November 27, 2022

Dawson County Journal

Dawson County, Nebraska

SEC Alleges Market Manipulation, Charges 3 Men With Fraud, In $100 Million New Jersey Deli Scheme : by Tyler Durden

SEC Alleges Market Manipulation, Charges 3 Men With Fraud, In $100 Million New Jersey Deli Scheme

Back in April of 2021, we highlighted when fund manager David Einhorn pointed out a single New Jersey deli that was trading with an insane market cap of over $100 million as one of the hallmarks of the bubble the market was in. Einhorn wrote:

“Strange things happen to all kinds of stocks. Last year, on one day in June, the stocks of about a dozen bankrupt companies roughly doubled on enormous volume. Recently, the Wall Street Journal reported a boom in penny stocks.

Someone pointed us to Hometown International (HWIN), which owns a single deli in rural New Jersey. The deli had $21,772 in sales in 2019 and only $13,976 in 2020, as it was closed due to COVID from March to September. HWIN reached a market cap of $113 million on February 8. The largest shareholder is also the CEO/CFO/Treasurer and a Director, who also happens to be the wrestling coach of the high school next door to the deli. The pastrami must be amazing. 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.”

And now, so goes the bubble, so goes the deli…

The Securities and Exchange Commission has officially put the kibosh on the fairly obvious scam, suing the deli and its related personnel for fraud in what is being called the “$100 million New Jersey deli scheme” by CNBC

Several men were charged with 12 counts of fraud, including conspiracy to commit securities fraud, securities fraud and conspiracy to manipulate securities prices, the report said. The men appeared in a North Carolina court this week and are expected in New Jersey federal court at a later date. 

One defendant involved, 63 year old James Patten, had been barred by FINRA last year and was “the subject of repeated disciplinary actions by FINRA”, CNBC wrote.

“Unbeknownst to the deli owners, almost immediately after Hometown International was formed, Patten and his associates began positioning Hometown International as a vehicle for a reverse merger that would yield substantial profit to them,” the government alleged in their complaint. 

“Shortly thereafter, [the defendants] undertook a calculated scheme to gain control of Hometown International’s management and its shares from the deli owners,” the complaint reads. The men then “artificially inflated” the values of the company’s stock – along with a second company, E-Waste – by 939% and 19,900%, respectively, using wash trades and affiliates, the complaint alleges.  

The SEC says its investigation into the matter is ongoing. You can read the full indictment here

Recall, back in 2021, we noted that the deli was linked to E-Waste, a self-admitted shell company that had total assets of about $183,000 and liabilities of $412,400 as of its SEC filings at the time. It posted a net loss of $58,000 for the 9 months ended November 30, 2020. The company’s own filings state it was created in 2012 “to develop an e-waste recycling business” but “was not successful in its efforts and discontinued that line of business.”

Tyler Durden
Tue, 09/27/2022 – 13:50

​ SEC Alleges Market Manipulation, Charges 3 Men With Fraud, In $100 Million New Jersey Deli Scheme

Back in April of 2021, we highlighted when fund manager David Einhorn pointed out a single New Jersey deli that was trading with an insane market cap of over $100 million as one of the hallmarks of the bubble the market was in. Einhorn wrote:

“Strange things happen to all kinds of stocks. Last year, on one day in June, the stocks of about a dozen bankrupt companies roughly doubled on enormous volume. Recently, the Wall Street Journal reported a boom in penny stocks.

Someone pointed us to Hometown International (HWIN), which owns a single deli in rural New Jersey. The deli had $21,772 in sales in 2019 and only $13,976 in 2020, as it was closed due to COVID from March to September. HWIN reached a market cap of $113 million on February 8. The largest shareholder is also the CEO/CFO/Treasurer and a Director, who also happens to be the wrestling coach of the high school next door to the deli. The pastrami must be amazing. 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.”

And now, so goes the bubble, so goes the deli…

The Securities and Exchange Commission has officially put the kibosh on the fairly obvious scam, suing the deli and its related personnel for fraud in what is being called the “$100 million New Jersey deli scheme” by CNBC. 

Several men were charged with 12 counts of fraud, including conspiracy to commit securities fraud, securities fraud and conspiracy to manipulate securities prices, the report said. The men appeared in a North Carolina court this week and are expected in New Jersey federal court at a later date. 

One defendant involved, 63 year old James Patten, had been barred by FINRA last year and was “the subject of repeated disciplinary actions by FINRA”, CNBC wrote.

“Unbeknownst to the deli owners, almost immediately after Hometown International was formed, Patten and his associates began positioning Hometown International as a vehicle for a reverse merger that would yield substantial profit to them,” the government alleged in their complaint. 

“Shortly thereafter, [the defendants] undertook a calculated scheme to gain control of Hometown International’s management and its shares from the deli owners,” the complaint reads. The men then “artificially inflated” the values of the company’s stock – along with a second company, E-Waste – by 939% and 19,900%, respectively, using wash trades and affiliates, the complaint alleges.  

The SEC says its investigation into the matter is ongoing. You can read the full indictment here. 

Recall, back in 2021, we noted that the deli was linked to E-Waste, a self-admitted shell company that had total assets of about $183,000 and liabilities of $412,400 as of its SEC filings at the time. It posted a net loss of $58,000 for the 9 months ended November 30, 2020. The company’s own filings state it was created in 2012 “to develop an e-waste recycling business” but “was not successful in its efforts and discontinued that line of business.”

Tyler Durden
Tue, 09/27/2022 – 13:50 

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