A father-son duo and their long-time friend are accused of securities fraud for allegedly conspiring to enrich themselves by manipulating the stock prices of two public companies.
According to a complaint filed by the Department of Justice, Peter Coker Sr. 80 and Peter Coker Jr. 53, both of North Carolina, and James Patten, 63, of Hong Kong, took steps to gain control of Hometown International and a separate shell company called E-Waste Corporation with the intention of selling their shares at a significant profit through reverse mergers. A reverse merger is a transaction in which an existing public company is merged with a private operating company.
After gaining control of the companies, the trio arranged the transfer of millions of company shares to a number of entities, including some controlled by Coker Jr., as well as the trading accounts of family, friends and associates. The accounts were accessed to commit a number of match and wash trades.
These tactics artificially inflated the price of Hometown International and E-Waste's stock by giving the false impression that there was a genuine market interest in the stock, the DOJ said. Their scheme had the ultimate impact of artificially inflating Hometown International's stock by 939 percent and E-Waste's stock by approximately 19,900 percent. Hometown International, which started selling shares on the OTC Marketplace around October 2019 in October, operated Paulsboro, New Jersey-based Your Hometown Deli, which produces less than $40,000 in annual revenue.
The deli was closed on August 9 after Makamer Holdings dissolved its subsidiary, Your Hometown Deli, LLC. The company disposed of any remaining inventory. All Your Hometown Deli, LLC transactions have been recorded as discontinued operations as of June 30, 2022, a regulatory filing said.
The Securities and Exchange Commission says Hometown International saw its share price go from approximately $1 per share in October 2019 to nearly $14 per share by April 2021, leading to a grossly inflated market value of $100 million for one deli with less than $40,000 in annual revenue.
The DOJ charged each of the three men in a 12 count indictment with conspiracy to commit securities fraud, securities fraud, and conspiracy to manipulate securities prices. Patten is also charged with four counts of fraud, four counts of wire fraud and one count of money laundering.
The SEC has accused all three men of market manipulation in a separate complaint. The complaint seeks injunctive relief, disgorgement plus prejudgment interest, civil penalties, a prohibition against participating in penny stock offerings, and an officer and director bar against Coker Jr.
Patten and Coker Sr. were arrested Monday and are scheduled to appear in federal court in the Middle District of North Carolina. They will appear in court in the district of New Jersey at a later date. Coker Jr. is still at large.
There is a maximum penalty of 20 years in prison and a $5 million fine for securities fraud and manipulation of securities prices. The maximum penalty of 20 years in prison and $250,000 fine are required to be paid for wire fraud and money laundering charges, or twice the gross gain or loss from the offense, whichever is the greatest. The counts of conspiracy to commit securities fraud and conspiracy to manipulate securities prices carry a maximum penalty of five years in prison and a $250,000 fine, or twice the gross gain or loss from the offense.