However WeWork may be defined—transformative office space startup or cult-like Silicon Valley unicorn—the U.S. Securities Exchange Commission reportedly believes the company warrants inquiry. Sources familiar with the matter told Bloomberg the SEC has begun scrutinizing the corporation over concerns that investors may have been misled ahead of WeWork’s disastrous initial-public-offering-that-wasn’t.
Just for a recap: In September, WeWork’s parent company had to scrap IPO plans amid some serious side-eye from investors that it may not be worth what some considered to be a wildly inflated $US47 ($69) billion estimated valuation, concerns that were all but substantiated weeks later when reports began coming in claiming the company was too cash-poor to afford a massive round of lay-offs. After all, lay-offs mean severance packages and those don’t come cheap, particularly when a company’s purportedly cutting thousands of jobs.
However, some much-needed relief did arrive last month when investor SoftBank agreed to throw WeWork a life preserver in the form of a $US4 ($6).6 ($7) billion bailout, which included an offer to fund “more than $US1 ($1) billion of stock from existing investors and employees,” according to a Wall Street Journal report. You know, just a few billion dollars to keep those kombucha taps a’flowing for a little while longer. It’s valued at around $US8 ($12) billion currently, which seems significantly less than that $US47 ($69) billion figure, though I’ll admit maths isn’t my strong suit.
Right now the SEC’s investigation is only in the preliminary stages, sources told Bloomberg, so it’s up in the air whether any allegations will ultimately come from it. WeWork did not immediately respond to Gizmodo’s request for an inquiry.
The company’s disclosures to investors are purportedly currently under review after several potential conflicts of interests have come to light in addition to a history of “aggressive fundraising,” sources told Bloomberg.
Its S-1 filing ahead of its initially planned IPO revealed WeCompany has been bleeding billions over the last three years—roughly $US4 ($6) billion in total losses. Overall revenue struggled to keep up in that same time span. While those figures put investors on edge alone, also worrying was WeWork’s penchant for using its own dubious metric “community adjusted EBIDTA” in its accounting process. Without getting too into the weeds, basically they were performing maths voodoo to justify the company’s current losses as future investments.
Then there’s the spectacular trainwreck that is WeWork’s former CEO Adam Neumann. Changing its name from WeWork to WeCompany required buying a $US5.9 ($9) million trademark from WeHoldings LLC, which Neumann owned. In that same vein, he also leased space in buildings he owned to WeWork as well, essentially thumbing his nose at any demarcation between his profits as a private landlord versus his profits as the company’s CEO.
Neumann also said WeWork would “solve the problem of children without parents,” end world hunger, and lead to him becoming the President of the World among other bizarre claims. I doubt those will fall under the SEC’s microscope, but they’re worth mentioning just to underline how wild this WeWork venture has been so far. Neumann stepped down as head of the firm to the tune of $US1 ($1).7 billion following the company’s delayed IPO and now might face a class-action lawsuit brought by former female staffers who claim he and other WeWork executives retaliated against employees who took pregnancy leave and paid women less than their male colleagues.