November 12, 2019

Who “Leaked” WeWork’s Comment Letter (& Response)?

A “whodunit”! We haven’t blogged about one of those in a while. You will recall that WeWork – the gift that keeps on giving to this blog – withdrew its IPO registration after facing much criticism when its S-1 became publicly available. One of the consequences of the failure of WeWork’s IPO to see daylight was that Corp Fin’s comment letters (& the company’s responses) would never be made public. Here’s the SEC filing history for WeWork – showing the progression from a draft confidential filing – to filing the S-1 – to filing a withdrawal request for the S-1 before it ever became effective. Note that the comment letters & responses are not posted there.

Apparently, the WSJ somehow got their hands on that file, which became the basis for this article that excerpts specific comments from Corp Fin’s comment letters to WeWork – and analyzes some of the company’s responses. Here’s the intro to that WSJ article:

Just weeks before WeWork expected its stock to begin trading publicly, the startup was still wrangling with the Securities and Exchange Commission over a controversial key financial metric and a litany of other concerns about its planned multibillion-dollar IPO.

On Sept. 11 — after the initial public offering prospectus had been public for nearly a month, and after the SEC had already made dozens of demands about the document—the regulator sent the shared-workspace company a list of 13 still-unresolved concerns, according to previously unpublished correspondence reviewed by The Wall Street Journal. The back-and-forth shows that WeWork was scrambling to clean up big problems as its IPO was crumbling. The timing was indicative of the chaotic management that gave investors pause and ultimately led the company to pull the offering and Chief Executive Adam Neumann to step down under pressure.

The WSJ article doesn’t note how they obtained this “previously unpublished correspondence.” So we have no idea how that happened. Here are some of the possibilities:

1. One of the investment banks? They also had a big loan deal going down & some commercial lenders are infamous for leaking. But still a long shot. Odds: 1000 to 1.

2. Some lawyer on the deal team? Not in a million years. That’s a career killer. Odds: 1 million to 1.

3. Someone at WeWork? It’s not in their best interest – but the place is dysfunctional. Odds: 4 to 1.

4. Someone at the SEC? The deal was such a turd burger & the prospectus so outrageous that perhaps the SEC wanted to have something in the public domain that could show it was doing its job. But I would fall off my chair if Corp Fin provided this file (given its policy of not posting comment letters until after a registration statement is declared effective) – unless it was told to do so by the SEC Chair, etc. But it is possible that someone high up wanted this stuff out there. Odds: 50 to 1.

5. Maybe the WSJ made a FOIA request to the SEC? This seems the most likely by far. Except FOIA requests typically take quite a while to process. Odds: 2 to 1.

At the end of the day, this isn’t an important development. Just something novel to note. Even if Corp Fin gave the comment letter file to the WSJ, I would argue that it has that discretion – it simply is making an exception to its own informal policy. And there really isn’t much of a policy reason to keep its comments hidden – even if the IPO never went off. The more transparency, the better…

Poll: Issuing 100 Comments on an IPO?

Back when I served in Corp Fin, I once issued a comment letter with over 100 comments in it on the legal side. It was a family majority-owned REIT IPO, a company that was rife of conflicts of interest – and the prospectus needed many more risk factors, etc. I felt a little guilty about issuing so many comments at the time – but not so much anymore.

In this anonymous poll, imagine you worked in Corp Fin – how would you feel if you issued 100 comments:

survey tool

Transcript: “M&A in Aerospace, Defense & Government Services”

We have posted the transcript for our recent webcast: “M&A in Aerospace, Defense & Government Services.”

Broc Romanek