Fed: Publicly traded Deli is worth $ 100 million, a massive fraud after all

A feature of journalism that enriches the craft is the ability of writers to give people the benefit of the doubt. What a beautiful sentence, too! The benefit of the doubt. Sounds like an official power of a medieval king. Journalists are not kings, but they generally need some sort of proof to report on potential misdeeds. In general many people and groups are considered good eggs by default, with a burden of proof necessary to show any misdeeds. And while there are implicit biases embedded in those who have that doubt, it extends quite widely in the US media. Sure, part goes to the people you’d expect who might not deserve it: the government, the police, civic leaders, even President Trump when he took office. But the accused criminals also get the word “alleged”. It’s all so optimistic. Hey, maybe these people are all on the rise!

Businesses get this benefit of the doubt too. Despite the generally shared position of most companies that profit should be the only motivating factor, companies are often treated as big-hearted local benefactors who want the best for all. Part of this stems from that wide latitude of doubt; moreover, companies are often owned by wealthy people with money to sue. It took a lot of work for the Wall Street newspaper to print that Theranos, a blatant fraud, had simply “wrestled with his blood test technology”.

And so some business stories become a little dance as the reporter tries to make you decide for yourself if a company is a big scam. I’m not above this. Last year I wrote about Hometown International, a company that owned a single deli in Paulsboro, New Jersey, with a market capitalization at the time of $ 113 million. Hedge fund manager David Einhorn pointed this out in a letter to clients as an example of lax regulation and I wanted to review the cheesesteak. It was closed on my first visit which meant I got two stories out of it when I returned to try the food and buy a shirt.

In these, I tried to explain how a single deli could be worth $ 100 million – outstanding options actually bring it closer to $ 2 billion worth – in a deeper way than “this is some kind of scam.” (This has been a surprisingly deep investigation pit for Defector Media.) I spoke with professors at the universities of New Jersey and Pennsylvania. I liked a pizza steak. But basically I danced to the fact that it was some kind of scam.

I wasn’t the only one investigating. Yesterday, the SEC announced that three men associated with Hometown International had been charged with securities fraud. The government claims that Peter Coker Sr., Peter Coker Jr., and James Patten all inflated the price of Hometown International and another company through market manipulation and various other fraudulent schemes. Their plan was to offload the stock at inflated prices. But as the SEC states in a press release: “Before defendants could reap the expected profits from the schemes, as claimed, numerous news articles were published discussing the inflated prices of issuers’ shares.” Great. Now I look like a narcissist. Please at least make him “alleged narcissist” in all the stories you write.

The complaint details a pattern surrounding E-Waste Corp., a shell company and Hometown International. It also gives us some background for gastronomy: in 2014 Patten helped out her childhood friend, Paulsboro High School principal and wrestling coach Paul Morina, and Morina’s girlfriend Christine Lindenmuth, a math teacher to school, to open a deli in the city. (The pair are listed as Individual-2 and Individual-3 in the indictment; the government said the two were “only minimally involved in the plan to make Hometown International a publicly traded company.” stated in a statement that Morina and Lindenmuth were unaware of the scheme.)

Credit: Photo: Dan McQuade

Once Hometown went public, the complaint says, Patten began selling the shares of Morina and Lindenmuth to Coker Jr. at deep discounts. Coker Jr. then sold those shares to Macau companies that he controlled himself. The company then attempted to sell some of these shares, as well as shares given away to friends, on the open market; the government claims it lied about its SEC documents to meet the requirements.

At the same time, the government says Patten and the Cokers were getting rich through gastronomy. Morina and Lindenmuth had given Patten their passwords on the company’s bank accounts; Patten also had a Lindenmuth signature stamp that he could use to sign company checks. The money from the stock sales went through the company to the three accused scammers and the companies they controlled. Patten has had access to multiple brokerage accounts so that he can perform scrubbing – basically when an investor acts as both a buyer and a seller in a transaction to create the appearance of market activity. The complaint claims Patten’s IP address shows he was on both sides of these Hometown stock exchanges. There are some malicious email exchanges about other fraudulent exchanges in the claim:

In a December 15, 2020 email from Coker Jr. to Coker Sr. and Patten, Coker Jr. wrote that his partner, “[Individual 4] my hotel boyfriend[,] he should have his account set up to trade HWIN by Thursday at the latest. I will put you in touch with you guys [Individual 4] to get your orders sorted on a daily basis. . . . We try to keep the exposure on only what we need, I don’t want to run out of it, so orders of 100-200-300 per day are doable. ‘

The government detailed a similar scheme involving E-Waste Corp which was even more successful: While Hometown’s shares were inflated by only 939%, E-Waste’s shares were inflated by a whopping 19,900%.

Coker Sr. and Patten were arrested in North Carolina yesterday. Coker Jr. lives in Hong Kong now and forever, I guess. Here’s the amazing part: the pattern worked too! Despite the negative attention in April 2021 involving gastronomy and the layoff of Morina, earlier this year Hometown International merged with a bioplastics company and took the name of Makamer Holdings. FINRA rejected a change in its ticker name in August, so it is still trading under the HWIN symbol. E-Waste Corp. also merged, taking the name of EZRaider Global.

Gastronomy is no longer needed, however. It closed for good last month. At least I still have my shirt.

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