A New Jersey father and son, along with a third conspirator, orchestrated a white-collar crime scheme that inflated their penny stock corporation to a $100 million market cap, despite their deli only generating $40,000 in revenue, according to the SEC.
Peter L. Coker Sr., Peter L. Coker Jr., and James T. Patten have been charged by the Securities and Exchange Commission "for their roles in orchestrating fraudulent manipulative securities trading schemes," according to a press release from the SEC.
The Cokers and Patten collectively operated a publicly traded (but unlisted) company called Hometown International, and the SEC alleges that the trio used fraudulent means to raise the share price from $1 to just under $14 by April of 2021. Hometown International, at the time the scheme was concocted, owned a single New Jersey deli with revenue ranging from $13,000 to $40,000 a year. Despite its limited assets, Hometown International was valued at over $100 million in February of 2021.
The Securities and Exchange Commission briefly detailed how the defendants inflated the stock's value:According to the SEC’s complaint, Patten, Coker Sr., and Coker Jr., who was the former Chairman of the Board of Hometown International, took control of the outstanding shares of Hometown International and a separate shell company, E-Waste Corp., artificially inflated 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 thereafter dump their shares at grossly inflated prices. Before the defendants were able to reap the intended profits of the schemes, as alleged, numerous news articles were published discussing the issuers’ inflated stock prices.
“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 A. Thompson, Associate Director of Enforcement in the 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.”
According to the press release, the three are charged by the SEC with "violations of the antifraud provisions of the securities laws," and Patten received an additional charge of "violating market manipulation provisions of the securities laws." The SEC is seeking "injunctive relief, disgorgement plus prejudgment interest, civil penalties, a prohibition against participating in any penny stock offerings, and an officer and director bar" against the younger Coker.
Additionally, the U.S. Attorney's Office for the District of New Jersey has announced criminal charges against the three.
Hometown International's largest shareholder, Coker Jr., is the local high school wrestling coach and formerly also the chief executive officer, chief financial officer, and treasurer of the company.
David Einhorn, a hedge fund manager who founded Greenlight Capital, discussed the publicly traded company which holds no other asset in a newsletter released in Apr. 2021.
Einhorn's Greenlight seems to be one of the first — if not the first — publications to indicate that there was something suspicious going on with Hometown International, according to results from a Lexis Nexis query. Einhorn, whose investment research has previously tipped off the U.S. Securities and Exchange Commission about fraudulent valuations, believed that investors in Hometown International were "likely to be harmed eventually, yet the regulators — who are supposed to be protecting investors — appear to be neither present nor curious."
According to Einhorn, the deli only earned $21,772 in sales in 2019 and only $13,976 in 2020. Like similar establishments at the time, the deli was closed between March and September during the COVID-19 pandemic. Despite this closure, on Feb. 8 of last year, Hometown International had a market cap of $113 million.
In 2007, Einhorn delivered a presentation on what he believed to be untrustworthy financial filings by Lehman Brothers and discussed his decision to short the stock. Shortly thereafter, the firm announced a $2.8 billion quarterly loss and subsequently filed for bankruptcy. In 2010, he repeated this feat, giving a presentation on a Florida-based real estate developer who he believed was improperly recording asset valuations. In 2015, the SEC took action, charging three of the developer's executives and two employees.
