Was Adam Neuman Self-Dealing? The SEC and NY Attorney General Will Investigate

Published on November 21, 2019 - By Cecilia Amador de San José

• WeWork has allegedly drawn scrutiny from the Securities and Exchange Commission (SEC) and the office of the New York State Attorney General. 
• The SEC investigation will determine whether the company violated any financial rules in the run-up to its failed initial public offering. 
• The New York State Attorney General investigation will determine whether Adam Neumann indulged in self-dealing to enrich himself.

WeWork’s woes are far from over. The latest from the coworking giant is that it has reportedly drawn scrutiny from the US Securities and Exchange Commission and the office of the New York State Attorney General. 

According to a Bloomberg report, the SEC has launched a preliminary inquiry to determine whether the company “violated financial rules in the run-up to its failed initial public offering.”

“The agency’s enforcement division is reviewing WeWork’s business and its disclosures to investors amid a number of new articles that highlighted potential conflicts of interest and the company’s aggressive fundraising.”

A separate investigation was launched by the office of New York State Attorney  General Letitia James, Reuters reported this week. The New York State Attorney General investigation will look into whether “WeWork’s founder and former chief executive, Adam Neumann, indulged in self-dealing to enrich himself.”

Neumann has been highly criticized since the company’s S-1 was published in August of this year. Among other things, Neumann was criticized for purchasing properties that he later leased back to WeWork, for charging his company $6 billion to use his trademark of the word “we”, for having super voting rights, and for cashing out over $700 million ahead of the company’s IPO. 

The news of investigation comes shortly after the coworking giant received an $8 billion bail-out from SoftBank that saved it from financial ruin. The company, which was previously valued at $47 billion, was poised to run out of money by the end of November and reported losses of $1.25 billion in the third quarter of this year. 

Turmoil Ahead

According to Bloomberg, “it’s not unusual for the SEC to kick the tires when corporations endure public and high-profile meltdowns.”

WeWork’s rise and fall has been highly covered by the media and there is no end in sight as of yet. The company is expected to lay off as much as a third of its workforce (cutting around 4,000 employees), cut its spending on new locations, scale back its growth, and it has already started selling some of its side businesses. 

Even with new leadership, there’s no certainty that the company will be able to turn things around. The SEC and New York State Attorney General investigations couldn’t have come at a worse time for WeWork. 

“Being private doesn’t shield companies or executives from penalties if the SEC concludes that investors were misled, and the agency has stepped up scrutiny of unlisted firms in recent years amid the emergence of several Silicon Valley unicorns.”
As if the above wasn’t enough, the coworking company is also having to deal with the fact that many landlords and property owners are less willing to work with it after the failed IPO. Landlords who were in late-stage negotiations with WeWork have decided to go in another direction, while those already in business with WeWork are openly discussing alternatives.