Adam Neuman should go to jail. The self-dealing was well publicized - certainly - and illegal. Since the securities markets were involved, the govt can step in and read him the riot act (and hopefully more)

And I think that is important. That kind of scrutiny puts a check on rampant misbehavior by investors or entrepreneurs.

As much as I want to see him punished, I’m not sure I agree there’s a case here. Which part of his self-dealing was illegal? Obviously the investigation may reveal things, but based on what we know now I can’t think of any “certainly illegal” self-dealing.

Since he had outside investors, he was a fiduciary and had obligations under many US security laws to meet certain duties.

https://en.m.wikipedia.org/wiki/Fiduciary

  A fiduciary is a person who holds a legal or
  ethical relationship of trust with one or more
  other parties (person or group of persons).
  Typically, a fiduciary prudently takes care of
  money or other assets for another person. 

And I would argue that it doesn't matter if SoftBank was the only investor and/or they weren't "harmed" in the situation.

You are correct about fiduciary duty, even in private companies.

Cases I'm aware of violating fiduciary duty, however, have all involved actions the board wasn't aware of.

WeWork seems fairly unique in that Adam Neumann's actions all seem to have been highly transparent.

I'm certainly not a lawyer, so I'm actually quite curious about the ramifications of fiduciary responsibility here. That responsibility is to the other investors... but if they are equally assenting, then I don't see how there's a crime here. On the other hand, if this is, say, Adam Neumann with SoftBank harming other dissenting investors who have small minority stakes, then there's quite possibly a case here -- that might include SoftBank as well for some kind of negligence, no?

I could easily see them finding that the board was mislead about the process involved in selecting himself as the best option to lease building from which would remove the 'but the board knew about it' wrinkle.

It'd be interesting to know where the lines get drawn here. Private businesses are set up with a primary purpose of being self dealing (looking at what Adam Neumann did, and it's hard to argue that from the outset at least, it doesn't look that dissimilar to how a lot of private equity companies run).

It gets into obscure territory... private equity & various types of "corporate structure" can end creating (or be drawn specifically to create) serious conflicts of interest. They are not a single, uniform interest group and "self dealing" means screwing (fiduciary failure) someone.

In Germany you can basically go to jail for "stealing" money from a company you own to 100% (in some cases). Self-Dealing can be allowed for managing directs who are also majority owners (e.g. I'm allowed in certain limitis to sign contracts between me and my own company representing both "parties"). But still there are limits. No idea how this works in the US, but I can imagine that there are limits.

Of course, you can basically go to jail for "stealing" money from a company you own to 100%. Being able to do so makes a creditor unable to recover their money in limited-liability companies (a clear majority).

Which also makes perfectly sense, if you ask me!

Private businesses are primarily setup to be of the benefit to shareholders.

https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.

If management is making decisions to enrich themselves first before the shareholders then they could run afoul if regulators.

Adam was likely not a target of this so long as valuation went up. Now that it’s fallen his shareholders are arguably potentially hurt by his actions and regulators can swoop in.

That's what the court's for, I guess. He was obviously nearing the boundaries of illegal self dealing. Whether or not clear legal lines were probably crossed... we'll see.

Did he do everything to maximize the position of the corporation and the shareholders or did he act mainly in his own interests as a shareholder?

There are no overt acts, I agree, but that also means a good DA can convince a judge that certain actions of his were primarily for self interest. The fact that he walked away with 1Bn dollar when other shareholders lost money does not look good.

It is hard to argue that your actions were not primarily for self enrichment when you walk away with a ton of money and everyone else at the table loses. In a way his lawyers would have an uphill battle convincing the judge that his actions were primarily to further the enterprise and that through a series of unfortunate events he is the only one who ended up with a lot of money.

I think what we’re all saying is that while what he did wasn’t illegal, it should have been, and probably once was but we’ve allowed corporations to pay off our politicians to make laws legalizing actions like his.

But who is precisely harmed as a result that wasn't already well informed of the risk that was posed to them?

I don't think that many people think that the Saudi Sovereign Wealth Fund losing money (SoftBank's largest LP) is harming any American citizens. The only thing I can think of is that some of WeWork's investor LP's might be public pension funds, but even then, the individuals who are responsible for deploying that capital (LP representatives) should be held accountable then.

> I don't think that many people think that the Saudi Sovereign Wealth Fund losing money (SoftBank's largest LP) is harming any American citizens

"Hey Chief, I know the band of robbers hit 30 houses last night, but they were all Chinese people here on visas; no American citizens were harmed, so we shouldn't investigate."

Fortunately, that's not how the American legal system works. And if it worked that way, it would harm the US tremendously. Generally, investors are more ready to invest in places where there is a rule of law and functioning judicial system. Sure, the American justice system is not perfect, but it is better than many places. Foreign investors can confidently put their money into American companies, including through VC funds, and know there are some protections. If those protections only applied to American citizens or US public pension funds, we would face a large reduction in investment of foreign capital in the US.

> "Hey Chief, I know the band of robbers hit 30 houses last night, but they were all Chinese people here on visas; no American citizens were harmed, so we shouldn't investigate."

<Chinese people on visas in the US> != <Foreign fund with no physical presence in the country>

Big difference, I'm not sure how that's relevant.

> and know there are some protections.

To my knowledge, the only protection the SEC provides for private investment is when the seller provides deliberately fabricated documents.[0] To my knowledge, this has not happened with WeWork - everything was pretty much out in the open.

> We would face a large reduction in investment of foreign capital in the US.

This isn't just any foreign capital, but a sovereign wealth fund, which had a foreign GP (SoftBank) that poorly executed its due diligence. The US doesn't need this type of capital - it's not the norm. In fact, it's probably better that the US doesn't promote investors who act recklessly and potentially mislead non-accredited US persons who have a stake in a private business (e.g. WeWork employees).

[0] - https://www.bloomberg.com/opinion/articles/2018-05-17/securi...

It is difficult to express precisely how distressing the attitudes in this comment are. You propose we abandon all pretense of enforcing the law as a neutral arbiter, in favor a world where the executive branch uses selective enforcement as a crude political cudgel against parties who they disfavor (or should disfavor).

Taking this approach is a great way to corrode society, to make sure that politics and enforcement of the law are power games centered about punishing the regime's political enemies, without any regard to justice whatsoever. It is the dark ooze of pure corruption, and you are advocating for it.

If you want an honest ban of Saudi investment money, here is what you do: you bring it to Congress, and get them to pass a law that makes the investment illegal. Then, until the moment that the last of their money is returned to them, you give them fair and equal treatment under the law and the same access to justice you would give your best friends. The alternative is monstrous.

The company itself and most importantly WeWork employees were harmed (some of them won't have a job soon, and were promised a huge IPO)

As an employee it sucks, but an IPO was never a garantee, and it's not grounds for a suit.

As for job security, as long as any contractual severance package is honoured, there's also no grounds for a suit.

The way the system works is not in favour of an employee, and it ain't gonna be changing any time soon unfortunately. This is why working for yourself is the best option, and only use employers as a stepping stone towards that.

See https://mtlynch.io/why-i-quit-google/ - it's not different in Google or Facebook, and certainly going to be the same in WeWork.

> As an employee it sucks, but an IPO was never a guarantee, and it's not grounds for a suit.

Why not? Returns in any company are not a guarantee. Yet, you are allowed to sue as a shareholder. Owning shares in a company when it is private does come with less privileges, but certainly does not prevent a shareholder from suing the company.

> I think what we’re all saying is that while what he did wasn’t illegal

I don't think that's what anonu was saying:

> Adam Neuman should go to jail. The self-dealing was well publicized - certainly - and illegal

Is self dealing illegal for private companies? What security markets were involved? I never heard of any prosecution of gross mismanagement of VC funds even with companies like Clinkle.

WeWork has a lot of debt, and there are a lot of fraud scenarios if risks were misrepresented to bond holders.

Given the scale of recklessness and insanity here, I’m sure there are all sorts of problems with the firm.

Self-dealing is a breach of fiduciary duties and can apply to work for all companies, not just publicly traded ones. In fact it does not just apply to work within a company.

See: https://www.investopedia.com/terms/s/self-dealing.asp

This is a slight oversimplification. Self-dealing can create a presumption of unfairness, but it's rebuttable under certain circumstances. For example, if Adam had disclosed the transaction to the board and the board authorized it, it wouldn't be a breach. Likewise, if Adam can demonstrate the complete fairness of the transaction (a high bar), then he could be in the clear. It will largely depend on the AG's investigation.

See Delaware General Corporate Law § 144: https://codes.findlaw.com/de/title-8-corporations/de-code-se...

I agree, but I'm not sure there's a legal basis for it. Lampert gutted Sears with similarly public self-dealing. The only avenue that seemed open to address it was civil suits from shareholders.

Adam Neuman is bound to be canonised in our capitalist society. When his grand grandchildren donate to Harvard and waltz in high class ballrooms, nobody knows or cares about how their ancestor made that wealth and even for those who do, the story would have already been glamorised.

> Nothing he did was hidden though

A crime committed publicly is still a crime tho.

> His board knew what he was doing with the leasing his own spaces, his board knew about all these things.

For all we know the board could be accessory to the crimes. The board could have gone along with it if they were directly or indirectly getting something they wanted.

According to the article, Adam Neumann indulging in self-dealing to enrich himself is "among the issues". We don't know the full scope of the investigation.

All of this is more or less fine while the company is valued at billions of dollars. But you're right, I'm not exactly sure about the legal angle. The biggest loser, besides the unfortunate employees, is SoftBank. I don't think there is a case to be made by SoftBank, as they encouraged Neumann's behaviour, but the employees may have strong grounds for a case.

Imagine working at a company, that has these gigantic valuations, and you hold stock in this company. Since you probably don't have the insights to the actual finances of the company you, like everyone else, base the company's valuation on the private market. Then only to find out that your shares you thought were worth $100, are now worth $15 (except much worse).

In the meantime, your CEO walks away with over a billion dollars in his pocket on a handshake deal to basically shut up and leave.

I would be furious if I was an employee that dedicated time and energy to this company.

> I would be furious if I was an employee that dedicated time and energy to this company.

And those employees probably have justification for a civil case, which doesn't require the SEC to be involved.

I guess it's a lesson. Never personally invest yourself into any company, since - as just a foot soldier - you have zero control over the events.

Even if you have a chance to get your walkaway money, it's just a job. They pay you for your skills and your talent, not your personal life. Be involved, be professional, care, but do not get personally attached.

What you bring from a job is learning experience and new friendships, but the job itself should be viewed as a pretty ephemeral concept. Never fall for the "we are a family" line - it's incredibly hard to be fired from a "family".

Those employees definitely ended up in a shitty situation, but there are no grounds for a lawsuit.

What about those employees that did sell some stock at high valuations though?

Some employees were indeed able to sell shares twice along the way, just like Neumann was. The most recent sale opportunity, in January 2019, offered employees $54 per share if they sold their equity to SoftBank, WeWork’s largest outside shareholder, according to WeWork’s financial prospectus, at an overall valuation of around $23 billion.

Not everyone was eligible to sell, nor did everyone take that opportunity. Those who did are, with the benefit of hindsight, thankful.

https://www.vox.com/recode/2019/9/30/20887656/juul-wework-em...

Plus i m not sure how sympathetic judges are going to be for employees' anger that they didn't become overnight millionaires

If your a shareholder you can get the financials of the company assuming wework was a Delaware Corp. Exercise 1 share of your options to become a shareholder.

Sometimes you have to forfeit these rights in order to receive your shares.

> All of this is more or less fine while the company is valued at billions of dollars.

It's still valued at billions of dollars. The absolute valuation is irrelevant. As another article I read said, building an $8 billion company out of $10 billion of investment is not an especially great achievement. In particular, it is not similar to building an $8 billion company out of $10 million of investment.

Sure. Could have clarified that what I meant was "It is more or less fine while it is working." When the valuation goes under the amount invested, I'd say that is no longer the case. That is, while everything is going well no one thinks to file a lawsuit. Appreciate your correction nonetheless.

The NYAG doesn't generally go after people just to see what happens. They have a reason to think this is a case that needs investigation that might not be public.

Being above board about your self dealing doesn’t absolve you of it though, and it is even worse when you control a majority of the voting stock.

It’s not even clear to me that lots of above board self dealing reduces the chance of unseemly self dealing. My guess is, if anything, they’re positively correlated.

> but is it fraud?

I'm Korean and the law system is very different from America, but I think he will be likely accused of embezzlement rather than fraud if he were Korean

Even if the board and shareholders bought his grift for years and were ok with his self-dealing at the time?

If board members were complicit then I'm convinced we have plenty of room in prison for them as well.

But then who are they stealing from?

Technically once you invest it's not your money anymore and using it improperly can put you in legal jeopardy.

Could be the company's money. It doesn't need to be specifically which investor's money.

> Nothing he did was hidden though

Nothing we know of was. I wouldn’t assume we know the whole picture.

There is also at least a case to be made that the Board derelicted its duty to minority shareholders and so, though probably not criminally liable, needs to at least e.g. not sign off on nine-figure consulting fees to Adam.

> Nothing he did was hidden though.

I think that it's entirely possible one can do things which may turn out to be criminal in the eyes of the regulator even while the board may approve. Or be dazzled by the person who held most of the cards, perhaps.

> but if everything is above board is it a crime?

If he and the board conspired to deceive investors, then it's probably criminal fraud. That's just one potential reason why the AG would be looking into WeWork.

The board was under his complete control, wasn't it? He had a majority voting state in WeWork.

Certain crimes depend on deception, such as fraud. If there was no misrepresentation, there was no fraud.

What specific law do you believe was broken?

If this isn’t a sign of the times, then I don’t know what signs of time are.

I don’t know what signs of time are I guess.

Regardless of anything; isnt theere a literal wealth of real-estate knowledge to be had from what wework accomplished...?

Surely there will be some serious real-estate developments to come from this to the massive profit of those who have access to that knowledge...

(Are they the martin skreli of real-estate?)

I'd be interested to know your reasons for supposing We might or may have amassed proprietary insight into RE markets or even something like how to improve office layouts, or even how to optimize the fluid dynamics of beer taps.

Square footage cost realities, contract negotiations, market norms in price, such things...

Im not saying they DO have such insight, but if they have zero, or negative insight - well, then it goes more to say about those who invested in them doesnt it?

Commercial real estate is a very active, competitive and generally well-understood business. Not sure WeWork would have insights over and above say Regus given that WeWork were not able to build a sustainable business at the pricing levels they had. So while we have a price point for flexible co-working rental it's not a level which allows for profitable unit economics. We don't (publicly) know whether the clearing price does or what that price is and neither do WeWork. Someone like CBRE or Regus might though.

good points, thank you.

The meatless movement can finally put an end to Marsha cooking fish in the microwave.

This was the one comment I wanted to reply to, and only because it makes no sense to me lol