Arkansas senator “urges” SEC investigation of WeWork’s founder


Senator connects WeWork former CEO to socialism in the U.S.

FILE this Sept. 30, 2019 file photo shows a WeWork sign on a building in New York. WeWork says it will close its elementary school in New York next year, as the office-sharing company grapples with a cash crunch following its botched attempt to sell its stock on Wall Street. The company said Friday, Oct. 11, 2019 it will close the “WeGrow” school in Manhattan at the end of the 2019-2020 school year. (AP Photo/Mark Lennihan, File)

WASHINGTON (KNWA) — Senator Tom Cotton (R-Arkansas) spoke before the U.S. Securities and Exchange Commission (SEC) requesting an investigation be launched into WeWork’s founder and former Chief Executive Officer, Adam Neumann, for fraud.

Cotton told SEC Chairman Jay Clayton that he wanted to discuss the collapse of WeWork, the layoffs of 2,400 employees and that another media agency reported that the SEC was investigating the company for fraud.

“Is the SEC investigating Mr. Neumann?” asked Cotton.

“We do not comment on whether we are investigating or not investigating,” said Clayton.

Cotton then changed up his query and instead spoke hypothetically about a real-estate company going public and two people in the CEO’s family were given positions, might that be something the SEC would look into “hypothetically speaking,” asked Cotton.

“I’m going to take a step back and say that transactions between the principals of companies, family members, other interests, are something where transparency is essential,” said Clayton.

Cotton also asked, as a hypothetical, about the amount of money WeWorks CEO was paid, transporting illegal drugs in private jets, lavish parties and if that would be “responsible governance?”

The Arkansas senator said Neumann’s method of running a company is, “the reason people in America are open to socialism.”

Below is a 5 minute YouTube clip of the Senate Banking Committee Hearing from December 10, 2019.


Senator Cotton: Mr. Clayton, I want to talk today about the collapse of WeWork. That company just laid off 2,400 workers, right at Christmas—20 percent of its workforce—due almost entirely to the incompetence, greed, and possible fraud and crimes of WeWork’s founder, Adam Neumann. Bloomberg reported in September that the SEC was investigating WeWork and Mr. Neumann for fraud and other securities violations. Is the SEC investigating Mr. Neumann?

Chairman Clayton: We do not comment on whether we are investigating or not investigating.

Senator Cotton: Ok, I thought that might be your answer, so let me put it a different way. Hypothetically speaking, if a real-estate company was going public and the CEO’s wife and nephew had been given positions named “chief brand and impact officer” and “head of wellness,”—which kind of sound like phony, made-up jobs to me—might that be something the SEC’s enforcement division would look into? Hypothetically speaking?

Chairman Clayton: I’m going to take a step back and say that transactions between the principals of companies, family members, other interests, are something where transparency is essential.

Senator Cotton: If the CEO of that same company sat on the compensation committee, in effect allowing him to determine his own salary, would that be considered something the SEC might want to look into?

Chairman Clayton: We are very interested in—the types of issues you’re identifying should be transparent to investors in all of our public companies. 

Senator Cotton: If the CEO had trademarked a common word like “We” and then sold it to his company for $6 million, would that be something that would need to be disclosed and might be of concern to the SEC?

Chairman Clayton: Those types of transactions are required to be disclosed.

Senator Cotton: And just one final hypothetical.  If the CEO of that company had credibly been accused of transporting illegal drugs in a private jet across international boundaries and spending millions of dollars of his company’s money on lavish parties with famous DJ’s and Don Julio tequila, would that be responsible governance?

Chairman Clayton: Let me say this. Our disclosure requirements around the background and character and activities of directors and officers of public companies require disclosure that would enable people to make those types of judgments.

Senator Cotton: So, let me say this about the SEC’s attorneys. I wanted to commend you for work in the WeWork initial public offering. They filed their prospectus almost 9 months with you for review before it went public, and your lawyers caught many discrepancies in it, like for instance that they claimed that they could assume a 100% occupancy rate of all their buildings. Or some financial metric known as “contribution margin” or “community adjusted EBITDA,” whatever that means.

So, it’s good that the SEC caught this. It’s unfortunate that they caught it at the last minute and we need a system that can catch this kind of fraud earlier before so many workers are injured.

All those things, though, are things that Adam Neumann either did as a matter of record, or is credibly accused to have done. And at least one of them—transporting illegal drugs across international boundaries—I hope is currently under investigation by the Department of Justice for crimes, and I hope that the enforcement division of the SEC is investigating Adam Neumann.

Because today, despite all that, he is a billionaire. He received a $1.7 billion payday to walk away from the smoking rubble of his company—or as he preferred to call it, not a “company,” a “state of consciousness.”

He was able to extract that payout because the corporate governance structure gave him 10 votes per share, a kind of “super-voting stock” that enabled him to hold his company hostage until the other investors paid him just to go away and stop destroying its value. 

And he’s even on a four-year “consulting” contract at $185 million. In case they need tips on DJ’s or other kinds of tequila.

A billion dollars is a lot of money for any executive—but certainly, it’s a scandal for someone who presided over the ruin of his company.

Leadership requires strong character and accountability, and that includes corporate leadership. That’s what was absent in this case, with Adam Neumann, and what he did to the workers at his company—aided and abetted, I would say, by some of Wall Street’s biggest banks and biggest law firms. 

A lot of us often lament polls that show younger Americans have doubts about capitalism and are open to socialism—for good reason, given the brutality and poverty that socialism inflicts on its people. But people like Adam Neumann and what he did to WeWork are the reason people in America are open to socialism.

Copyright 2020 Nexstar Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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