NY State Attorney General launches investigation into WeWork

Regulatory scrutiny is the latest issue to land on the struggling firm’s desk.
Written by Charlie Osborne, Contributing Writer

The New York State Attorney General (NYAG) is investigating WeWork on the back of a failed IPO and a massive restructuring push. 

On Tuesday, Reuters reported that NYAG is examining a range of issues, including whether or not the founder and former CEO of WeWork, Adam Neumann, enriched himself through "self-dealing."   

A WeWork spokesperson told the publication, "We received an inquiry from the office of the New York State Attorney General and are cooperating in the matter."

WeWork once held a $47 billion valuation due to investment by SoftBank and was considered an exciting startup that could potentially revolutionize office work and rentals. However, in a matter of weeks, the company has nosedived not only in the eyes of investors but also in terms of valuation and is now considered to be worth roughly $12 billion. 

The tech unicorn, launched in 2010 by Neumann, is now embroiled in controversy. Reports have claimed that the former chief executive borrowed heavily against his own stock in WeWork and also intended to charge the startup close to $6 million to use the word "We" following a rebrand to The We Company (We Co). 

Neumann has also allegedly purchased properties, only to lease them to the company.

WeWork has yet to make a profit, recording an operating loss of $1.37 billion in the first half of 2019. 

Untenable expansion, internal fights, and a discount-happy business model are believed to have contributed to the company's battle to simply stay afloat. As losses continue to mount, The New York Times reports that at least 4,000 employees are set to be let go, potentially as early as this week. 

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The staff members hit the hardest are expected to come from the subletting office department and areas including school management as non-critical business units are sold or closed down.

Neumann's exit package will be worth roughly $1 billion. 

In an email to employees on Monday, WeWork executive chairman Marcelo Claure reportedly said, "We have to make some necessary job eliminations."

WeWork withdrew its plan to enter the public market with an Initial Public Offering (IPO) in October, citing a pivot towards "a focus on the improvement of its core business."

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Japanese investor SoftBank recently threw WeWork a lifeline, pouring in $1.5 billion and agreeing to purchase up to $3 billion in shares from current investors, including the former CEO's stake. SoftBank will also allow WeWork to borrow up to a further $5 billion.

Under the terms of the deal, the investor will end up controlling as much as 80 percent of WeWork shares, but will not have majority voting rights. It has also been suggested that in the hunt for a new WeWork chief executive, T-Mobile CEO John Legere is being considered for the role. 

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The decision to shore up WeWork in the hopes of the firm eventually clawing its way to profitability led to SoftBank posting a poor financial quarter. Net sales remained steady in the first half of 2019, but due to costs associated with the SoftBank Vision Fund and Delta Fund, SoftBank posted a ¥15.6 billion loss.

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