"The pastrami must be amazing," Greenlight Capital's David Einhorn quipped when he exposed the deli in a 2021 letter to investors.
- Three men behind last year's Hometown Deli public markets debacle have been charged in alleged stock market manipulation.
- The orchestrated scheme helped a local New Jersey deli sport a market capitalization of $100 million.
- Hedge funder David Einhorn had called out the company as an example of the SEC's negligence towards stock schemes.
Three men behind Hometown International, the parent company of a New Jersey-based deli that saw its market capitalization soar to $100 million last year, have been charged with alleged stock market manipulation and fraud.
Father-son duo Peter Coker Sr. and Peter Coker Jr., along with James Patten, were charged by the SEC and Department of Justice on Monday for schemes that included artificially inflating the share price of Hometown International.
Hometown International operated the New Jersey deli, which produced less than $40,000 in annual revenue and recorded an annual profit of less than $14,000. Despite the poor financials, Hometown's stock price soared from $1 per share in October 2019 to a high of $14 per share in April 2021, reaching a market valuation of more than $100 million.
Hedge fund icon David Einhorn of Greenlight Capital called attention to the deli in a letter to his investors last year, arguing that the SEC was essentially asleep at the wheel when dealing with blatant fraudulent companies that traded on public exchanges.
"Hometown International, which owns a single deli in rural New Jersey ... reached a market cap of $113 million on February 8. The largest shareholder is also the CEO/CFO/treasurer and a director, who also happens to be the wrestling coach of the high school next door to the deli. The pastrami must be amazing," Einhorn said at the time, underscoring the number of questionable companies that regulators are overlooking.
Just over 15 months later, the SEC and DOJ is taking action.
"Patten, Coker Sr., and Coker Jr... 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 thereafter dump their shares at grossly inflated prices," the SEC alleged.
"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," SEC associate director of enforcement in the Philadelphia office Scott Thompson said.
The alleged schemes began in 2014, and ultimately led to big artificial gains of 939% and 19,900% for Hometown International and E-Waste stocks, respectively, according to the DOJ.
The SEC filed its complaint in the US District Court for the District of New Jersey, charging all three defendants with violations of the antifraud provisions of securities laws. The defendants were also hit with criminal charges including securities fraud and money laundering, among others, by the Department of Justice in the District of New Jersey.