Burgers from $5.95.
Sandwiches from 4.25.
Combined plates, salads, breakfasts... Not a single plate above 20 dollars.
Even so, the small and unknown Hometown Deli restaurant in Paulsboro (New Jersey), which only had a turnover of about 25,000 dollars a year – a similar figure in euros – was worth 113 million on the stock market.
It's the latest Wall Street fraud the supervisor is pursuing.
The owners of the company managed to artificially inflate its stock price in an unusual way before being discovered.
The Hometown Deli International company began to attract the attention of analysts, investors and the media around the world in the first half of 2021. What was behind those shares that rose like foam?
The answer was surprising and disturbing.
Just a little lost New Jersey restaurant.
"The pastrami must be delicious," joked the investor who uncovered the case.
Actually, he didn't even have pastrami on the menu.
“Small investors who get pulled into these situations are likely to be hurt at some point, but the supervisors, who are supposed to protect investors, seem to be neither present nor vigilant.
From a traditional perspective, the market is fractured and possibly in the process of breaking down entirely,” David Einhorn, founder of the Greenlight Capital fund and author of the pastrami joke, said in an April 2021 letter to investors.
The company accounts left little room for doubt.
According to the annual report registered with the United States Securities and Exchange Commission (the SEC), the company had a turnover of $14,000 in 2020 and $25,000 in 2021. Since listing on Wall Street is not cheap, it had losses of about $630,000 in 2020 and about $480,000 in 2021. The company said it was seeking a merger with another entity.
None of this explained how it was possible for the company to reach that valuation on the stock market and for the value of the shares to skyrocket.
The price went from one dollar in October 2019 to 14 dollars in April 2021.
mystery solved
The mystery has now been solved.
There was a trick.
It was the company's own owners who artificially inflated the price with simultaneous purchases and sales of shares, according to the result of an SEC investigation.
Not only that, defendants Peter L. Coker, 80, his son Peter L. Coker Jr., 53, and James T. Patten, 63, repeated the procedure with another company, E-Waste Corporation, which called less attention, but it reached a value of 120 million dollars without even having started operations.
His shares multiplied in value by 100 (from $0.10 to $10) for no apparent reason.
“The defendants artificially inflated the share price of these companies by manipulating the trades they executed through affiliated and nominee accounts they controlled, often using the same IP addresses to execute the trades.
In doing so, the defendants artificially raised the price and trading volume of the entities' common stock, creating the false appearance of active trading and an increase in the price of the security," the SEC states in its complaint.
The Cokers and Pattens made profits by selling some shares at inflated prices and billing companies for supposed consulting contracts.
They owned investment firms and had experience as broker-dealers and company advisors when they launched these operations.
Patten had been subject to disciplinary action from supervisors in the past.
Deception of the supervisor
Hometown International was founded in 2014 and its Your Hometown Deli restaurant opened in 2015. Patten and the Cokers devised a plan to take the firm public.
It debuted in October 2019 on a secondary market (OTC Pink Market), with little regulation and supervision, but where public offerings of shares are not allowed.
Even so, in April 2020 the company raised 2.5 million in a private placement to Hong Kong investors.
To make the leap to a more open market, the defendants filed a prospectus in which they misled the SEC and distributed part of the shares to related persons to give the impression that there was at least 10% free float and a minimum of 50 shareholders.
The move to that market in October 2020 gave the company more visibility, a semblance of legitimacy and more flexibility when trading the shares.
Right from its initial market debut, Patten took over accounts of friends and family, including nearly the entire Coker family, to trade Hometown International stock.
Through applications (where the buyer and the seller are the same) and other simulated operations between the different parties that he himself controlled, he was raising the price of the shares almost at his whim.
Since there were no actual stocks on the market, he could make purchases and sales across multiple accounts and simulate a stock look.
The SEC asserts that "certain individual investors not associated with the defendants also bought Hometown International stock at the prices artificially inflated by the fraud and, therefore, have been harmed", although it does not number that harm or indicate the number of investors deceived. , which appears to be small, given the lack of activity in the company's shares.
“Before the defendants were able to reap the benefits envisaged in their schemes (…) numerous press articles were published that spoke of the issuers' inflated share prices,” says the supervisor.
Still, when news of the company's stock market nonsense began to circulate, the alleged fraudsters merged Hometown International with another Delaware company and changed its name to try to squeeze even more out of the inflated stock price, according to the SEC.
A similar operation was carried out with E-Waste Corporation, which did not even launch its business plan.
After reaching a value of more than 100 million, it also merged with another company, acquiring its name.
The SEC accuses the defendants in a civil lawsuit of numerous violations of the laws of the securities market, asks for their debarment, the return of the profit obtained from their manipulation of the market and a fine, according to the document registered in a federal court in New Jersey .
In parallel, the New Jersey District Attorney has taken criminal action.
Peter L. Coker and James T. Patten have been arrested.
Peter Coker Jr is missing.
"We allege that the brazen schemes of the defendants resulted in the artificially inflating of the stock price of two publicly traded companies with little or no annual income," Scott A. Thompson said in a statement. , director of the SEC office in Philadelphia.
"Such manipulative schemes undermine the confidence investors should have in the integrity of the markets, and we will prosecute those who engage in such misdeeds," he added.
The question that remains in the air, however, is how it is possible that the fraud was carried out for so long without the supervisor detecting it and an investor having to alert about it.
The restaurant, meanwhile, has already closed.
