A $100 Million Deli
The most unlikely stock market story of the past few years involves a small deli in New Jersey. At the height of the scheme, the parent company of that deli, Hometown International, had a market capitalization of $100 million. Its stock price had been pumped up by 939%.
The man behind it all is James Patten, a former stockbroker. This week a federal judge in Camden, New Jersey, sentenced him to 21 months behind bars. Patten is the final defendant among the three to receive a sentence in the securities fraud case linked to the deli.
The other two men involved in the fraud, Peter Coker Sr. and his son Peter Coker Jr., have already completed their prison terms - six months and 40 months, respectively. Patten launched the fraudulent operation while still under supervised release from a prior federal fraud conviction.
How the Scheme Worked
Patten and his accomplices drove up the share prices of two entities: Hometown International - whose sole asset was a sandwich shop called Your Hometown Deli situated in Paulsboro, New Jersey - and a shell company called E-Waste. Their aim was to boost the appeal of these stocks for reverse mergers with privately held firms seeking a public listing.
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Hedge fund manager David Einhorn noticed something was off. In a 2021 client letter, he wrote about the deli's bizarre stock price and cracked, "The pastrami must be amazing." That letter caught the attention of CNBC, which published a report highlighting numerous suspicious ties between Hometown and E-Waste, Patten's past criminal and civil legal troubles, and consulting arrangements that enriched Patten and Coker Sr.
The deli itself was partially owned by a high school principal and wrestling coach named Paul Morina, a former wrestling teammate of Patten. According to authorities, neither Morina nor the other deli owner knew about Patten's scheme. Your Hometown Deli permanently shut its doors early in 2022.
The exposure of the scheme by a prominent hedge fund manager and financial media underscores how unusual price movements in tiny stocks can draw scrutiny. Patten's prior fraud conviction did not stop him from repeating similar behavior, leading to this latest prison term.
What the Judge and Patten Had to Say
At the sentencing, Judge Christine O'Hearn said, "This is his idea."
Patten apologized in court. "I stand today before you to apologize, to take full responsibility for my actions," he said. Then he added, "There is no excuse."
When reporters asked him questions outside the courtroom, Patten answered, "I have no comment."
The bottom line: The case is closed.
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