A southern New Jersey deli was the ship for an elaborate fraud scheme involving three men who managed to boost the company’s market value to $100 million, according to prosecutors and regulators.
The story of how Hometown International Inc.’s stock achieved such a high valuation was a mystery that played out in public last year. “The pastrami must be amazing,” hedge fund manager David Einhorn wrote in a note to investors, before citing the stock as an example of how “the market has broken up and is potentially about to completely collapse.”
All attention was drawn to the interest of federal criminal authorities, who charged the three men on Monday with securities fraud, wire fraud and money laundering. The Securities and Exchange Commission sued them separately on allegations of civil securities fraud.
One of the men, James Patten, convinced a childhood friend, who had started the Your Hometown Deli business, to form a holding company, Hometown International, which Mr. Patten and his accomplices used to stage their alleged stock fraud, according to court documents released Monday . The three men orchestrated the sale of millions of shares of Hometown International stock to themselves and family members, friends and associates while retaining control of all stock, according to the indictment.
The three men later sold shares to the public and traded among themselves, which drove up the price and made the stock appear more actively traded than it was, the indictment says. This type of coordinated trading, known as wash trades or matched trades, is generally illegal.
Prosecutors said the illicit trading boosted Hometown International’s stock by nearly 940% — from about $1.25 to nearly $13.
Mr Patten, 63, is a former stockbroker who was banned from the industry in 2006 over allegations of fraud, according to records from the Financial Industry Regulatory Authority. In 2010, he pleaded guilty to mail fraud, according to court documents, alleging that he sent a customer a false bank statement. He and Peter Coker Sr., 80, were arrested Monday, according to authorities. Both men live in North Carolina, according to the indictment.
Peter Coker Jr., 53, lives in Hong Kong and remains at large, prosecutors said. Mr. Patten and Peter Coker Jr. could not be immediately reached for comment. A phone message left with Peter Coker Sr. was not immediately answered. Court records do not list attorneys for the men.
The two founders of the Paulsboro, NJ, deli were not charged or named in the indictment, which says they were not involved in the “control, operation or administration” of Hometown International.
The program was designed in part to make Hometown International look like an attractive partner for a reverse merger, authorities said. In a reverse merger, a private company subsumes a public company and takes its place on the stock exchange. Shareholders in the public company typically earn a lucrative payday when a private company buys them out.
In April, Hometown International merged with bioplastics company Makamer Holdings Inc. Messrs. Patten, Coker Sr. and Coker Jr. have not yet sold their shares for a profit, according to the indictment. Peter Coker Jr., who had served as Hometown’s chief executive and chairman, resigned from the company.
The men pulled off the same scheme with another small public company, E-Waste Corp., whose shares took them from $0.05 in 2020 to $10 last year, the indictment says. The indictment asks them to forfeit any money they made from their involvement with Hometown International and E-Waste.
Write to Dave Michaels at [email protected]
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