12 ms·

Is there any rule or provision preventing them from short selling the stock in another account?

by nissimk 7y ago

nemo44x 7y ago
Yes that would be a violation of their lockup agreement. They can’t buy/sell puts/calls either.
- docker_up 7y ago
  How would they be found out though?
  - mandeepj 7y ago
    It's all linked via your SSA
  - dboreham 7y ago
    Through KYC processes? They could theoretically conspire with another person who runs the trade but eventually compensates the principal. They'd only be found out through regular white collar crime fighting measures: parallel construction from NSA sigint for example.
    - docker_up 7y ago
      But how would Lyft know that an employee bought puts from E-trade? How is that information shared? I don't think there's any information being exchanged by every single brokerage to Lyft, is there? The lockup agreement is a contractual thing, it's not a legal document. I don't see how Lyft would have the legal rights to search.
      - jedberg 7y ago
        How do the police know that you're cooking meth in your basement? They don't, but if you do something dumb or make a lot of money, they tend to find out. It's the same here. Buying/selling options on Lyft as an employee is against their employment contract, and probably SEC rules. If they make a few thousand dollars doing it, chances are no one will find out. If they make a few million, the SEC will probably look into that.
        docker_up 7y ago
        Why is the SEC involved, especially if there's no insider trading involved? What if a Lyft employee quit a few months ago, and then hedges her RSUs with puts? There's no insider trading involved, why would the SEC care?
        asynchrony 7y ago
        Employees are normally forbidden from trading any derivatives, short selling, or even buying shares in a margin account. I’m not sure about the case of an employee that has left the company, but I expect that it would still qualify as insider trading through some window.
        jedberg 7y ago
        The SEC deals with all trading irregularities and violations, not just insider trading. The rules aren’t there just because Lyft wants to be mean, they’re there because regulations require it and also because one of the guiding principles is “no perception of insider trading”. That means you have to avoid behaviors that might look like insider trading. A current or recent insider using hedging is very suspicious looking. What do they know? When I left Netflix I was warned that I needed to wait at least three months before making any trade other than buy. And I was still restricted to the employee trading window for six months.
        deleted 7y ago
        [deleted]
      - dboreham 7y ago
        Some Google searching suggests enforcement would be after the fact so your scenario might well be permitted. Also found that Google searching "insider trading" may not be a good idea...
      - buttcoinslol 7y ago
        The SEC is the one I would be worried about if I was a Lyft employee that was secretly hedging my locked up shares with put options. Irregular options activity does get noticed and investigated, take a look at some SEC enforcement actions for insider trading: https://www.sec.gov/spotlight/insidertrading/cases.shtml https://www.sec.gov/spotlight/insidertrading/cases.shtml
        docker_up 7y ago
        But breaking the terms of the lock up agreement isn't a crime, especially if there's no insider trading involved. If a Lyft employee quits 2 months ago, and then buys puts on their lockup RSUs, I don't see how this is something the SEC cares about. At worst it's a contractual agreement between the employee and Lyft, no?
        gamblor956 7y ago
        Lockup agreements are actually between Lyft and the IPO underwriters. Basically, Lyft would have agreed with the underwriters not to exchange RSUs for the underlying shares of stock, so the employees couldn't sell any shares on the market. The RSUs, by their terms, generally have restrictions on who they can be sold to--usually just back to the company or purchasers approved by the company. If those restrictions are not adhered to, then the issuer of the RSU (i.e., Lyft) can void the sale transaction.
rongenre 7y ago
Underwriters insist on a lockup period for a reason. Everyone asks about short selling and options, and the answer is always no.

Is there any rule or provision preventing them from short selling the stock in another account?

nemo44x 7y ago

Yes that would be a violation of their lockup agreement. They can’t buy/sell puts/calls either.

docker_up 7y ago
How would they be found out though?
- mandeepj 7y ago
  It's all linked via your SSA
- dboreham 7y ago
  Through KYC processes? They could theoretically conspire with another person who runs the trade but eventually compensates the principal. They'd only be found out through regular white collar crime fighting measures: parallel construction from NSA sigint for example.
  - docker_up 7y ago
    But how would Lyft know that an employee bought puts from E-trade? How is that information shared? I don't think there's any information being exchanged by every single brokerage to Lyft, is there? The lockup agreement is a contractual thing, it's not a legal document. I don't see how Lyft would have the legal rights to search.
    - jedberg 7y ago
      How do the police know that you're cooking meth in your basement? They don't, but if you do something dumb or make a lot of money, they tend to find out. It's the same here. Buying/selling options on Lyft as an employee is against their employment contract, and probably SEC rules. If they make a few thousand dollars doing it, chances are no one will find out. If they make a few million, the SEC will probably look into that.
      - docker_up 7y ago
        Why is the SEC involved, especially if there's no insider trading involved? What if a Lyft employee quit a few months ago, and then hedges her RSUs with puts? There's no insider trading involved, why would the SEC care?
        asynchrony 7y ago
        Employees are normally forbidden from trading any derivatives, short selling, or even buying shares in a margin account. I’m not sure about the case of an employee that has left the company, but I expect that it would still qualify as insider trading through some window.
        jedberg 7y ago
        The SEC deals with all trading irregularities and violations, not just insider trading. The rules aren’t there just because Lyft wants to be mean, they’re there because regulations require it and also because one of the guiding principles is “no perception of insider trading”. That means you have to avoid behaviors that might look like insider trading. A current or recent insider using hedging is very suspicious looking. What do they know? When I left Netflix I was warned that I needed to wait at least three months before making any trade other than buy. And I was still restricted to the employee trading window for six months.
      - deleted 7y ago
        [deleted]
    - dboreham 7y ago
      Some Google searching suggests enforcement would be after the fact so your scenario might well be permitted. Also found that Google searching "insider trading" may not be a good idea...
    - buttcoinslol 7y ago
      The SEC is the one I would be worried about if I was a Lyft employee that was secretly hedging my locked up shares with put options. Irregular options activity does get noticed and investigated, take a look at some SEC enforcement actions for insider trading: https://www.sec.gov/spotlight/insidertrading/cases.shtml https://www.sec.gov/spotlight/insidertrading/cases.shtml
      - docker_up 7y ago
        But breaking the terms of the lock up agreement isn't a crime, especially if there's no insider trading involved. If a Lyft employee quits 2 months ago, and then buys puts on their lockup RSUs, I don't see how this is something the SEC cares about. At worst it's a contractual agreement between the employee and Lyft, no?
        gamblor956 7y ago
        Lockup agreements are actually between Lyft and the IPO underwriters. Basically, Lyft would have agreed with the underwriters not to exchange RSUs for the underlying shares of stock, so the employees couldn't sell any shares on the market. The RSUs, by their terms, generally have restrictions on who they can be sold to--usually just back to the company or purchasers approved by the company. If those restrictions are not adhered to, then the issuer of the RSU (i.e., Lyft) can void the sale transaction.

rongenre 7y ago

Underwriters insist on a lockup period for a reason. Everyone asks about short selling and options, and the answer is always no.