In an extraordinary case of securities fraud, an ex-convict from North Carolina, James Patten, pleaded guilty to conspiring to manipulate the stock of Hometown International. This company, despite owning just one small money-losing deli in southern New Jersey, had a market capitalization that once reached $100 million. Patten also admitted to conspiring with two other individuals to manipulate the share price of another related shell company, E-Waste, which had no tangible assets. Astonishingly, the market capitalization of E-Waste was even higher than that of Hometown International.
The manipulation scheme, carried out over the span of eight years, aimed to artificially increase the stock prices of Hometown International and E-Waste. By creating a false impression of demand for their shares, Patten and his accomplices sought to position the companies as prime candidates for reverse mergers with privately owned firms. The scheme involved coordinated stock trading between a limited number of accounts, ostensibly held by family members, friends, and associates. As a result, Hometown and E-Waste’s stock prices were inflated by an astounding 939% and 19,900%, respectively.
The Origins of the Scheme
The scheme came into motion in 2014 when Patten proposed the creation of Hometown International as an umbrella corporation to a friend, Paul Morina, who was a high school principal and wrestling coach. Unbeknownst to Morina and another deli owner, Patten had sinister intentions to manipulate Hometown’s stock. The authorities have confirmed that Morina had no knowledge of Patten’s scheme.
The Guilty Plea
Patten’s guilty plea to securities fraud and conspiracy to commit securities fraud is expected to intensify pressure on Peter Coker Sr. and his son Peter Coker Jr., who remain charged in the case and have pleaded not guilty. The Securities and Exchange Commission has also filed a lawsuit against the three defendants. The resolution of the criminal case will determine the progress of the SEC’s legal action.
The case against Patten, the Cokers, and their manipulation of Hometown International’s stock was initiated in September 2022, following an investigation that commenced after CNBC published an exposé on the suspicious connections between the companies and the individuals involved. The article shed light on Patten’s past criminal and civil court issues and raised concerns about questionable consulting deals. The revelations prompted renowned hedge fund manager David Einhorn to send a letter to his clients, expressing astonishment at Hometown International’s inflated stock price given its meager deli asset.
Subsequently, both Hometown International and E-Waste disavowed their market capitalizations, acknowledging that there was no basis to support their stock prices. Eventually, the companies underwent reverse mergers with other firms.
Patten, hailing from Winston-Salem, now faces a maximum possible sentence of 20 years in prison and fines of $5.25 million. However, it is anticipated that his actual sentence will be less severe given federal sentencing guidelines. His sentencing is scheduled for April 23, and at that point, the 10 securities fraud charges he faced alongside the Cokers will be dismissed.
Patten’s defense counsel, Ira Sorkin, acknowledged the wrongdoing on behalf of his client. While declining to comment on whether Patten would cooperate with prosecutors in the case against the Cokers, Sorkin emphasized the unusual media attention the case had garnered. He humorously remarked that “the pastrami sandwich cost $100 million,” referring to the absurd valuation of Hometown International.
The defense team for the Cokers has argued that no one actually suffered financial losses due to the alleged scheme. However, prosecutors have cited the substantial consulting fees paid out by Hometown and E-Waste, as well as the involvement of other individuals who have not been charged.
Prior Misdeeds
This is not Patten’s first encounter with legal troubles. In 2010, he pleaded guilty to a mail fraud charge for sending a false financial statement to cover up bad investments made with a client’s money. That case resulted in a 27-month prison sentence. Before that, Patten was barred by FINRA from acting as a stockbroker due to his failure to comply with an arbitration award and for violating securities laws.
Peter Coker Sr., on the other hand, has faced lawsuits related to hiding money from creditors and alleged business-related fraud, which he vehemently denies.
The case of securities fraud involving Hometown International’s stock manipulation is a stark reminder of the potential for deception and manipulation in the world of finance. The guilty plea of James Patten sheds light on the intricate scheme that artificially inflated stock prices, ultimately harming investors. As the legal proceedings continue, it remains to be seen how the remaining defendants, the Cokers, will navigate the consequences of their alleged involvement.
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