$100 million New Jersey deli inventory fraud case responsible plea
Your Hometown Deli in Paulsboro, N.J.
A North Carolina ex-convict pleaded guilty to securities fraud in connection with conspiring to manipulate the stock of a company that once had a market capitalization of as high as $100 million despite owning just one, small money-losing deli in southern New Jersey.
Disgraced former stockbroker James Patten also admitted on Wednesday in Camden, New Jersey, federal court to conspiring with two other men to manipulate the share price of another related shell company, which had no tangible assets. That company’s market cap was even higher than the Hometown International deli company the men controlled.
Prosecutors said that Patten, 64, and the other two defendants conspired over eight years to increase the stock price of Hometown International and the shell company E-Waste to create a false impression of demand for the firms’ shares, and better position them as candidates for so-called reverse mergers with privately owned companies.
Courtroom sketch of James Patten, left, and attorney Ira Sorkin at N.J. District Court in Camden, N.J., Oct. 11, 2022
Source: Elizabeth Williams
The other defendants, Peter Coker Sr. and son Peter Coker Jr., remain charged in the case, in which they have pleaded not guilty.
The Cokers and Patten also are being sued over the alleged scheme by the Securities and Exchange Commission. That lawsuit in New Jersey federal court has been paused until the resolution of the criminal case.
The scheme relied on a pattern of coordinated stock trading between a relatively small number of accounts nominally held by family members, friends and associates, according to court documents.
As a result, Hometown and E-Waste’s stock prices were artificially inflated by 939% and 19,900%, respectively.
The scheme began in 2014, when Patten suggested the creation of Hometown as an umbrella corporation to a friend, a high school principal and wrestling coach named Paul Morina, to own Your Hometown Deli, which Morina and another person were discussing opening in Paulsboro at the time. Morina and the other deli owner were unaware of Patten’s scheme to manipulate Hometown’s stock, authorities have said.
Hometown Deli, Paulsboro, N.J.
Mike Calia | CNBC
Patten’s guilty plea to securities fraud, and conspiracy to commit securities fraud, could well ratchet up pressure on both Cokers to reach plea deals in the case.
Coker Sr., who lives in North Carolina, remains free on bond, while Coker Jr., a former Hong Kong resident who was arrested as a fugitive in Thailand in January, is being held without bond in a New Jersey jail.
Charges were filed against the trio in September 2022, more than a year after CNBC detailed a series of questionable connections between Hometown and E-Waste, past criminal and civil court issues of Patten and the elder Coker, and eyebrow-raising consulting deals with the companies that benefitted those two men. Your Hometown Deli closed earlier in 2022.
CNBC’s reporting was sparked by a client letter that hedge fund mamager David Einhorn sent clients in April 2021, which highlighted Hometown International’s bizarre stock price given its very meager single asset of the deli.
“The pastrami must be amazing,” Einhorn wrote in that letter.
On the heels of those articles, both Hometown International and E-Waste took the highly unusual step of disavowing their market capitalization, saying there was no basis to support their stock prices. The companies later executed reverse mergers with other firms.
Peter Coker Sr. and his wife Susan Coker at U.S. District Court in Newark, New Jersey, March 15, 2023.
Dan Mangan | CNBC
Patten, who lives in Winston-Salem, faces a maximum possible sentence of 20 years in prison and fines of $5.25 million, but he is likely to get much less than that given federal sentencing guidelines.
He is scheduled to be sentenced on April 23, at which point the other 10 securities fraud charges he faced with the Cokers will be dismissed.
His lawyer Ira Sorkin told CNBC, “He admitted that he had engaged in wrongdoing.”
When asked if Patten had agreed to cooperate with prosecutors in their case against the Cokers, Sorkin said, “I’m not going to get into anything.”
Sorkin, who previously represented the notorious late Ponzi scheme mastermind Bernie Madoff, said that Patten’s case was unusual only because of the media attention paid to it.
“The press has come in and said the pastrami sandwich cost $100 million,” Sorkin quipped.
The attorney said that at sentencing “you will find out” what the pastrami actually cost.
Lawyers for the Cokers have argued that no one actually lost money in the alleged scheme.
But prosecutors have pointed to the hundreds of thousands of dollars Hometown and E-Waste paid out in consulting fees, and to the funding of the companies by other individuals who are not charged.
Patten previously pleaded guilty in 2010 in New Jersey federal court to a mail fraud charge related to sending a client a false financial statement to cover up bad investments he had made using her money. He was sentenced to 27 months in prison in that earlier case.
Four years earlier, Patten was barred by FINRA, the broker-dealer regulator, from acting as a stockbroker for having failed to comply with an arbitration award of more than $753,000, for violating securities laws, unauthorized trading for churning a client’s account. Sorkin had represented him in that regulatory action.
Coker Sr. previously was sued for allegedly hiding money from creditors and alleged business-related fraud. He has denied wrongdoing in those cases.