Green Mountain Coffee warning: the Great crisis of Stock Mortgage

When I met Robert Stiller, founder of Green Mountain Coffee Roasters (Green Mountain Coffee Roasters) in 2001, he had been at the helm of Green Mountain for 20 years. The coffee company, which he founded in Vermont, had a market capitalization of $89 million when I met him. The softly spoken, slightly fat chief executive (CEO) had long since retired from the company's day-to-day operations, meditating for 45 minutes a day and embracing the good habit of "appreciative inquiry". Appreciative inquiry is a management technique developed by case Western Reserve University (Case Western Reserve University) to encourage people to learn from their successes rather than mistakes.

Maybe he is too relaxed or too focused on the bright side. More than a decade later, he may lose everything because he may have spent all the money he has not yet earned. As widely reported in the media, he used his stake in Green Mountain Coffee as collateral to borrow from the bank to meet his increasingly extravagant needs. Last summer, he told me that he had mortgaged his shares in Green Mountain long before the share price of Green Mountain soared, and he did so because for a long time, due to various lock-up restrictions related to share sales, as an insider of the company, he cannot sell any shares.

Borrowing against rising stocks won't be much of a problem, but when those stocks start to fall, things quickly get very bad-as Stiller did. Earlier this week, he was forced to sell 5 million Green Mountain shares, equivalent to about 3.2 per cent of the company's outstanding shares, in order to pay a margin call on the loan. After that, he was removed from the post of chairman of the company. A large portion of Stiller's remaining Green Mountain stake is still under mortgage. He is said to have said he would try to regain his position as chairman.

His story serves as a warning to other entrepreneurs whose most of their personal wealth is shares in their listed companies. Last year, Stiller made the Forbes 400 rich list for the first time after Green Mountain's share price more than tripled to $97 in 12 months. The share price is now $26. At the time, nearly 90 per cent of his personal wealth was in this stock and another 5 per cent in Krispy Kreme (which he invested not long ago). He also has to sell these stocks this week.

Of the 1126 billionaires on the global billionaire list released by Forbes in March, 269 held shares in listed companies that accounted for at least 80 per cent of their wealth, including 43 Americans. Among them are Chip Wilson, the founder of Lululemon, a well-known yoga sportswear retailer whose shares are also soaring and now trading at 58 times earnings, and Robert Pera, the founder of wireless broadband technology solution provider Ubiquiti Networks, who made the Forbes rich list after it went public in November. The share price has risen steadily since the listing, but has fallen 30 per cent since mid-April. The stock fell 5% on Thursday alone. Facebook co-founders Mark Zuckerberg (Mark Zuckerberg) and Dustin Moskowitz (Dustin Moskovitz) will join the billionaire club next week, where personal wealth is concentrated in shares of listed companies.

Stiller is not the first person to use his shares as collateral for loans, but not many people use so many shares as collateral. Some current examples include Steven Roth, a property developer on the Forbes US 400th rich list, Bennett Dorrance, heir to Campbell Soup, and Joe Ricketts of Ameritrade. Even Elon Musk of Tesla Motor Company (Tesla) mortgaged a small amount of stock.

So what did Stiller buy with the borrowed money? Here is a list of assets he has amassed in recent years, including a yacht, a $10 million house in Palm Beach and a $17.5 million apartment he bought from New England Patriots quarterback Tom Brady. These are very good "toys", but they are probably not worth having.

Aviation industry: 2004

In 2004, with a pilot's license, he bought Heritage Flight, a small private jet rental company in Burlington, VT., Vermont. The company currently has 10 aircraft and provides aviation services such as maintenance, avionics, fixed base operation (FBO), leasing and aircraft management. Stiller told me last year that he used borrowed money to fund the company and admitted that the business was probably not worth his investment.

Yacht: 2007

Stiller retired after 26 years as CEO of Green Mountain Coffee Roasters (Green Mountain Coffee Roasters). That year he bought a 164ft Andale yacht, which he renamed Grace E. In addition to changing the name of the yacht, he is said to have renovated the yacht, replaced all the furniture on the yacht, added a WiFi wireless network and installed an intelligent video (IV) system. He sealed off the upper deck and added a gym on it. The yacht can accommodate 14 guests and is equipped with 11 staff. I'm not sure how much he spent on the yacht or refurbishment. A yacht of this size is likely to start at about $25 million, and the annual operating expenses are equivalent to about 10% of the purchase price. The yacht is said to rent as much as $250000 a week.

Investment card circle workshop: disclosure in January 2011

In related disclosures, he reported that he owned a 5 per cent stake in Circle House, which was worth $22 million at the time. Over the next few months, he continued to increase his stake in the stock, holding 11% of the company by the end of that summer, making him the largest individual shareholder in the famous doughnut chain.

Real estate: March 2011

Stiller bought several luxury homes in March last year, and his net worth exceeded $1 billion in March, thanks to the soaring share price of Green Mountain Coffee. He paid $17.5 million for Tom Brady's 3000-square-foot apartment above the Mandarin Oriental Hotel (Mandarin Oriental Hotel) at the time Warner Center on Manhattan's Upper West side. That month he also spent $10 million on a 7542-square-foot five-bedroom, six-bath house in Palm Beach. He told me that he now lives in Palm Beach.

More real estate: April 2011

A month later, he bought two adjacent lakeside plots on Via Vizcaya Avenue in Palm Beach for $3.9 million and $4.75 million, respectively, just down the street from his new Palm Beach home. The purchase price is nearly $6 million lower than the price paid by previous owners five years ago.

In the end, Stiller spent all his money on his books by mortgaging shares to the bank to get a loan. Now he is in danger of losing almost all of it. The Grace E yacht is expected to go on sale soon.

Bilingual reading: http://www.forbes.com/sites/luisakroll/2012/05/10/why-green-mountain-coffee-founders-woes-are-a-cautionary-tale-for-the-suddenly-stock-rich/

Translation of Chen Wei

(responsible Editor: Leo)