You probably remember hearing about the publicly traded company built around a single deli in Paulsboro, with a more than $100 million valuation.
On Monday, federal authorities charged three men for allegedly orchestrating a large-scale market manipulation scheme centered around Hometown Deli.
Prosecutors charged James Patten, 63, Peter Coker Sr., 80, and Peter Coker Jr., 53, in a 12-count indictment with conspiracy to commit securities fraud, securities fraud, and conspiracy to manipulate securities prices. Patten is also charged with four counts of manipulation of securities, four counts of wire fraud, and one count of money laundering.
The three were also charged with violations of the antifraud provisions of the securities laws in a parallel civil suit by the U.S. Securities and Exchange Commission.
Patten and Coker Sr. were arrested Sept. 26 and set to appear before a magistrate judge in federal court in the Middle District of North Carolina. They are set to appear in court in the District of New Jersey at a later date. Coker Jr. remains at large.
Lawyers for the three men were not immediately known or identified.
Authorities alleged that the scheme led to the artificial inflation of the share price of Hometown International – which operated the deli producing less than $40,000 in annual revenue – from approximately $1 per share in October 2019 to nearly $14 per share by April 2021, leading to a grossly inflated market capitalization of $100 million.
The U.S. Attorney’s Office for the District of New Jersey alleges that Patten, Coker Sr. and Coker Jr. took control of the outstanding shares of Hometown International and a separate shell company, E-Waste Corp., artificially inflating the price of both issuers’ stock through manipulative trading and used the entities to acquire privately held companies in reverse mergers, with the intent to then dump their shares at grossly inflated prices.
According to court documents and statements made in court, almost immediately after Hometown International was created as an umbrella corporation in 2014, unbeknownst to the deli owners, prosecutors say Patten and his associates began positioning Hometown International as a vehicle for the reverse mergers that would yield a windfall. Prosecutors say Patten, who was a longtime friend of one of the deli’s owners, suggested the creation of the corporation with the deli operating as a wholly owned subsidiary.
“Around October 2019, Hometown International began selling shares on the OTC Marketplace,” prosecutors said. “Shortly thereafter, Patten, Coker Sr., and Coker Jr. undertook a calculated scheme to gain control of Hometown International’s management and its shares from the deli owners. Patten, Coker Sr., and Coker Jr. took similar actions to gain control of E-Waste Corp.’s stock and management.”
Prosecutors also accuse the defendants of transferring millions of shares to different entities, controlled by Coker Jr., in an effort to mask their control of the dividends.
“In addition, the defendants transferred shares to family members, friends, and associates and gained control over their trading accounts by obtaining their log-in information in order to conceal the defendants’ involvement,” prosecutors allege. “The defendants then used those accounts to commit a number of coordinated trading events, often referred to as match and wash trades, to trade in Hometown International and E-Waste Corp.’s stock on both sides of the transaction.”
Filed in the U.S. District Court for the District of New Jersey, the SEC complaint:
- All three defendants with violations of the antifraud provisions of the securities laws. It also charges Patten with violating market manipulation provisions of the securities laws and charges Coker Sr. and Coker Jr. with aiding and abetting those violations.
- Injunctive relief, disgorgement plus prejudgment interest, civil penalties, a prohibition against participating in any penny stock offerings, and an officer and director bar against Coker Jr.
Prosecutors say these tactics artificially inflated Hometown International’s stock by approximately 939% and E-Waste’s stock by approximately 19,900%.
The valuation and story went viral, which drew a lot of eyes — and even more scrutiny to the situation. The SEC also charged the trio Sept. 26.
“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 Thompson, associate director of enforcement in the SEC’s 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.”
The SEC says its investigation is ongoing.
As for the criminal charges, the securities fraud and manipulation of securities prices counts each carry a maximum penalty of 20 years in prison and a $5 million fine. The wire fraud and money laundering counts are punishable by a maximum penalty of 20 years in prison and a $250,000 fine, or twice the grow gain or loss from the offense, whichever is greatest. While the counts of conspiracy to commit securities fraud and conspiracy to manipulate securities prices both carry a maximum penalty of five years in prison and a $250,000 fine, or twice the gross gain or loss from the offense, whichever is greatest.