Three men linked to a company that mysteriously drew a $100 million valuation despite only operating a single New Jersey deli were charged for their roles in a securities fraud and market manipulation scheme on Monday.
Prosecutors slapped the three men — James Patten, 63, of Winston-Salem, North Carolina; Peter Coker Sr., 80, of Chapel Hill, North Carolina; and Peter Coker Jr., 53, of Hong Kong — with 12 federal charges for allegedly boosting shares prices of Hometown International Inc. and E-Waste Corp.
“From 2014 through September 2022, Patten, Coker Sr., and Coker Jr. conspired to enrich themselves through a scheme to manipulate securities prices via a pattern of coordinated trading, which injected inaccurate information into the marketplace, creating false impressions of supply and demand for these securities,” the feds said.
Hometown International’s only asset was “Your Hometown Deli” in Paulsboro, New Jersey — a small sandwich shop with minimal sales. The firm raised eyebrows by drawing a nine-figure market cap despite its humble holdings.
Hometown International first drew widespread scrutiny in April 2021 after well-known short-seller David Einhorn detailed the bizarre situation while criticizing regulators in a note to clients.
Einhorn noted the company and its single deli earned only $13,976 the previous year but had a market cap of $113 million.
“The pastrami must be amazing,” Einhorn quipped. “Small investors who get sucked into these situations are likely to be harmed eventually, yet the regulators — who are supposed to be protecting investors — appear to be neither present nor curious.”
The feds said Patten and Coker Sr. were arrested Monday and were slated to appear in a federal court in North Carolina. Coker Jr. is still at large.
All three face a 12-count indictment on charges of conspiracy to commit securities fraud, securities fraud, and conspiracy to manipulate securities prices. Patten faces several additional charges, including wire fraud and money laundering.
The three men are alleged to have given shares of the company to “family members, friends, and associates,” then traded the shares through accounts they controlled to create an artificial impression of hot demand for the companies on the over-the-counter marketplace.
“Unbeknownst to the deli owners, almost immediately after Hometown International was formed, Patten and his associates began positioning Hometown International as a vehicle for a reverse merger that would yield substantial profit to them,” the Justice Department release said.
“These tactics artificially inflated the price of Hometown International and E-Waste’s stock by giving the false impression that there was a genuine market interest in the stock,” the release added.
The feds said the trio’s tactics succeeded in “artificially inflating Hometown International’s stock by approximately 939 percent and E-Waste’s stock by approximately 19,900 percent.”
The SEC also filed suit against the three men in a separate action.
“We allege that the defendants’ brazen schemes resulted in the artificial inflation of the stock price of two publicly traded companies with little to no annual revenues,” said Scott A. Thompson, associate director of enforcement in the Philadelphia Regional Office.
“Such manipulative schemes diminish the trust investors must have in the integrity of the markets, and we will pursue those who engage in such wrongdoing.”
OTC Markets Group, the exchange where shares of Hometown International were traded, delisted the company in April 2021 shortly after Einhorn’s letter surfaced. The exchange had also added a “Buyer beware” warning on shares that spur suspicions of questionable activity.