WeWork Faces Shareholder Suit

On November 4, WeWork shareholder Natalie Sojka filed a class action complaint against Adam Neumann and others (Natalie Sojka v. Adam Neumann et al. CGC-19-580474) for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, corporate waste, and declaratory as well as injunctive relief, unjust enrichment, and abuse of control.

The complaint alleges Adam Neumann, founder and former CEO of WeWork, in connection with Softbank Capital, WeWork’s parent company, are using their control for their personal benefit while hurting minority shareholders.

Neumann, who is seen as responsible for the shared workspace startup’s stunning valuation collapse in recent months, received a $1.7 billion payout from SoftBank in exchange for leaving the CEO position and taking an observer role on the company’s board.  The complaint uses this payout as an example of abuse. Minority shareholders have lost money as the stock value has plummeted below what they paid, while SoftBank is attempting to buy out minority shareholders at the stock’s depressed value to increase its stake in the company to 80 percent. The complaint states that SoftBank is proposing to pay $19.19 per share to minority shareholders.

The complaint claims that Neumann, a wrongdoer, should not be a beneficiary of his wrongdoing. Defendants owe fiduciary duties to minority shareholders. Neumann’s payout is more than being offered to minority shareholders respectively for their given percentage of shares. He is receiving other perks from SoftBank, such as $500 million to pay off his personal loan from JPMorgan Chase for the company’s failed IPO and his $185 million consulting fee. Shareholders allege in the complaint that the fee is absurd considering his wrongdoing. The complaint alleges the Defendants preferred and protected their interest over minority shareholders. This alleged self-dealing and personal benefit is a violation of their fiduciary duties. Furthermore, Defendants concealed and did not disclose their actions and they have majority control in the company.

The plaintiff seeks the following judgment and relief:

  • The We Company Board from granting any further transactions with Neumann and Softbank until there is a fair and adequate process.
  •  The We Company and Board from further attempts of minority shareholder buyouts and to provide minority shareholders with proper material.
  • Account damages and further relief.