Shadow Markets
For most people, it would be depressing if the only people who knew your name were either dead or didn't remember you. For Mark Morales not only did he consider it as his greatest asset, but went an extent further to never cross paths with anyone from his past.
With a Puerto Rican father and English mother, Mark had the looks to blend in as Javier from Spain, Miles from Wisconsin, or Colt from Dallas. All of which he had been in the past. At 56 he now found himself headed towards San Jose, CA, which was to be his 17th home in 12 years.
He had booked himself under the name James Gough at the posh Fairmont Hotel in downtown San Jose. James Gough was the rich son of an English Earl who was looking to invest in the fast-growing silicon valley tech industry.
James had set up 2 meetings the same afternoon. The first with a venture capitalist who was looking to raise capital from rich financiers like James. And the second with an ex-Apple executive who had made it big.
A venture capitalist setups multi-million funds with money from several wealthy individuals, who are called limited partners. These venture capitalists then invest the money in startups on behalf of the wealthy individuals.
James’ motivation for the meeting was to squeeze information from the VC and learn about the tech investment world. The VC shared details of the new fund they were setting up, past investments, and the latest darling of the silicon-valley, Yahoo!, which was going to file for their public offering in the next 6 months.
The new fund was supposed to be exclusively for internet companies, with a minimum of $2 million investment. After a 1 hour deep dive, James promised the VC due consideration and headed to his next meeting.
James’ next meeting was with Dave Gibbons, who he had met last November in Las Vegas. They were both attendees at the COMDEX and spent a whole evening drinking, shooting the breeze, giving James the opportunity to plan his next move. Through the evening, James learned everything there was to learn about Dave. Dave Gibbons had made a fortune after 12 years at Apple, and now at 44 was retired. He was married, was having an affair, and smoked pot. Other than golf and video games, the only real passion for Dave was investing in early-stage startups. Dave learned that James had a degree in Economics from Sussex, owned a dog, and had a rich father. All fabrications. Before parting their ways the next evening, James surprised Dave with a round of golf at the exclusive golf links, which left a lasting impression on Dave.
Last week, when James called on Dave to meet for dinner, Dave was thrilled to break his mundane routine with his video games in his man-cave.
Dinner that evening was fun, light, and expectedly uneventful with reminiscing conversations about COMDEX 1994, technology, and women. However, it was Dave’s turn to surprise James with a round of golf at an exclusive members-only golf club the next morning.
At the 7th hole, James said he wanted some advice from Dave on an investment opportunity. He told him about the VC, and wanted his opinion on this opportunity given it was a minimum $2 million investment.
By the 15th hole, Dave had convinced James that this was the opportunity to go with.
The following morning, James drove past the Yahoo! HQ to feel the silicon valley buzz before he met the VC again under the pretext of continuing conversation. The real purpose, however, was to learn more about the industry and really about Yahoo!’s valuation which was becoming the bait for his fish.
Over drinks the next evening, James mentioned in passing to Dave that he was happy to hear that one of his other investments, a company called Yahoo!, was going public sometime in 1996.
Dave’s ears perked up. Dave was acutely aware of the hype around Yahoo! and had been wanting to get his hands on the stocks for the past 6 months. James mentioned that he had purchased the stocks in a shadow deal with one of Yahoo!’s seed investors who was a close family connection. Dave couldn't resist asking how he too could get his hands on some stocks.
James feigned practiced concern and cautioned Dave that it was an extremely risky investment and a questionable transaction given stocks in a private company were not supposed to exchange hands without the approval of the Board of Directors. But James promised to approach the seed investor as a favor to Dave.
The next morning the James told Dave over lunch that the investor was not willing to part with stocks given the stock was planning to IPO around $7 per stock. James had already found out from the VC that the IPO price was going to be close to $10, and was quite confident that Dave knew it as well.
Hearing a $7 sticker price, Dave immediately responded saying that he was willing to pay the price to the seed investor. James said he will relay the message back to the investor.
The next day James called Dave to say that the investor was willing to sell a small percentage of their holding for $7 if he was still interested.
Over the 3 days, Dave had wired $700,000 to an unnamed off-shore account and received the necessary documents naming him the owner of 100,000 stocks in Yahoo!.
It had only been a week in San Jose, but for James, the game had started at COMDEX last November. Dave was the unsuspecting rich, greedy fool.
As the wheels went up, Mark shut his eyes as a wry smile appeared on his face at the sweetest prospect of taking a deep incognito breather for the next 12 months as Jerry, a gardener, in Palm Beach, Florida.
On April 13, 1996 Jerry opened the Palm Beach Daily News only to find out that Yahoo! went IPO at $13 the previous morning. He couldn't help but smile again thinking how Dave would spend the fortune he didn't make.
But one thing for sure, whenever reality would dawn on Dave, he had no legal recourse, no paper trail, and with the risk of being part of a less than legal transaction he was never going to the authorities. Plus Dave would never damage the carefully curated image of a successful investor in front of his fellow country club elite.
With the final move of the previous game in motion, Jerry aka Mark Morales was hatching the moves of his next play in his head. As he headed to the golf course on the next Monday, he was paired with a pleasant young out-of-towner, who introduced himself as Frank.
