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> Neumann took out a much bigger loan from WeWork a few months ago. The company lent him $362 million in April at 2.89% interest to help him exercise options to

by MFLoon 7y ago

> Neumann took out a much bigger loan from WeWork a few months ago. The company lent him $362 million in April at 2.89% interest to help him exercise options to buy stock. This month, Neumann repaid the debt by surrendering the shares back to the company. It’s not clear from the filing why these transactions happened. Can anyone explain a possible motivation for doing this? It seems like it's a completely circular transaction, or is my fraudster-fu just not strong enough to see the upside?

c3534l 7y ago
Sometimes CEOs who don't know better treat their corporation like a sole proprietorship. The company's money is "theirs," like a piggy bank. So I will guess stupidity rather than fraud.
nickmolnar2 7y ago
I wouldn't assume it went as planned. Seemed plausible they tried to lend him $362m to exercise his options, and then chickened out amid bad press.
TylerE 7y ago
If the stock goes up, he pockets the upside?
- deleted 7y ago
  [deleted]
harryh 7y ago
We's corporate structure is a bit complicated, but the short answer is that Adam relinquished the options in questions in return for an interest in a different piece of the company. See this in the S-1: Shortly after the option awards were issued, Adam exercised the time-based option described above in exchange for a $362.1 million full recourse promissory note payable to the Company (with an interest rate of 2.89% and a maturity date of April 11, 2029). In August 2019, Adam repaid the promissory note (including interest) in full by surrendering to the Company all of the shares received in respect of the time-based option described above. Following the settlement of this loan, the Company issued to Adam the number of profits interests equal to the number of shares surrendered by Adam in settlement of the loan.
darawk 7y ago
This is a perfectly reasonable transaction. He just wants to exercise the options and then sell the stock. The loan was just a formality to make it easier to do that, there's no fraud here.
- MFLoon 7y ago
  The confusing part to me was the language that he "surrendered the shares" as payment for the loan, which implies to me he gave it back at the same price, rather than selling it at a profit. But as a sib pointed out there was a further step to the transaction where they gave him a different asset.
- zouhair 7y ago
  That this passes as reasonable transaction is the insane part.
  - darawk 7y ago
    Why?
  - dogma1138 7y ago
    This isn't that unusual, many companies with ESPP's and options offer loans to their normal employees to buy stock or exercise their options. This is pretty much the same like when a company offers an employee share purchasing program where you can buy say $20,000 worth of restricted stock within the allotted time window which is usually a few weeks but your company then spreads the payment over 6-12 months by deducting your pay each month. Companies also offer a similar service when you have options vesting they offer to pay the tax for you that month and spread it out over several months so you won't have to immediately convert some of the shares you get to pay for exercising the option. Just for reference my US employer in the UK offers this, several other companies in the UK i worked for also offered similar services. Companies here offer loans all the time including for things like seasonal train tickets (some forfeit the loan and you have to pay just the tax value on it after a year of employment for train passes) and other large expenses which are work related.
deleted 7y ago
[deleted]
social_quotient 7y ago
I’d think there is upside to the stock speculation vs the loan interest rate. You can also default on the loan should the downside get realized. The other less obvious option afforded with leverage is that with the stock assets he can probably secure other leveraged items against it (real estate, other investments etc). The reality of this behavior is that free capital/cash should be looked at as fuel for growth. To judge the financial merit of this you have to wonder why WeWork could not have made more than 2.98% on that capital. I could be missing something, any finance folks please correct me if I’m viewing this wrong or incomplete.

by MFLoon 7y ago

c3534l 7y ago

Sometimes CEOs who don't know better treat their corporation like a sole proprietorship. The company's money is "theirs," like a piggy bank. So I will guess stupidity rather than fraud.

nickmolnar2 7y ago

I wouldn't assume it went as planned. Seemed plausible they tried to lend him $362m to exercise his options, and then chickened out amid bad press.

TylerE 7y ago

If the stock goes up, he pockets the upside?

deleted 7y ago
[deleted]

harryh 7y ago

We's corporate structure is a bit complicated, but the short answer is that Adam relinquished the options in questions in return for an interest in a different piece of the company. See this in the S-1: Shortly after the option awards were issued, Adam exercised the time-based option described above in exchange for a $362.1 million full recourse promissory note payable to the Company (with an interest rate of 2.89% and a maturity date of April 11, 2029). In August 2019, Adam repaid the promissory note (including interest) in full by surrendering to the Company all of the shares received in respect of the time-based option described above. Following the settlement of this loan, the Company issued to Adam the number of profits interests equal to the number of shares surrendered by Adam in settlement of the loan.

darawk 7y ago

This is a perfectly reasonable transaction. He just wants to exercise the options and then sell the stock. The loan was just a formality to make it easier to do that, there's no fraud here.

MFLoon 7y ago
The confusing part to me was the language that he "surrendered the shares" as payment for the loan, which implies to me he gave it back at the same price, rather than selling it at a profit. But as a sib pointed out there was a further step to the transaction where they gave him a different asset.
zouhair 7y ago
That this passes as reasonable transaction is the insane part.
- darawk 7y ago
  Why?
- dogma1138 7y ago
  This isn't that unusual, many companies with ESPP's and options offer loans to their normal employees to buy stock or exercise their options. This is pretty much the same like when a company offers an employee share purchasing program where you can buy say $20,000 worth of restricted stock within the allotted time window which is usually a few weeks but your company then spreads the payment over 6-12 months by deducting your pay each month. Companies also offer a similar service when you have options vesting they offer to pay the tax for you that month and spread it out over several months so you won't have to immediately convert some of the shares you get to pay for exercising the option. Just for reference my US employer in the UK offers this, several other companies in the UK i worked for also offered similar services. Companies here offer loans all the time including for things like seasonal train tickets (some forfeit the loan and you have to pay just the tax value on it after a year of employment for train passes) and other large expenses which are work related.

deleted 7y ago

[deleted]

social_quotient 7y ago

I’d think there is upside to the stock speculation vs the loan interest rate. You can also default on the loan should the downside get realized. The other less obvious option afforded with leverage is that with the stock assets he can probably secure other leveraged items against it (real estate, other investments etc). The reality of this behavior is that free capital/cash should be looked at as fuel for growth. To judge the financial merit of this you have to wonder why WeWork could not have made more than 2.98% on that capital. I could be missing something, any finance folks please correct me if I’m viewing this wrong or incomplete.