquisition vehicle shorted shares through Morgan Stanley,” according to the pre-IPO investor. “Morgan Stanley provided most of the borrow to short the stock.”
Now it has emerged that Morgan Stanley’s denial comes on the heels of a harshly worded letter by Lyft questioning whether Morgan Stanley engaged in “tortious interference,” according to a copy of the April 2 letter obtained by The Post.
Lyft’s letter, which was first reported by The Information, also threatened legal action and warned of potential regulatory repercussions.
The Financial Industry Regulatory Authority has started collecting information about Lyft’s trading, a source with direct knowledge of the situation told The Post.
Meanwhile, Morgan was still offering the bets, known as total return swaps, as of Friday evening, one Wall Street executive briefed on the transaction told The Post.
“That’s a relatively unethical thing to do, and it’s not normal,” this person said, adding that it is also not illegal.
Lyft was one of the most hotly anticipated IPOs of 2019. Shares of the oversubscribed IPO soared 21 percent immediately after their Nasdaq debut on March 29 — before appetite to short the stock grew.
“It’s Uber’s dirty tricks being employed,” a source familiar with Lyft’s thinking told The Post, noting that Morgan Stanley is Uber’s lead IPO underwriter.
The stock has regained its footing, closing at $74.45 Friday.
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.
Reps from Lyft declined to comment. Morgan Stanley declined further comment.