The fall of the We Company, also known as WeWork, was described as “one of the most spectacular flameouts in recent corporate history.” Its company valuation fell by 90% in a single year. This class action claims that WeWork misled the public about the company’s actions and intentions, violating the California Corporations Code.
The class for this action is all persons who directly or indirectly bought WeWork securities between May 15, 2017 and September 30, 2019.
WeWork rents commercial office space with long-term contracts, redesigns and furnishes the spaces, and re-rents them in smaller portions to tech startups and other businesses. The spaces were intended to provide a sense of “community” to the new companies who occupied them.
The company’s purported ends were lofty—offering a “physical social network,” “to elevate the world’s consciousness,” providing “a culture of inclusivity and the energy of an inspired community, all connected by [the Company’s] extensive technology infrastructure.” The company said it had “the power to elevate how people work, live and grow.”
WeWork displayed amazing growth, with revenues that purportedly quadrupled between 2016 and 2018. The complaint claims that “its community membership and occupancy metrics had soared, that the Company was extracting more revenue per member on a constant-city basis, and that it was poised for rapid revenue growth and on a sustained path to profitability.”
Like other startups, WeWork had substantial losses. However, company executives claimed these were part of what the complaint calls “controlled expansion plans and growth investment strategy.” As the company expanded into other, non-real-estate areas, the complaint alleges it claimed that its “core business remained highly profitable and that the investments in growth initiatives were laying the foundation for a profitable future once WeWork achieved market dominance, much like other successful technology startups such as Amazon, Inc. and Netflix, Inc. had done.”
In January 2019, with its valuation at $47 billion, WeWork began pursuing an initial public offering (IPO).
However, the complaint alleges that the company’s losses were anything but the controlled growth and strategic investment spending it claimed. Instead, the complaint alleges, the company “was engaged in profligate spending in a reckless bid for growth at all costs” with the intention of attracting investment at high valuations. The complaint claims, “The Company has since admitted as much.”
According to the complaint, “In an October 2019 slide presentation, after shocking details emerged of the Company’s behind-the-scenes excess in the course of its failed IPO bid, WeWork acknowledged it had eschewed a disciplined focus on profitable market expansion … and instead strove to ‘[g]row business commitments prior to funding commitments.’ In other words, WeWork expanded its business empire not because it made business sense, but for the primary purpose of inducing additional investment in the Company.”
The complaint also mentions the company’s “use of fanciful accounting metrics to obscure its true financial condition, such as ‘community adjusted EBITDA,’” which the Securities and Exchange Commission (SEC) “rejected … as misleading.”