A New Jersey deli–Hometown International–with a single standalone store grossing US$35,000 in the last two years was able to inflate its market capitalization to around US$100 million.
But it’s definitely not because it sells amazing cold cuts. The Securities and Exchange Commission charged on Monday the company’s chairman Peter L. Coker Jr., his father Peter L. Coker Sr., and their associate James T. Patten, for their “roles in orchestrating fraudulent manipulative securities trading schemes” that resulted to the firm’s extreme overvaluation.
At one point in April 2021, the company was trading on the OTCQB over-the counter-market at US$13.50–a huge jump from US$1.00 per share back in October 2019. With 7.8 million shares then, the firm’s valuation came in at more than US$100 million.
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Bloomberg’s Matt Levine, however, puts the valuation at nearly US$1.9 billion given that the company also had “an absurd 155.9 million warrants.”
Source: CNBC (screenshot from Google Earth)
The New Jersey brick-and-mortar came into prominence after Greenlight Capital hedge fund manager David Einhorn highlighted the firm’s unusual case in his letter to the fund’s clients, as he flagged potentially malfeasant firms seemingly being able to evade regulators’ reach.
“[Hometown] reached a market reached a market cap of $113 million on February 8… The pastrami must be amazing. 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,” Einhorn noted in his letter.
The deli place–named Your Hometown Deli–was then led by CEO Paul Morina, a wrestling coach who also owns the gym next door. Case prosecutors reported that Patten, who was Morina’s schoolmate in high school, convinced the owners of the deli to put it under the control of an umbrella company, Hometown International.
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“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,” prosecutors said in a release.
The prosecutors added that Patten, along with the Coker father-and-son duo, “undertook a calculated scheme to gain control of Hometown International’s management and its shares from the deli owners.” The firm’s share price inexplicably surged even though it didn’t have any real business, according to CNBC reporting.
Soon after Einhorn flagged the firm, the OTC Markets Group delisted the deli from the OTCQB over-the counter-market “for not complying with the rules.”
Weeks after, the company’s management disavowed the stock valuation in its SEC filing, saying it “is aware of no basis to support the Company’s stock price, based upon its revenue or assets.”
The three men are now facing charges on 12 counts, including conspiracy to commit securities fraud, securities fraud and conspiracy to manipulate securities prices. Patten and Coker Sr. were already arrested and are expected to appear in New Jersey federal court to face the charges; Hong Kong-based Coker Jr. is still at large.
Information for this briefing was found via CNBC and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
