Morgan Stanley — which is underwriting Uber’s IPO — is denying reports that it marketed a short-selling product to Lyft investors

It’s getting bare-knuckled out there again in the ride-hailing wars.

According to a report earlier today from The Information, newly public Lyft threatened Morgan Stanley with legal action earlier this week, demanding in a letter that the powerful investment bank stop marketing a short-selling product that it believed was disrupting trading in its stock.

It says Lyft learned about the product through the New York Post, which reported in its own, separate story early this week that Morgan Stanley — the lead underwriter for Uber’s IPO — had been calling pre-IPO investors in Lyft’s offering and pitching them on a way to lock in gains, regardless of Lyft’s lockup agreements with those investors.

It all sounds like the dirty pool we’ve grown accustomed to seeing between the rival companies and their associates. But Morgan Stanley spokesman Mark Lake tells TechCrunch that the New York Post report was flat-out wrong, providing us with the following statement: “Morgan Stanley did not market or execute, directly or indirectly, a sale, short sale, hedge, swap, or transfer of risk or value associated with Lyft’s stock for any Lyft shareholder identified by the company or otherwise known to us to be the subject of a Lyft lock-up agreement.

“Our firm’s activities have been in the normal course of market making, and any suggestion that Morgan Stanley engaged in an effort to apply short pressure to Lyft is false.”

What went wrong is hard to know, given that the Post shielded its sources. But it was highly descriptive in how it characterized the purported short-selling scheme. From its story:

Driving the unusual bets is language in Lyft’s lock-up agreements that has hedge funds and other early Lyft investors giving themselves a green light to make limited “short” bets, which make money on a stock’s decline. The goal is to position the bets in such a way that investors don’t benefit from a decline or a rise in the stock, but simply to lock in their IPO gains, which were significant.

“If I can lock in $70 now, I’m going to do that,” said an investor.

“Lyft made a mistake,” one investor who bought into Lyft shares prior to the IPO told The Post. “People who own the stock are allowed to hedge their positions. You are not allowed to reduce your economic interest.”

The investor was referring to a recent e-mail Lyft sent to investors reminding them that they are not allowed to engage in any transactions that might affect a holder’s “economic interest ” in the stock. This — and other “lock-up” language around the IPO — has Lyft investors protecting against a decline in an amount identical to their stock holdings, rather than betting on the stock’s decline.

We’ve reached out to Lyft for comment, which has yet to respond.

A source familiar with the situation confirms that Lyft’s ire with Morgan Stanley rests entirely on that Post piece, as noted in The Information. We’re told that no further action has been taken, beyond the letter sent to the bank by Lyft’s attorneys.

Whether the story ends here remains to be seen. The Information has updated its original post to include part of Morgan Stanley’s statement of denial, but it continues to report that, according to one of its sources, Morgan Stanley had been calling early Lyft investors for weeks during its roadshow and pitching them on a short-selling transaction that would enable them to lock in gains, regardless of the lockup.

Assuming Morgan Stanley is telling the truth — and we can’t imagine the bank would go on the record otherwise — there’s still the question of who floated misinformation about a short-selling product in the first place. It may be one that regulators want to dig into. Stay tuned.