A $100 million New Jersey sandwich shop that became a symbol of stock market exuberance was at the center of an international conspiracy that defrauded investors and scuttled the ambitions of two high school teachers, one unsealed in federal court indictment on Monday.
Federal agents in North Carolina arrested Peter Coker, 80, and James Patten, 63, on securities fraud charges related to their alleged role in inflating Hometown International’s stock price. Coker’s 53-year-old son Peter Coker Jr. is also charged and is still at large.
The deli rose to prominence on Wall Street last April after hedge fund manager David Einhorn cited Hometown International as an example of the “quasi-anarchy” he said had taken hold of the financial markets. “The pastrami must be fantastic,” Einhorn joked at the time.
Hometown’s stock price rose from $1 in October 2019 to almost $14 in April 2021, despite sales hovering around $40,000 and the company’s lawyers acknowledging it had “limited success operating its . . . delicacies”.
Prosecutors say the inflated valuation was the result of coordinated deals designed to create the false impression that there was genuine market interest in the securities. They added that some of the trades were placed by the defendants themselves, using brokerage accounts owned by their friends and associates.
On one occasion last January, an account held by a Staten Island resident who was an employee of Patten was used to sell shares at a price of $13.99, prosecutors said. The buyer, who lives in New Jersey, turned out to be a close relative of Patten’s love partner, they added. Both orders were allegedly traced by law enforcement to an internet connection serving Patten’s home.
Prosecutors allege that some of the allegedly manipulative transactions were carried out by an unindicted Hong Kong-based co-conspirator. They said Coker Jr. also lives in Hong Kong.
The indictments brought by the New Jersey Attorney’s Office, along with a parallel civil suit filed by the SEC, shed new light on one of the strangest episodes to emerge from the financial frenzy that gripped Wall Street during the pandemic.
The story began in 2014 when two Paulsboro High School employees began making plans to open a deli in the dusty refinery town. Patten, who had known one of the teachers since he was a teenager, offered to help, prosecutors claimed.
“Unknowingly for the deli owner. . . Patten and his associates began positioning Hometown International as a vehicle for a reverse merger that would bring them significant gains,” prosecutors said Monday.
Hometown International stock changed hands in October 2019 on the OTC Marketplace, a trading venue for illiquid small-cap stocks. Last year, shareholders included the Duke University and Vanderbilt University Foundations, two of the most prestigious educational institutions in the United States.
The universities invested through a Hong Kong-based hedge fund, which viewed Hometown as some sort of special purpose vehicle that would merge with a company seeking a public listing, the Financial Times reported last year.
In an email Coker Jr. allegedly sent out last January, he appeared to have a similar strategy in mind. “The ‘Announcement of [a reverse merger] deal” would lead to a “massive” increase in trading volume [Hometown]’ prosecutors wrote, summarizing the content of the email.
The increase in trading would allow the co-conspirators “to get their shares to the market more easily,” prosecutors added.
“Such manipulative systems reduce the confidence investors need to have in the integrity of the markets, and we will pursue those who engage in such wrongdoing,” Scott Thompson, deputy director of enforcement at the SEC’s Philadelphia regional office, said in a statement .
Patten is charged with wire fraud and money laundering, each carrying a maximum sentence of 20 years. He is also charged with securities fraud and conspiracy to manipulate securities prices along with the Coker duo. The SEC is separately seeking a court order barring the trio from participating in penny stock offerings.
The defendants could not be reached for comment and it was not known if they had hired lawyers.
The school workers who founded the Paulsboro Deli left the company last year after “Rais[ing] Patten has serious concerns about the “negative news” surrounding its listing, prosecutors said.
Hometown merged with Makamer Holdings, a California-based bioplastics company, in March of this year and ceased operations of the deli three months later.