EXCLUSIVE-New York State Attorney General investigating WeWork-sourcesReuters | New York | Updated: 19-11-2019 07:02 IST | Created: 19-11-2019 07:00 IST
The New York State Attorney General (NYAG) is investigating WeWork, according to two people familiar with the matter, adding to a mounting series of problems that have turned the workspace provider from a Wall Street darling to a pariah in a matter of weeks. The company, which is expected to lay off thousands of employees beginning this week as it faces ballooning losses, confirmed on Monday that it had been contacted by the office of the NYAG, Letitia James.
"We received an inquiry from the office of the New York State Attorney General and are cooperating in the matter," said a WeWork spokeswoman when contacted by Reuters. A spokesman for the NYAG declined to comment.
Among the issues the NYAG is examining is whether WeWork's founder and former chief executive, Adam Neumann, indulged in self-dealing to enrich himself. Neumann bought properties which he then leased back to WeWork, borrowed against his own stake in the company, and had also planned to charge WeWork almost $6 million to use his trademark of the word "We" after the company rebranded itself The We Company.
The company shelved its plans for an initial public offering on Sept. 30 after investors grew wary of its losses, its business model and its corporate governance. Neumann had resigned as CEO the previous week. He also agreed to return the cash from the use of "We."
A spokeswoman for Neumann declined to comment. WeWork agreed to a rescue by its largest shareholder, Japanese technology investment company SoftBank Group Corp, last month as it faced a cash crunch. SoftBank agreed to inject $6.5 billion in debt and equity into WeWork and to fund a $3 billion buyout of existing shareholders, including $1 billion for some of Neumann's shares.
WeWork now faces a radical restructuring. Job cuts will be announced later this week in areas that do not support WeWork's core business goals, said The We Company's recently named Executive Chairman Marcelo Claure in an e-mail to staff that was reviewed by Reuters. The New York Times reported on Sunday that WeWork is preparing to cut 4,000 jobs. The company itself had 12,500 employees on June 30, and there are others who work for affiliates.
Next steps to shape the company's future will be divulged in an all-company meeting on Friday, Claure said in the e-mail. He said WeWork needs a more efficient and more customer-centric organization to grow." We are going to eliminate and scale back certain functions and responsibilities," added Claure, who is also an executive at SoftBank.
An Oct. 11 presentation to bondholders indicated administrative jobs would be cut, along with jobs in WeWork's venture capital arm and in so-called growth-related functions, a possible reference to design and construction units. This is not the first time WeWork has been scrutinized by the NYAG. The company rolled back its policy of requiring employees to sign non-compete agreements after reaching a settlement with the attorney general last year.
Bloomberg News reported on Friday that WeWork is facing scrutiny from the U.S. Securities and Exchange Commission over whether it violated financial rules as it sought its public listing. WeWork declined to comment on the report. WeWork's 2025 bond has weakened sharply in the past week, hitting 16.057 percent on Monday, according to data from MarketAxess.