The world of finance is no stranger to deceptive practices and fraud. One such case that recently came to light is the Hometown International scandal, a bizarre story of manipulation, inflated stock prices, and a deli at the center of it all. In this article, we will delve into the details of this convoluted scheme and examine the individuals involved in perpetrating it.
In a shocking turn of events, a North Carolina ex-convict named James Patten pleaded guilty to securities fraud in connection with his involvement in manipulating the stock of Hometown International. This small deli company, located in southern New Jersey, somehow boasted an astronomically high market capitalization of up to $100 million despite owning just one money-losing deli. Patten also admitted to conspiring with two other individuals to manipulate the share price of another shell company, E-Waste, which had no tangible assets but still had a higher market cap than Hometown International.
Over the span of eight years, Patten and his co-conspirators orchestrated a coordinated effort to artificially inflate the stock prices of Hometown International and E-Waste. Their ultimate goal was to create a false impression of demand for the companies’ shares, positioning them as attractive candidates for reverse mergers with privately owned firms. The scheme relied on a pattern of manipulative stock trading among a select group of accounts held nominally by family members, friends, and associates. As a result of their actions, Hometown International’s stock price soared by a staggering 939%, while E-Waste’s stock price experienced an astonishing 19,900% increase.
The origins of the scheme trace back to 2014 when Patten suggested to a friend, Paul Morina, a high school principal and wrestling coach, the creation of Hometown as an umbrella corporation. The primary purpose was to establish ownership of Your Hometown Deli, a deli Morina and another individual were considering opening in Paulsboro. Unbeknownst to Morina and the other deli owner, Patten had ulterior motives and intended to manipulate Hometown’s stock for personal gain.
Patten’s recent admission of guilt in securities fraud could potentially increase the pressure on the remaining defendants, Peter Coker Sr. and Peter Coker Jr., to negotiate plea deals. Coker Sr., currently residing in North Carolina, is out on bond, while Coker Jr., a former Hong Kong resident, was arrested as a fugitive in Thailand and remains in a New Jersey jail. The trio was charged in September 2022, more than a year after CNBC’s investigation exposed the murky connections between Hometown International, E-Waste, and the individuals involved. The Securities and Exchange Commission has also filed a lawsuit against Patten, the Cokers, and others implicated in the scheme.
The Hometown International scandal gained widespread attention after hedge fund manager David Einhorn highlighted the peculiarity of the company’s stock price. In a letter to clients, Einhorn humorously remarked, “The pastrami must be amazing.” This statement was prompted by the stark contrast between the deli’s underwhelming single asset and its exorbitant market capitalization. In response to the growing skepticism, both Hometown International and E-Waste disavowed their market capitalization, stating that it lacked a rational basis. Eventually, the companies resorted to executing reverse mergers with other firms.
While Patten faces a maximum prison sentence of 20 years and steep fines, his cooperation with prosecutors may mitigate his punishment. Scheduled for sentencing on April 23, Patten’s guilty plea to securities fraud will result in the dismissal of the 10 additional securities fraud charges he faced alongside the Cokers. His attorney, Ira Sorkin, who previously represented infamous Ponzi scheme mastermind Bernie Madoff, downplayed the case’s significance, attributing the media attention to sensationalism. Sorkin assured the public that the true cost of the pastrami sandwich would soon be revealed during sentencing.
Lawyers representing the Cokers contend that no monetary losses occurred due to the alleged scheme. However, federal prosecutors highlight extensive consulting fees paid out by Hometown and E-Waste, as well as funding from uncharged individuals. The unresolved civil lawsuit by the Securities and Exchange Commission further complicates the situation, as it seeks to hold all parties accountable for their roles in the scandal. Ultimately, the outcome of this legal battle will determine the true ramifications for the Cokers and others involved.
Notably, this is not Patten’s first encounter with the law or the financial sector’s regulatory bodies. In 2010, he pleaded guilty to a mail fraud charge related to sending a client a false financial statement to conceal poor investment decisions. Earlier, in 2006, Patten was banned by the broker-dealer regulator, FINRA, for failing to comply with an arbitration award and engaging in unauthorized trading and account churning. Sorkin, who represented Patten during the regulatory proceedings, emphasized that the media’s exaggerated focus on this case sets it apart.
The Hometown International scandal serves as a chilling reminder of the dark underbelly that exists within the world of finance. Manipulative schemes, inflated stock prices, and deceitful practices tarnish the reputation of the industry and erode investor trust. As this twisted tale continues to unfold, it is imperative that regulatory bodies and legal authorities diligently investigate such cases to ensure the integrity of the financial markets and protect unsuspecting investors from falling prey to unscrupulous individuals.