
New York State Attorney General Investigating WeWork - aaronbrethorst
https://www.reuters.com/article/us-wework-newyork-investigation-exclusiv/exclusive-new-york-state-attorney-general-investigating-wework-sources-idUSKBN1XT01J
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rosybox
Nothing he did was hidden though. His board knew what he was doing when WeWork
leased his properties, his board knew about all these things. Journalists have
been writing about this weird arrangement for years. If anything I could see
investors sue the board and the company on civil grounds, but if everything is
above board is it a crime? I could see it being a crime if he had been doing
this in secret. His actions definitely seems wrong and stupid, but is it
fraud?

~~~
anonu
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.

~~~
jakelazaroff
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.

~~~
Zelphyr
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.

~~~
mbesto
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.

~~~
cowsandmilk
> 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.

~~~
mbesto
> "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...](https://www.bloomberg.com/opinion/articles/2018-05-17/securities-
fraud-can-happen-with-private-transactions)

~~~
fennecfoxen
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.

------
iscrewyou
They are focusing on self dealing by Neumann. Can’t wait to read about it from
Matt Levine. It’s amazing to see this story keep on developing apparently
after it was all supposed to be said and done when he left the company.

~~~
hanniabu
I'm sure this would have never been brought up if a bunch of powerful people
didn't lose a lot of money. They all would have happily ignored it as they
dumped their billions of dollars worth of stock on the general public to deal
with. Now that they've been burnt they're out for retribution.

~~~
H8crilA
Conspiracy theories everywhere. While simple explanations exist: it's on top
of NYAG's list just because this case is famous. NYAG is a law enforcement
officer, but also a politician. He/she will prioritise cases based on the
eyeball count, and WeWork is killing the eyeball count.

~~~
dsfyu404ed
Exactly. Smacking down a rich billionaire who did something dirty is a
political win you can present to the voters in NY and recovering money for
other billionaires who got fleeced is a win you can present to the moneyed
elite. Incentive alignments like that are fairly rare. There is nothing to
lose here because even if you lose it can become a rallying cry for preventing
it in the future.

Even if there were no legal basis for the investigation it would likely still
happen because it is such a massive political win that even if the AG was too
dumb to take it up on their own accord the AG's boss would strongly suggest an
investigation be opened.

Just to be clean I'm not defending Neuman/WeWork definitely did wrong and I
think the statutes around securities fraud are broad enough to nail them, just
that the technical legality is a footnote compared to the other motivators
here. It should be obvious why this kind of prosecution is a politician's wet
dream (and make no mistake, a state AG is a politician, just not an elected
one) regardless of whether there's clear law violation or not.

Government doesn't swing into action like this because it's morally right or
whatever (it may be morally right, but that is tangential). It swings into
action because there are stakeholders to please and it's rare to have two big
stakeholder groups aligned like this.

~~~
JumpCrisscross
> _and recovering money for other billionaires who got fleeced_

WeWork has employees in New York. Many exercised stock options. Many are about
to be laid off and start filing for unemployment benefits.

~~~
H8crilA
I never understood people exercising options on locked-up shares on any
company. If at least they hedged by going short on the WeWork bonds which are
the only publicly traded security. It's so risky! Do not do this! The tax
advantage is not worth it!

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CPLX
This will be interesting. If he did even the most basic work to cover his ass,
like memorializing these agreements, getting some kind of board approval,
nominally recusing himself from the decisions, etc, it’s going to be almost
impossible to prosecute him.

Which is a bit of a shame, of course, but the business judgment rule is pretty
much a cornerstone of our laws at this point.

Now if he falsified records or hid things on the other hand, it could get
_fascinating_ to watch.

~~~
wbl
Why is it a shame? The people hurt had ample opportunity not to enable it and
were sophisticated investors.

~~~
CPLX
It’s a shame that we allow people no enrich themselves by ransacking investor
money while others in the organization suffer hardships and layoffs and life
disruptions. The business culture that enables this is unhealthy and this type
of behavior is shameful.

~~~
donatj
> enrich themselves by ransacking investor money

Isn't this entirely the point of running a business?

> others in the organization suffer hardships and layoffs and life disruptions

I feel like you know what you're getting into working for this sort of
company.

~~~
wpietri
> Isn't this entirely the point of running a business?

Economically, the point of commerce is for us to create more value for each
other than we could create on our own. Anything that extracts money without
creating value is parasitic.

> I feel like you know what you're getting into working for this sort of
> company.

Nope. Surely most of the people who understood the problems didn't take jobs
there. WeWork was actively hyped, and one of the functions of that hype was to
make it seem like an attractive place to work.

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birdyrooster
Empty WeWork booth at KubeCon today was... amusing to say the least. Great
opportunity for photos.

~~~
odiroot
They could have sublet it.

~~~
birdyrooster
It became a free coworking space

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willart4food
> Neumann bought properties which he then leased back to WeWork, borrowed
> against his own stake in the company,

Sounds familiar... Enron?

Is Neumann the smartest guy in the room?

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jb12
I can't wait to read the bestseller that eventually gets written about WeWork

~~~
buboard
Ironically, it's only going to make Neumann richer, along with the movie
sequels.

~~~
colejohnson66
Would it? I’m not familiar with laws around representing people, but if
someone unrelated to Neumann wrote it with no input from him, would royalties
still be owed?

~~~
buboard
i m confident he has all the time in the world to write it himself now

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buboard
He might already be in Israel. Investors wouldn't want judges to start
investigating and breaking up the tons of deals that are similar to this and
that we don't know about. At best he'd be accused of some kind of fraud,
settle with the company and move on.

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code4tee
There’s little question WeWork was a train wreck from a corporate governance
and oversight standpoint.

Less clear if anything criminal happened but let’s wait and see what the AG
comes up with.

~~~
dragonwriter
> Less clear if anything criminal happened

The NY AG’s domain is not limited to criminal law; there are plenty of civil
laws with public causes of action enforced by the AG’s office.

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torgian
I know there’s a Wework office in Hong Kong in Central. I wonder if it’s still
open?

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pcora
So, Chuck Rhoades is after them?

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carty76ers
The article should have started with:

“A company, who weeks after attempting to cash out low-value shares with the
dollars of future investors by attempting to IPO under hand-wavy numbers,”

Then continued with the real article:

Is now “expected to lay off thousands of employees beginning this week as it
faces ballooning losses”

~~~
koolba
You forgot the part where they delayed the layoffs because they didn’t have
enough cash in hand to pay severance.

~~~
algaeontoast
Neumann deserves to have the book thrown at him for this. Although, I wish a
more severe fate for Elizabeth Holmes.

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alexnewman
I'm hoping that they all get laid off and he voluntarily gives 90% of his
money to them. It's what I would do. People would be astounded to what would
happen tax time.

~~~
alexnewman
Why am I being so hardcore voted down for this?

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chirau
There's no case against Adam. You bicker on the ethics of his operations, but
he did not violate any law. In fact, he took advantage of poor corporate laws,
which is not a crime either.

Be bitter with him, fair enough, but be intelligent still

It's in the same bracket with the whole "Amazon pays $0 in taxes". Taking
advantage of poor laws is not a crime. You can accuse them all you want, but
we all do it albeit at a microscopic scale.

Punishing circumventers is not the answer, reviewing the law is.

Neumann did what was best for him. It was legal. That's all.

Your expectation of a person doing what is good for the greater good is your
own weakness. I'm not telling you to stop, just don't cry foul when folks from
other schools of thought do what they do best. Maximize returns.

~~~
enraged_camel
>> In fact, he took advantage of poor corporate laws, which is not a crime
either.

Taking advantage of poor code by breaking into systems is a crime.

Why isn’t it a crime to take advantage of poorly written laws?

~~~
dannyw
Because the whole point of law is to create an objective definition of what is
a crime and what is not a crime.

~~~
colejohnson66
That may be the point, but it’s not what happens in practice. In reality, laws
are vaguely worded on purpose with the promise that “we won’t enforce it in
instance x”

