WeWork Sued over Botched IPO

Minority shareholders are suing WeWork officials, including former Chief Executive Officer and co-founder Adam Neumann. Their aim is to recoup some of their losses that were incurred when the initial public offering was pulled by the shared workspace provider, causing the value to plunge in excess of 87%. The proposed class action lawsuit was filed in San Francisco Superior Court this week in which the board of the directors of the company have been accused by Natalie Sojka, a former employee of WeWork, of breaching their judiciary duty towards her and other minority shareholder.

The board was faulted by the San Francisco resident for letting Softbank Group of Japan rescue the company by increasing its stake from 29% to a potential 80%. It was referred to as a ‘fire-sale’ price and gave an exit package worth $1.7 billion to Neumann. In the complaint filed on 4^th November, a total of 10 defendants have been named and these include Softbank and Masayoshi Son, its chairman. Self-dealing accusations have also been made against them and Neumann. On Friday, a spokeswoman for WeWork said that this lawsuit was meritless in their eyes. As for Softbank, Sojka’s attorney and other outside representatives were not available for comment.

This suit is just the newest hurdle for WeWork. On September 30^th, the firm’s parent company WeCompany, which is based in New York, shelved its IPO. This was because investors had grown rather wary of its business model, its losses as well as its corporate governance. The previous week, Neumann had also tendered in his resignation. Softbank has proposed a rescue of WeWork for $9.5 billion and estimates of the company have sunk significantly since then, going as low as $5.9 billion. In August, these estimates had been close to $47 billion. On Friday, WeWork disclosed plans about cutting jobs and divesting all its non-core businesses.

Moreover, another suit was filed last week against Neumann by his former chief of staff for pregnancy discrimination. As far as legal experts are concerned, while shareholder lawsuits are a more common occurrence in the case of publicly traded companies, the private status of WeWork is not really relevant to the merits of the case. They also stated that the accusation of self-dealing is taken very seriously by the court and that it would be difficult for defendants to get it dismissed. As per Sojka, she had worked for WeWork for a year and a half and was also a shareholder of the company during this time.

She added that she had departed from the company voluntarily and had decided to exercise her stock options because she was aware that the company was going to go public very soon. Therefore, a significant increase in WeWork’s stock price and value was expected due to the IPO. Instead, she said that the actions of the defendants had led to a big drop in the value of the stock. She stated that the rescue by Softbank and some other transactions had nearly caused ‘irreparable harm’.