The U.S. Securities and Exchange Commission has launched an inquiry into WeWork to determine if the company violated reporting rules ahead of its doomed planned public offering.
Citing two unnamed sources, Bloomberg reported that SEC investigators are scrutinizing disclosures made to investors while the company embarked on aggressive fundraising efforts and completed transactions that posed potential conflicts of interest.
The agency’s inquiry is reportedly in its early stages, and may not lead to allegations of wrongdoing. WeWork has reportedly retained Andrew Ceresney, a former head of the SEC’s enforcement unit.
A WeWork spokesperson declined to comment.
The report adds to mounting concerns for shareholders. During a period that involved the departure of CEO and co-founder Adam Neumann and a $39 billion drop in valuation, WeWork reported to shareholders Wednesday that it lost $1.25 billion in the third quarter as expenses again trumped growth.
And on Thursday, The Real Deal reported that SoftBank has delayed the launch of its promised $3 billion tender offer for more than a week. The offer is contingent on meeting “required regulatory approvals” and the absence of litigation, bankruptcy proceedings and debt defaults. Following the report, WeWork’s junk bonds value sunk while their risk jumped.
Some shareholders have begun to revolt. A former WeWork employee and shareholder filed a derivative lawsuit in California last month, accusing Neumann, other key executives and its main investor, SoftBank, of self-dealing and unjustly enriching themselves. The lawsuit is seeking class-action status.
The SEC inquiry is reportedly focused on claims WeWork executives made to investors ahead of the planned IPO. According to Bloomberg, WeWork spent big ahead of the IPO to demonstrate expansive growth to existing investors. By doing so, it depleted cash reserves and shortened the timeframe in which WeWork would run out of cash. SoftBank, its largest investor, ultimately saved the company and committed to a $9.5 billion lifeline, which included the $3 billion tender offer.
Multiple transactions disclosed in the company’s pre-IPO filing to the SEC, known as an S-1, have faced extensive scrutiny by investors, including a $5.9 million payment to Neumann for giving the company rights to the trademark “We.” Other transactions involved WeWork leases with buildings owned by Neumann. These arrangements have since been unwound.
However, another transaction that has been scrutinized is WeWork’s $850 million purchase of the Lord & Taylor building in Manhattan. Multiple executives — including Eric Gross and Neumann — had dual interests in the acquisition, as TRD previously reported. Board member and investor Steven Langman had interests in three sides of the deal.