Issuer Fined for Disclosure Failures on Pre-IPO Sale of Stock

An online transportation networking company settled charges with the SEC for failing to disclose a "related person" transaction in which one of its directors assisted in the sale of a large block of private shares worth $424 million prior to the company's IPO.

In an Order, the SEC said that in the weeks leading up to the company's IPO, a director on the company's board arranged a shareholder's pre-IPO sale of approximately 7.7 million shares to a special purpose vehicle ("SPV") established by an investment adviser. The SEC said that the director was affiliated with the SPV, and that the investor became a limited partner of the SPV acquiring the shares. The SEC found that the company was a participant in the transaction and that the director "received millions of dollars in compensation" from the investment adviser for helping to structure and negotiate the deal. The company failed to disclose the shareholder sale in its Form 10-K for the fiscal year ended 2019.

As a result, the SEC concluded that the company violated Exchange Act Section 13(a) ("Periodical and other reports") and Rule 13a-1 ("Requirements of annual reports") thereunder.

To settle the charges, the company agreed to (i) cease and desist from further regulatory violations and (ii) pay a civil money penalty of $10,000,000.