NJ deli fraud mastermind Patten gets 21 months for $100M scheme

James Patten was sentenced to 21 months in prison on Tuesday for orchestrating a stock manipulation scheme that artificially inflated the shares of a small New Jersey deli operator to a $100 million market capitalization. The 67-year-old former stockbroker must also serve three years of supervised release and pay approximately $5 million in restitution. Patten is the final defendant to be sentenced in the case, following the completion of prison terms for his co-conspirators, Peter Coker Sr. and Peter Coker Jr., who served six months and 40 months respectively.

The case highlights persistent vulnerabilities in the micro-cap market, where obscure operators can be manipulated to facilitate reverse mergers. Patten and the Cokers admitted to using coordinated trading to drive up the share prices of Hometown International and a shell company, E-Waste, by 939% and 19,900%. The objective was to make these entities attractive acquisition targets for private companies seeking a shortcut to public listings. At the time, Hometown’s only real-world asset was a money-losing deli in Paulsboro, New Jersey, which closed earlier in 2022.

Federal prosecutors had requested a prison term of 12 to 18 months, but U.S. District Judge Christine O'Hearn imposed a stricter 21-month sentence. O'Hearn cited Patten’s prior federal fraud conviction, which had already resulted in a 27-month prison stint. The judge noted that the deli scheme was set in motion while Patten was still on supervised release, less than two years after he got out of prison, and while he still owed restitution in the first case. "This is his idea," O'Hearn stated.

The fraud originated in 2014, when Patten pitched the creation of Hometown as an umbrella corporation to a high school wrestling teammate, Paul Morina, who was planning to open a deli. Authorities determined that Morina, a local high school principal and wrestling coach, was completely unaware of the stock manipulation plot. The extreme dislocation between Hometown’s fundamentals and its market valuation first drew widespread financial scrutiny in April 2021. Hedge fund manager David Einhorn highlighted the bizarre pricing dynamic in a client letter, quipping: "The pastrami must be amazing."

Charges against the three men were filed in September 2022, following investigative reporting that detailed their consulting arrangements and prior legal issues. At his hearing in Camden, New Jersey, Patten apologized for his actions. "I stand today before you to apologize, to take full responsibility for my actions," he told the judge, adding that he was "deeply sorry" and that "there is no excuse." He offered no comment to reporters as he exited the courthouse.