Troubled workspace company WeWork is under investigation by New York Attorney General Letitia James, but as of now, former chief executive Adam Neumann has yet to receive a subpoena.
The general focus of the probe may narrow as James develops more evidence around the circumstances of Neumann’s alleged self-dealing and his exit package, according to people with direct knowledge of the probe. For now, people close to the inquiry say the probe is focused broadly on the company, and not on any individual, these people add.
But that doesn’t mean Neumann is out of the woods. The probe is seeking to delve into his actions as CEO including possible self-dealing, which could be actionable under a New York State law known as the Martin Act, a broad anti-corruption statute that gives prosecutors greater flexibility in charging individuals and corporations.
Under the Martin Act, the New York attorney general has expansive authority to investigate fraud, which could result in civil or criminal fraud charges if the evidence suffices. The law allows the attorney general to indict people and companies by meeting a threshold of “intent” that is much lower than under federal securities statutes.
Neumann reportedly leased WeWork his own properties at a premium and at one point he charged the company $6 million for use of the phrase “We” which he copyrighted. He later refunded the money.
Neumann was ousted as CEO in early November after the company’s botched IPO and amid intense pressure from investors. He was later widely admonished for his near-$1 billion golden parachute. Neumann controlled an outsized share of the board—meaning he had significant sway over his exit package.
It’s unclear if James’ office is also investigating Neumann’s exit package. WeWork faces a similar probe from the U.S. Securities and Exchange Commission which is also investigating WeWork’s disclosures to investors in IPO documents.
A spokesman for the New York Attorney General declined comment, as did a spokesman for the SEC. A spokeswoman for Neumann declined comment.
In a statement, WeWork said:
"We received an inquiry from the office of the New York State Attorney General and are cooperating in the matter"
WeWork’s much-touted IPO led by a consortium of big banks including Goldman Sachs and JP Morgan floundered as investors grew weary of the company’s increasingly precarious financial position as described in deal documents. But leading up to its proposed initial public offering, financiers valued WeWork at close to $47 billion.
As the company began to disclose information necessary to go public, bankers realized the shared-workspace firm should never have been accorded such an astronomical valuation. The company is valued at roughly $8 billion today.
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Bankers who worked on the proposed IPO say the company may face the most scrutiny for over-estimating the value of its lease agreement with landlords. WeWork’s business model involves leasing office buildings and then sub-leasing office space to startups and freelancers.