Man who didn't wait for Facebook IPO
Joseph Greencorn, a New York stockbroker and one of world's biggest Facebook stock dealers, has already made millions of dollars off company's stock even before its initial public offering. In exclusive Calcalist interview he says, 'Half of Facebook's shares are changing hands on the private market'
In the past several years, private company stock exchange has been on the rise propelled mainly by advances in internet and media technology.
The stock exchange, once the epicenter of all stock trade, has begun losing stature for the sake of electronic trading sites the likes of SecondMarket and SharesPost, which allow traders to wheel and deal in private company stock.
In 2011, SecondMarket reported a $558 million trade turnover. Estimates are the Facebook stock generated a third of the site's deals.
A market worth billions
One of the vanguards of this revolution is Joseph Greencorn whom you probably have not heard much of in connection with Facebook. Greencorn, 38, is a Jewish-American tycoon and mortgage manager who cuts deals worth billions of dollars for the coveted company's stock – even before it went public.
In an exclusive interview to Calcalist, the world's largest Facebook stock trader says, "The Facebook stock market is humongous. It generates billions of dollars a year. Billions. People don’t realize how big it is. Along with shares such as Twitter, the entire private stock market rolls dozens of billions each year."
Greencorn estimates that about a half of Facebook's stock – some 1.2 billion shares valuated at a present value of some $40 billion – have been traded at some time or another, some even several times.
The reason is clear: Facebook's stock records remarkable results and Greencorn's first costumers can expect to pocket a 100% profit within less than two years.
"During the dot.com bubble, there were hundreds of companies worth investing in," Greencorn says. "Some didn’t survive and other such as AOL lost lots of money. But some profited. Today there are very few companies worth investing is – all you got is Facebook and everyone wants to own Facebook shares."
Not everyone can wait until IPO
Greencorn's acquaintance with the private stock market started only a year and a half ago, after a colleague who deals in investment consulting asked if he would help sell off a large number of Facebook shares for an anonymous client.
"I told him – give me a few days to check if there is any interest at all. I immediately realized that demand was enormous. I got back to him and asked to push on with the deal. Then I found out who the seller was."
According to Greencorn, it was one of the founders of Facebook who wanted to sell 10 million shares. The deal was made within four months at $20 per share. This was his first and largest Facebook deal and it whet his appetite for more. Since then, Greencorn signed deals worth hundreds of millions of dollars.
Why did people sell their Facebook stock rather than wait for the IPO?
"Not everyone could wait. Some Facebook employees were given stock options at a certain value but the stock has been rising since and they have to pay taxes. Not everyone can afford that, so they sell part of their stock."
Who are your clients?
"I don’t deal with anything less than a million shares. This generates deals worth dozens of millions of dollars and of course considerably narrows down my client base. There are a lot of swindlers on this market. Not many people or consortiums hold a million Facebook shares.
"Out of this list, the large banks don't need my services – they have their own systems. Instead I do business with hedge funds, VC funds, boutique banks, billionaires – people who wish to have a stake in Facebook such as sports team owners. I buy the stock mainly from early investors, seed investors, when stock went for one or two bucks".
How do you cut a deal?
"I connect sellers and buyers. I don't trade the stock myself; I don’t have any Facebook shares. But these deals aren’t easy at all – it’s a frantic market and the deals can be very complex sometimes involving a large number of buyers and sellers.
"Not every deal comes to fruition. Out of 100 deals that I brokered, only a dozen were finalized. Most of Facebook's shares are B class which means they cannot be traded more than once. In this case, you put together acquisition groups and limited liability companies through which you can transfer the control over the stock."
Is it hard to find credible people?
"Absolutely. I'm always screening people. I began requiring my clients to submit documents such as business plans and valuation proofs.
"In one case, I spoke with an extremely wealthy individual from China, who owns a huge flower company and requested he present a proof of valuation. I received a document full of corrections, in various typefaces, dozens of different signatures and correction fluid. Naturally, I turned down the deal.
"In another case, I made a deal together with another broker. Some of the papers that needed signing were Facebook options papers. I delivered the signed papers and within a few days the seller called me up and asked how well I knew the broker, my partner in the deal.
"It turns out that the other broker just took the documents I sent him, crossed out my name and wrote his own, Not only did he try to put one over me, he was sloppy about it.
"You always got to have your finger on the pulse. I visited Israel several months ago and met my Israeli girlfriend but hours after I landed, I heard that a deal I thought fell through was going to be signed anyhow – I had to get right back on the plane home."
What is the problem with private stock trading?
"You don’t have a stock exchange and prices can change every day. Facebook can launch a new feature tomorrow and the seller will up the share price by a dollar, and the buyer might reject the deal.
"There is not a deal in which the price does not change several times and it takes two weeks until everyone reviews the legal documents, by then the price can change three times. That's the hardest thing about these deals. Both sellers and buyers are constantly peeved."
What do you do in such cases?
"There is no particular way to deal with it. These are deals worth dozens of millions. No matter what you do as a broker, at the end of the day, it’s not about you – it's about the price.
"But the force of the Facebook stock is incredible. Even when someone turns down a deal, and I had some who did, they always come back a couple of months later and try to buy. It's a product that does not stay on the shelf."
How did your girlfriend take it?
"We're not together," Greencorn laughs. "She broke up with me".
Is Facebook stock always in demand?
"Not necessarily. A couple of months ago, in October-November, the stock experienced a little hiccup. Facebook kept on putting off the IPO and people started to get worried and were wondering what the company was hiding.
"The euro crisis also took its toll. At the time, it was hard to sell for $29 per share. Today the stock sells at $35 per share."
How much do you charge per deal?
"I take a commission, usually of 5%."
If the stock is so widely traded, why does the company need an IPO?
"There are many reasons. The big bucks are still in the public's hands. Many investors want to make their exit. You can't hatch it all of the time. The private market is extremely problematic. It's rife with disinformation. I'll give you an example: it's hard to find genuine sellers. For each 10 offers I get, only one is bona fide.
"Some people say they want to buy 'dozens of millions of shares' but don't have a penny to their name. Some say they want to sell stock but don't own any. I begin each negotiation with asking, 'Do you know the seller in person? Directly? I can ask the question dozens of times and I'll always get a yes.
"Eventually, I discover it's someone who knows someone. It’s like that all of the time. The market just gets more complicated with time."
How will the offering affect business?
"The offering will have an effect but the prospectus will not – it will in fact help business. It'll take moths for the offering to take off and during that time, the once hesitant would-be buyers will want to join the market, and part of the sellers will try to sell their options before the IPO.
"It does not always pay for sellers who can make millions in options to wait until the offering to make a little more. In the long run, we always thought we could never find a replacement for a company and then a replacement always came along. It’s going to happen to every company.
"MySpace used to be the next big thing and then it disappeared. Figures in the billions were mentioned and then the company was resold several times. Facebook, however, has masses of users and it'll be with around for a while. I don’t know what will happen in 10 years' time but its position is secure for the next two years."
Trader since age of 12
Greencorn says he's been at it ever since he was a kid. He grew up in Brooklyn and studies in a yeshiva. At the age of 12, at summer camp, he would sell the chocolates his sister sent him.
At the age of 22, he established a small loan bank which grew to become a chain of boutique banks, finally to become the Morris Group, named after his late father.
But then, says Greencorn, the financial crash came, particularly the housing crises in the US.
"All that was okay went bad. All that was bad got worse. I already had my established company in the United States, which I did not need to manage on a daily basis. So I started visiting Israel more. I always had a warm spot for Israel."
Greencorn has an apartment in Tel Aviv, and since 2008 has been invested in several Israeli companies."I invested a lot in Israel. I have a lot of faith in the Israeli market."
Do Israelis have a presence on this market?
"No. There s little activity on the Israeli market which I find unfortunate. Sometimes we get offers from large Israeli companies but few are willing to put dozens of millions on the deal. Usually only in the US you can find buyers willing to put their money on private, unknown companies."
This report was originally published in Hebrew by Calcalist
