This is basically like putting perfume on a term paper. Regulators could do well to clamp down on this sort of activity, especially with the S-1’s reputation as a means to truly inform investors.
1. If disgruntled investors were to sue WeWork, the pitch-deck material could be referred to by WeWork's counsel in tactical maneuvering such as a motion for judgment on the pleadings, without having to jump through all the hoops that might otherwise be required;
2. Worst case, if a lawsuit ended up going all the way to a jury trial, the pitch-deck material presumably would be sent back into the jury room as a "real" exhibit, allowing the jury to review the pitch-deck material during deliberations. (The jurors might even be given individual notebooks with copies.) In contrast, if the pitch deck were left out of the S-1, the judge might or might not allow it to go back into the jury room, especially if it were a so-called demonstrative exhibit prepared for the litigation.
(I teach my contract-drafting students to draft agreements with an eye toward being readable by judges and jurors, with tables, footnotes, non-legalese language etc. — and if the contract language is understandable to a juror, then the parties' business people will be able to get to signature more quickly and are less likely to get into disputes afterwards.)
Also, I totally disagree about the evidentiary issue and would venture to say you're wrong. First of all, the idea that you'd need to cram a pitch deck into a filing in order to get it into evidence is downright silly. A defendant could easily get it into evidence through a fact witness or PMQ. Second, and more importantly, you wouldn't want to do it in anticipation of litigation because you'd lose any control you might otherwise have had over its admissibility (a filing like that would be pretty much guaranteed to come into evidence). Third, and relatedly, you wouldn't want to do it because, pursuant to my second point, it's then going to come into evidence in all of your cases. As they say, the record is forever.
Plaintiff- or defense side?
> If I were a defendant accused of making misrepresentations, I'd most likely want the pitch deck kept out.
That's never gonna happen (keeping it out), so good defense counsel will grasp the nettle and get out in front of the issue.
Also (something I didn't mention before but should have):
There's a jury-psychology benefit to being able to say, in effect, we submitted all this to the SEC, and they approved the registration. It's analogous to why patent applicants are well-advised to tell the USPTO about all the prior art that they know of — so that at trial, the patent owner's trial counsel can respond to the infringer's counsel with, yeah, we know about that prior art, because WE TOLD THE EXAMINER about it, and s/he issued the patent, so who ya gonna believe — this infringer's BS argument, or the government expert who was tasked by law with issuing only valid patents? That helps fend off infringers' invalidity challenges.
> "Pitch deck stuff" is aspirational, to put it charitably.
I perused the S-1; at first glance, that pitch-deck stuff is exactly what I imagine WeWork's litigation counsel might affirmatively want the judge, the judge's law clerk, and/or the jury to see — and, at trial, for an expert witness to be able to use as a visual aid in explaining the value proposition to the jury. (I've never done securities litigation, but I used to do IP litigation for complex technologies, where similar principles apply.)
> A defendant could easily get it into evidence through a fact witness or PMQ.
True, but again, it's always nice to be able to point out to the judge/law clerk/jury that this is what was disclosed to the SEC, and that the SEC approved the registration. Sure, legally that fact has very little weight; psychologically, though, it can't hurt and it costs essentially nothing. (You do have to make sure it's factually unchallengeable, but top-flight securities counsel will do their best to achieve that anyway.)
On the whole I do more defense work, but plenty of both. For securities, more often defense. For M&A gone wrong, more often plaintiff.
I take your point about getting out ahead of the issue, but I'm not convinced that it's as powerful an argument as you think it would be, and I think it introduces other risks. Since you're familiar with IP litigation, you're no doubt aware that patents get invalidated by juries all the time in trials where plaintiff counsel makes that argument.
In practice, those that actually took companies public know that the more terrible crap you throw into the S-1 ( pitch deck included ) as long as you state that risk-wise you are probably a terrible investment for the public, the better protected you are from the lawsuits in the future when the public's investment does not pan out: you say 'we are doing X and this is our rosy pie in the sky pitch deck, but we must tell you the risk is that none of this is helping us to make money. Buyer beware'
Should one look at the S-1s of the tech companies that went public in last 4-5 years one would see that pattern
Source: Attorneys engaged by the investment banks to help companies to IPO.
(The danger with this approach, of course, is that if you inadvertently leave something out, the plaintiffs' lawyers will spotlight the omission and argue, "they LIED!")
Take for example a risk from We Work company S1:
> the sustainability of our rapid growth and our ability to manage our growth effectively;
translation: getting older may cause you die.
in other words: dont put your cat to microwave, and beware as your tea might be hot in your cup.
This was a big one in Uber’s filings where it looked like they were probably mixing in Uber Eats to hide flat or declining usage of the actual ride sharing service. Public companies changing how something has been historically reported also raises similar questions. Report the metrics that look amazing, exclude, merge, or mask the stuff that looks bad.
Companies get a lot of latitude with the first few pages. Seasoned S-1 skimmers peruse that stuff, but save the digging in for the risk factors, financials and the accompanying notes.
We don't mean "destroy 10%" when we use the word decimate anymore, I get it. Natural language, migration of meaning, subjective denotation etc.
The casual reading meaning, although not the original one, has been in use since the 1500's.
It always means "just looking around" whenever I hear anyone use it.
Would be interested to hear other's thoughts. Maybe MW should consider changing the order of their definitions.
You can skip the first dozen pages and get to the meat of the S1 further down.
This is an opportunity to tell the world who you are. Interested parties read these for a reason. It might as well look how you want it to look, as long as the same necessary content is listed.
That's exactly what the document was designed not to do. It's meant to convey facts, not "spin." Why do we use plain boring text on a prescription label? So the important disclosure information is readily available to consumers in a consistent and uniform format. The same logic applies to SEC filings.
The theory of well-regulated public markets is that all investors and all seekers of cash are put on an equal playing field. The goal is to maximize public confidence in the markets, which in turn maximizes the total useful investment. If hype becomes dominant, that will reduce overall returns and increase return variability. That in turn will reduce investor confidence, which reduces available capital, which reduces economic growth.
I understand that in the US we spend ~$500 billion a year on commercial manipulation, so it can seem normal. But it doesn't have to be, and maybe it shouldn't.
2nd page, yellow background - can't tell me that doesn't give you a sense they have their shit together.
All that being said - I won't be investing ha.
I don't perceive that as detrimental, and don't see how designing a document is "disgusting". It's nontraditional.
I was impressed by all the varied ways they have visualized their "data". The tipping scale, for instance, gives a clear before/after projection while being much more visually interesting than a plain graph.
Not to say that I believe all of it, but I do think visually appealing and/or dazzling graphics do have an effect on some types of people. Conscious or not.
There are new paths to going public in the last several years, specifically because the government had made it too expensive to go public and be public primarily after Enron. One decade of companies coming to terms with staying private, one decade of companies coming to terms with the new ways of going public.
So they loosened that up and the industry reacts.