WeWork may not have been able to complete its once-planned IPO, but even so it now has something that many IPO companies often experience a shareholder class action lawsuit. On November 4, 2019, a WeWork investor filed a lawsuit in California state court on behalf the companys minority shareholders as well as on behalf of the company itself. As discussed below, the shareholder complaint makes a number of interesting allegations and raises some interesting issues as well. Background WeWork is a real estate and office share company. It was founded in 2010. Among its founders was Adam Neumann, who until recently served as WeWorks CEO. At one time the company had over 5,000 employees and facilities in over 200 locations around the world. One of the companys major investors is SoftBank, the multinational investment company led by Masayoshi Son. In January 2019, WeWork announced that it was rebranding itself as The We Company and stated its valuation as $47 billion. In August 2019, the company announced its plans to go public. The company immediately drew sharp public criticism for its governance, share structure, and finances, among many other things. In September 2019, the company pulled its plan offering. Shortly thereafter, Neumann resigned his CEO position. At the same time, SoftBank agreed to take a controlling position in the company in a transaction that valued the company at about $8 billion. As part of Neumanns termination package, he was given the right to sell a portion of his shares, worth over $900 million, at the transactions valuation, as part of the planned tender offer. SoftBank also agreed to repay a $500 million loan from JPMorgan (the bank that had been picked to lead the companys IPO). The bank also agreed to pay him a $185 million consulting fee. The Wall Street Journal estimated the total value of his package at $1.7 billion; the paper also called the package a windfall. The Lawsuit On November 4, 2019, a WeWork investor filed a lawsuit in California (San Francisco County) Superior Court against Neumann, WeWorks board of directors, and SoftBank. The complaint, a copy of which can be found here, asserts both class action claims on behalf of the companys minority shareholders and derivative claims on behalf of the company itself. The complaint asserts claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, corporate waste, as well as for declaratory and injunctive relief. The gist of the complaint is that Neumann, in concert with SoftBank, used their control of the company to the benefit of themselves and to the detriment of the minority shareholders and of the company, and that the companys board aided and abetted this alleged misconduct. The complaint specifically alleges that Neumann abused his control to extract benefits with a total value of $1.7 billion. SoftBank allegedly will benefit from its position in the planned transaction that will allow the company to obtain majority control of the com.

1. WeWork may not have been able to complete its once-planned IPO, but even so it now has
something that many IPO companies often experience a shareholder class action lawsuit. On
November 4, 2019, a WeWork investor filed a lawsuit in California state court on behalf the
companys minority shareholders as well as on behalf of the company itself. As discussed below,
the shareholder complaint makes a number of interesting allegations and raises some interesting
issues as well.
Background
WeWork is a real estate and office share company. It was founded in 2010. Among its founders
was Adam Neumann, who until recently served as WeWorks CEO. At one time the company had
over 5,000 employees and facilities in over 200 locations around the world. One of the companys
major investors is SoftBank, the multinational investment company led by Masayoshi Son.
In January 2019, WeWork announced that it was rebranding itself as The We Company and
stated its valuation as $47 billion. In August 2019, the company announced its plans to go public.
The company immediately drew sharp public criticism for its governance, share structure, and
finances, among many other things. In September 2019, the company pulled its plan offering.
Shortly thereafter, Neumann resigned his CEO position. At the same time, SoftBank agreed to
take a controlling position in the company in a transaction that valued the company at about $8
billion.
As part of Neumanns termination package, he was given the right to sell a portion of his shares,
worth over $900 million, at the transactions valuation, as part of the planned tender offer.
SoftBank also agreed to repay a $500 million loan from JPMorgan (the bank that had been
picked to lead the companys IPO). The bank also agreed to pay him a $185 million consulting
fee. The Wall Street Journal estimated the total value of his package at $1.7 billion; the paper
also called the package a windfall.
The Lawsuit
On November 4, 2019, a WeWork investor filed a lawsuit in California (San Francisco County)
Superior Court against Neumann, WeWorks board of directors, and SoftBank. The complaint, a
copy of which can be found here, asserts both class action claims on behalf of the companys
minority shareholders and derivative claims on behalf of the company itself. The complaint
asserts claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty,
corporate waste, as well as for declaratory and injunctive relief.

2. The gist of the complaint is that Neumann, in concert with SoftBank, used their control of the
company to the benefit of themselves and to the detriment of the minority shareholders and of
the company, and that the companys board aided and abetted this alleged misconduct.
The complaint specifically alleges that Neumann abused his control to extract benefits with a
total value of $1.7 billion. SoftBank allegedly will benefit from its position in the planned
transaction that will allow the company to obtain majority control of the company at a share
price depressed by the defendants wrongdoing. The offering share price, the complaint alleges, is
grossly unfair and represents both an abuse of control by Neumann and SoftBank and unfair
treatment of minority shareholders.
The complaint also references in detail Neumanns termination package, noting among other
things that the valuation Neumann will get for his shares is superior to the consideration being
offered to the minority shareholders. The complaint is also highly critical of Neumanns $185
million consulting fee, which the complaint says simply represents self-dealing and an improper
personal payment to Neumann.
The complaint seeks unspecified damages, and also seeks to block WeWork and SoftBank from
further buybacks of minority shareholders shares.
Discussion
The new WeWork lawsuit is interesting and noteworthy largely because of the massive publicity
that surrounded the company, its founder, and the companys failed attempt to go public. The
lawsuit seems like the latest act in the unfolding morality play in which the company has recently
been involved.
There undoubtedly are many lessons from WeWorks dramatic fall. At a minimum, the company
is the latest example of the so-called Unicorns privately held companies with massive valuations
that has fallen from its lofty heights.
WeWork is also the latest of the formerly high-flying private companies to get with a
shareholder lawsuit. An earlier example of this phenomenon was Theranos, another formerly
high-flying company that, though a private company, was hit with an investor fraud lawsuit. The
lawsuits filed against both of these companies. The lawsuits are a reminder that even private
companies can get hit with shareholder litigation including, in WeWorks case, investor class

3. action litigation. The WeWork lawsuit may not allege violations of the securities laws, but it
does represent a class action lawsuit even though WeWork was and is a privately-held company.
There probably is a lot more that can be said for investment firms that pump massive amounts of
money into what are essentially start-up companies, driving for ever loftier valuations, rather
than economically viable enterprises. I will leave to others to try to sort out the issues and
conclusions under that heading.
For those of us active in the management liability field, the circumstances and in particular, the
new lawsuit are interesting for what it may say more generally about private company
management liability. To be sure, WeWork may represent its own unique set of circumstances.
Its size, the characteristics of its CEO, and other attributes of the company may make it
unrepresentative concerning the risks private companies in general. Nevertheless, the
circumstances and the lawsuit do provide an example of how a private company can become
involved in shareholder litigation, and in this case, a shareholder class action lawsuit. Private
companies can, and sometimes do, face very serious claims, and among them are claims brought
by shareholders.
One final note about this lawsuit. While there is a lot going on here, and while the events that
occurred after the company withdrew its IPO initiative, at one level this lawsuit is a failure to
launch claim. Among the claimants grievances is the companys failure to complete the IPO. This
aspect of the case is a reminder that a lot can happen to companies on an IPO track, and if a
would-be IPO company hits an obstacle and fails to complete the hoped-for offering, the
company can get hit was a failure to launch lawsuit. This is important to remember because in
that situation, the D&O insurance policy that will respond to the claim (and indeed the D&O
insurance policy that will be responding to WeWorks new lawsuit) is a private company D&O
insurance policy. The possibility of these kinds of lawsuits is important to take into account
when the pre-IPO companys insurance coverage is being structured. Among other things, the
policys Securities Claim exclusion must be worded in a way that it does not preclude coverage
for these kinds of claims.
It remains to be seen how this claim will fare, but it is and will be a very interesting claim.
After you select 1 article - please answer the following!
1. Did the corporate directors/officers owe a duty to the shareholders? and if so - how was that
duty breached?

4. 2. Based on your readings - do the directors/officers have any defenses?
3. What do you think are some common reasons Shareholders sue corporate directors/officers?
[it's not always about losing money]
4. Do you think shareholders "assume" any risk when they invest - particularly when they invest
in companies that are little known or haven't been around for awhile? Do shareholders invest at
their own risk - or do you think there should be some safety for them in case the companies'
behavior is unethical, unruly - and otherwise damages the investment?