WeWork and its biggest investor, SoftBank, are being sued by some early investors who want to recoup their massive losses after the shared workspace provider pulled its IPO in September 2019 and saw its value plunge by over 80 percent.
In a proposed class action filed this week in a San Francisco court, minority shareholders who bought shares in WeWork since 2017 accused the company’s board of breaching its fiduciary duties as they overhyped the business plan and downplayed its losses.
Softbank and two of its directors are among the named defendants in the complaint, which also faulted the board for letting the Japanese bank rescue WeWork by boosting its stake at a cheap price tag.
WeWork itself accused SoftBank of breaching its obligations under their mutual agreement after it withdrew its $3 billion tender offer.
“As would later be revealed, WeWork was engaged in profligate spending in a reckless bid for growth at all costs –- not in a manner designed to sustainably grow its business, but rather to induce capital raises from investors at ever higher valuations,” according to the complaint filed Wednesday in San Francisco federal court.
The Japanese lender originally made the tender offer to buy shares of WeWork’s New York-based parent, the We Company, as part of a package to bail out the company after it shelved its IPO. The money should have gone to current and former employee shareholders, outside shareholders, and ousted CEO and co-founder Adam Neumann.
The lawsuit is a new hurdle for WeWork since it filed its IPO prospectus last year after investors grew wary of the coworking giant’s losses, its business model and its corporate governance. The SEC filings in September showed questionable management practices and a $900 million loss over six months that was described as “strategic investment spending that would lay the foundation for profitability.”