Arkansas senator blasts WeWork at hearing: Adam Neumann 'is the reason people in America are open to socialism'

• Arkansas senator Tom Cotton derided WeWork founder Adam Neumann's leadership at a Tuesday hearing. He also blasted law firms and Wall Street, saying they contributed to WeWork's fall.
• Cotton asked Securities and Exchange Commission chairman Jay Clayton if the agency would investigate WeWork and Neumann and said the SEC should put processes in place to catch similar problems earlier.
• The senator said Neumann's poor leadership is an example of why voters are drawn toward socialism.
• For more stories on WeWork, click here.

Arkansas senator Tom Cotton spent five minutes at a Senate hearing on Tuesday blasting WeWork cofounder Adam Neumann's leadership.

At a hearing with Securities and Exchange Commission chairman Jay Clayton, Cotton - who has derided Neumann in the past - questioned how the entrepreneur could legally exert so much control over his company and why the SEC didn't step in sooner.

Clayton noted the SEC does not comment on investigations. In November, Bloomberg reported the agency was scrutinizing whether WeWork broke any financial rules.

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WeWork declined to comment on Cotton's remarks. A representative for Neumann did not respond to immediate requests for comment. Since Neumann was ousted in late September, WeWork has attempted to distance the company from the controversial cofounder.

'Walk away from the smoking rubble of his company'

Cotton reprimanded Neumann for building a company with so many conflicts of interest and other issues that it could not go public this fall as planned, instead undertaking massive layoffs last month.

"That company just laid off 2,400 workers at Christmas, 20% of its workforce, due almost entirely to the incompetence, greed, and possible fraud and crimes of WeWork's founder, Adam Neumann," he said.

While Cotton said the SEC should be commended for its work catching issues with WeWork's filing to go public, he said there should be processes in place to find "this kind of fraud earlier, before so many workers are injured."

Cotton also said Neumann was "aided and abetted by some of Wall Street's biggest banks and law firms."

Nine banks, including JPMorgan and Goldman Sachs, were underwriters on the IPO. White shoe firms Simpson Thacher and Skadden worked on the offering. Goldman Sachs and JPMorgan declined to comment on the remark.

Cotton blasted WeWork for issues like assuming 100% occupancy of its buildings and pilloried metric community-adjusted EBITDA - "whatever that means," he said.

Because Clayton said he would not talk about any investigations, Cotton gave a thinly-veiled hypothetical. The senator asked about a real-estate company, preparing to go public, at which the founder's wife and nephew were employed in positions that sounded like "phony, made-up jobs to me," like wellness officer.

Clayton said "transactions between the principals of companies ... are something where transparency is essential."

Cotton also highlighted a September story in The Wall Street Journal that said Neumann transported marijuana on a private plane, something the senator said should be investigated.

"Today, despite all that, he is a billionaire," Cotton said, noting Neumann received a significant golden parachute "to walk away from the smoking rubble of his company. Or as he preferred to call it, not a company, but a 'state of consciousness.'"

Cotton noted a concern about WeWork's voting structure, which, like other companies, gave its founder significant voting power.

Neumann's supervotes "enabled him to hold his company hostage until the other investors paid him just to go away and stop destroying its value," he said.

Cotton ridiculed Neumann's exit package, saying "it's a scandal for someone who presided over the ruin of his company." He called Neumann's $185 million consulting fee helpful "in case they need tips on DJs, or other kinds of tequila."

Cotton - a Republican who's long been a supporter of free markets - also critiqued Neumann's leadership for hurting the ideology of capitalism.

"People like Adam Neumann and what he did to WeWork is the reason people in America are open to socialism," he said.

WeWork has drawn significant political scrutiny from other politicians with opposite political views. In a tweet last month, Elizabeth Warren criticized Neumann's exit package in light of the massive layoffs.

"This is another example of a rigged and corrupt system," the Democratic presidential contender wrote.

At a congressional hearing in September, Democratic Rep. Alexandria Ocasio-Cortez pointed to WeWork as an example of the dangers of opening up private markets to everyday investors. At that point, WeWork had not yet shelved its IPO or ousted Neumann.

"They had raised on a previous valuation of $47 billion, and now they just decided overnight 'Just kidding, we're worth $20 billion,'" Ocasio-Cortez said during the hearing. "They've cut it by over half."

If an individual "invested in WeWork thinking that it had a valuation of $47 billion," she continued, "you're getting fleeced."

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