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Why Wait For Facebook IPO When You Can Make Millions on Secondary Market?

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'
By: Harel Eilam
Published: February 6th, 2012 in Business » World

Facebook's IPO may be remembered as one of the most important financial events of 2012, but VC funds and investment banks hardly twiddled their thumbs in anticipation for the offering. The stock of the world's largest social network has been changing hands, stealthily, under regulatory radars.

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.

Related articles: Facebook, IPO, Social Media, Mark Zuckerberg
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