Finance

Lyft Threatens To Sue Morgan Stanley For... Acting Shady, We Guess?

The buttfumble that is the Lyft IPO has reached its 'Torts?!' level of desperation.

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Want to see a rather dumb twist in an already dumb short story?

Over at Dealbreaker, we’ve talked ad nauseam about the Lyft IPO. How it was doomed from its very birth, how it was victimized by a cultural moment that prizes novelty and newness above things like basic financial viability and a cogent understanding of how voting shares work within a public company these days. And how at least one of the company’s most canny investors bailed on the thing before it even opened for trading.

But even we could not predict one new subplot of Lyft’s freefall entry into life as a public company:

Lyft has threatened litigation against Morgan Stanley, accusing the firm of supporting short-selling for investors who are subject to lock-up agreements.

In a letter sent to Morgan Stanley on April 2, Lyft questioned the firm about its alleged role in helping market certain products that would help pre-IPO investors bet against the stock.

Yeah, offering clients a chance to short our stock by getting around agreements designed to prevent bagholders from shorting our stock would piss us off if we were Lyft, but it’s also not — y’know — illegal. Morgan Stanley had no contract with Lyft, so they were just filling a need, albeit one on the dark fringes of even financial sector morality. And considering that Lyft’s stock went into a Hindenburg-like 12 percent drop on only its second day of trading, it’s hard to believe that Morgan Stanley’s involvement (about 1.3 percent of total trading volume) was really a material factor in the curbstomping that Lyft received from the market.

But what makes this thing even more ridiculous and overtly messily dramatic is who Morgan Stanley does have a contract with, and what Lyft thinks that signifies:

The dispute also comes as a long pipeline of tech companies are waiting to make their own debuts this year. Lyft’s rival Uber is set to go public in the coming months.

Morgan Stanley had won the coveted role of underwriting Uber’s IPO. The bankers who are managing that deal were also copied in on the letter, which is notable because the creation of financial products for short selling would be typically done in another division at the firm — not within investment banking.

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It looks like Lyft is alleging that Morgan Stanley helped its bagholders short the stock to offset potential losses in hopes of cratering the stock price and making Uber look better in anticipation of its own IPO in a few months. This is not so much recognition of a common investment banking crime than it is an episode of “The Real Housewives of Wall Street.”

Setting aside that many analysts were using the Lyft IPO as a canary in the coal mine for the surfeit of tech IPOs slated to hit this year (Uber among them), the idea that Morgan Stanley was plotting a multi-level underminer campaign against Lyft in order to promote its BFF Uber for IPO prom queen or something is a real reach in logical thinking. This is finance, and Morgan Stanley profited from creating this vehicle to serve a need in the market. On Wall Street, that’s the most common and likely motive of all.

And not to belabor the point, but Morgan Stanley should be bragging about this, not acting “shady AF” towards the NYPost, offering mealy-mouthed denials of what they did or didn’t do. In fact, there is one “major” bank we can think of off the top of our head that isn’t involved at all in the underwriting of Lyft or Uber, and that bank is UBS.

Considering that both IPOs are being done by wildly overvalued startups that are not profitable, make no promises of ever being profitable, are run by leadership openly consolidating all power internally to make sure no one can force them to be profitable, and that every IPO in this model has failed in the last four years, we are thinking that there should be legal action taken. Anyone who invested in Lyft or Uber at a pre-IPO valuation and is also a client of UBS should sue the bank[1] if it does not offer some kind of vehicle to short these stocks.

That’s gotta be illegal.

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Lyft is threatening litigation against Morgan Stanley, accusing the firm of supporting short-selling [CNBC]

[1] Ed. note: They might want to sue UBS regardless.

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