Three Men Charged in Stock Scam Involving $100 Million Deli
A former stockbroker and two accomplices turned small sandwich joint into a trading fraud, according to federal prosecutors in New Jersey
A deli in southern New Jersey was the vessel for an elaborate fraud scheme involving three men who managed to inflate the company’s stock-market value to $100 million, according to federal prosecutors and regulators.
The story of how Hometown International Inc.’s stock achieved such a lofty 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 is fractured and possibly in the process of breaking completely.”
All the attention drew the interest of federal criminal authorities, who on Monday charged the three men with securities fraud, wire fraud and money laundering. The Securities and Exchange Commission separately sued them over civil securities-fraud allegations.
One of the men, James Patten, convinced a childhood friend who had opened the store, Your Hometown Deli, to create a holding company, Hometown International, which Mr. Patten and his accomplices used to engineer their alleged stock fraud, according to court records made public Monday. The three men orchestrated the sale of millions of Hometown International shares to themselves and family members, friends and associates, while they maintained control over all the shares, according to the indictment.
The three men later sold shares to the public and traded shares among themselves, boosting the price and making the stock look more actively traded than it was, the indictment says. That kind of coordinated trading, known as wash trades or matched trades, is generally illegal.
Prosecutors said that illicit trading inflated Hometown International’s stock by almost 940%—from about $1.25 to nearly $13.
Mr. Patten, 63 years old, is a former stockbroker who was barred from the industry in 2006 over fraud allegations, according to Financial Industry Regulatory Authority records. In 2010, he pleaded guilty to mail fraud over claims that he sent a false account statement to a client, according to court records. He and Peter Coker Sr., 80, were arrested on 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. couldn’t immediately be reached for comment. A phone message left at Peter Coker Sr.’s residence wasn’t immediately returned. Court records don’t list any attorneys for the men.
The two founders of the Paulsboro, N.J., deli weren’t charged or named in the indictment, which said they didn’t participate in the “control, operation or management” of Hometown International.
The scheme was intended in part to make Hometown International look like an attractive partner for a reverse merger, according to authorities. In a reverse merger, a private company subsumes a public company and takes its place on the stock market. Shareholders of 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. haven’t 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 the same scheme with another small public company, E-Waste Corp. , whose stock they took from $0.05 in 2020 to $10 last year, the indictment says. The indictment asks for them to forfeit any money they earned from their involvement with Hometown International and E-Waste.