Father and Son Charged in $100 Million Sandwich Scheme

© Flavia Morlachetti/Getty

© Flavia Morlachetti/Getty

It was the caper of the century: a minuscule New Jersey deli not only became a publicly traded entity, but mysteriously grew to have a market value north of $100 million. Now, three men are being charged with illegally pumping up the company’s stock, with the goal of dumping their shares and absconding with the profits. They never even had the chance to pocket their ill-gotten bread.

On Monday, separate actions from the Securities and Exchange Commission and the Department of Justice accused 63-year-old James Patten, 80-year-old Peter Coker Sr., and 53-year-old Peter Coker Jr. of illicitly manipulating share prices of Hometown International—the deli’s parent company—and another business called E-Waste.

The men are being charged with conspiracy to commit securities fraud, securities fraud, and conspiracy to manipulate securities prices, while Patten also faces “four counts of manipulation of securities, four counts of wire fraud, and one count of money laundering.” The SEC is separately seeking its own penalties, including disgorgement and a “prohibition against participating in any penny stock offerings.”

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Patten and Coker Sr. were arrested on Monday, the Department of Justice said, while Coker Jr., a Hong Kong resident, was still at large.

Prosecutors claim that the sandwich scheme traces back to 2014, when two people in New Jersey expressed interest in opening a deli. One of those individuals was friends with Patten, and he allegedly suggested an unusually complex corporate structure for the fledgling business. An “umbrella corporation” named Hometown International would assume ownership of the deli; Patten explained that creating Hometown International would allow for easy expansion in the event [deli] was successful,” the indictment said.

But “unbeknownst to the deli owners,” the DOJ added, “almost immediately after Hometown International was formed, Patten and his associates began” laying the foundation for the scheme.

Their alleged crimes were relatively simple. Through coordinated trades, they “injected inaccurate information into the marketplace, creating false impressions of supply and demand.” From the outside, it looked like independent investors were hugely interested in the two companies’ stocks; shares of Hometown International eventually skyrocketed 939 percent, according to the DOJ, while E-Waste soared 19,900 percent.

To conceal their activity, the defendants allegedly gave shares in the businesses “to family members, friends, and associates,” and also “gained control over their trading accounts by obtaining their log-in information.”

But the underlying numbers never made sense. The deli made less than $40,000 per year, yet at its peak it boasted a nine-figure market value. Hometown International in particular attracted significant media interest and the attention of Wall Street big shots like billionaire David Einhorn.

That attention brought unwanted scrutiny on the defendants, the SEC said, before they “were able to reap the intended profits of the schemes.”

The three men now face substantial penalties: The charges of securities fraud, manipulation of securities prices, wire fraud, and money laundering each carry a maximum prison sentence of 20 years, along with hundreds of thousands or millions of dollars in fines.

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