U.S. authorities on Monday filed civil and criminal charges against three men for allegedly orchestrating a large-scale market manipulation scheme that briefly pushed the valuation of a New Jersey deli to more than $100 million.
Prosecutors charged the men—Peter Coker Sr., 80, Peter Coker Jr., 53, both of North Carolina, and James Patten, 63, of Hong Kong—with 12 counts, including conspiracy to commit securities fraud, securities fraud, and conspiracy to manipulate securities prices. Patten was also charged with wire fraud, money laundering, and securities manipulation.
Coker Sr. and Patten were taken into custody on Sept. 26 and have since appeared in a North Carolina court. They are expected to appear in New Jersey federal court at a later date. Coker Jr. is still at large.
The Securities and Exchange Commission (SEC) also filed a separate civil action, accusing the men of underlying the market manipulation scheme. The agency’s investigation is ongoing.
If found guilty, the criminal securities fraud charges carry a maximum sentence of 20 years in prison and a $5 million fine, while the conspiracy counts carry a five-year prison term and a $250,000 fine, authorities said. The wire fraud and money laundering charges are punishable by a maximum penalty of 20 years in prison and a $250,000 fine.
Since 2014, the father-and-son duo and their associate “conspired to enrich themselves through a scheme to manipulate securities prices via a pattern of coordinated trading, which injected inaccurate information into the marketplace, creating false impressions of supply and demand for these securities,” the Department of Justice said in a statement.
As part of the scheme, the men allegedly targeted two publicly traded companies—Hometown International Inc. and E-Waste Corp.—through manipulative trading, and used them to generate illegal profits by acquiring private companies in so-called reverse mergers, a transaction through which an existing public company merges with a private operating company.
These alleged manipulation tactics artificially inflated the stock price of Hometown by 939 percent and E-Waste by approximately 19,900 percent, prosecutors said.
Hometown’s market value swelled as high as $123 million in April 2021 even though its sole asset, a Paulsboro, New Jersey-based business called Your Hometown Deli, generated just $13,976 of sales in 2020 and $25,004 in 2021.
The company merged this year into Makamer Holdings Inc., a Los Angeles bioplastics startup.
It closed the deli, which was located in a Philadelphia suburb, in June, and later sold the business for $15,000 and its inventory for $700, according to a regulatory filing.
The $100 million rural deli became a subject of attention in April 2021 after short-seller David Einhorn mentioned it in a letter (pdf) to shareholders, where he warned of the dangers of risky stocks and the need for more regulatory oversight.
Einhorn noted that the deli had earned $21,772 in sales in 2019 and only $13,976 in 2020, but had reached a market cap of $113 million in early February.
“The pastrami must be amazing,” Einhorn wrote jokingly. “Small investors who get sucked into these situations are likely to be harmed eventually, yet the regulators—who are supposed to be protecting investors—appear to be neither present nor curious.”
Reuters contributed to this report.