- Peter Coker Sr. and James Patten, charged in an alleged scheme involving a small-town deli, pleaded not guilty Tuesday.
- The deli's parent company, Hometown International, attained a $100 million market valuation despite having only the deli to its name.
- The men are accused of various federal crimes, including conspiracy, fraud and money laundering.
- Patten told CNBC that had hired attorney Ira Sorkin, who had previously represented late Ponzi schemer Bernie Madoff.
CAMDEN, N.J. – Two men charged in an alleged stock-manipulation scheme involving a small-town New Jersey deli pleaded not guilty Tuesday morning.
Peter Coker Sr., 80, and James Patten, 63, who were arrested by federal authorities last month in North Carolina, made their pleas at a federal courthouse that's about a 20-minute drive from the now-closed shop at the heart of the case.
Patten told CNBC before the hearing Tuesday that he hired attorney Ira Sorkin, who is known for representing the late Ponzi schemer Bernie Madoff. Sorkin previously represented Patten in a dispute with the Securities and Exchange Commission, which was dismissed in 2006.
Coker Sr. is represented by Marc Agnifilo, who has previously defended fraudster and "pharma bro" Martin Shkreli, disgraced movie producer Harvey Weinstein, NXIVM cult leader Keith Raniere, and a Russian bank sanctioned over the invasion of Ukraine.
Agnifilo told CNBC that he expects the process to be drawn out. "I'm not sure why they would pursue a case where no one lost any money," he said, referring to federal prosecutors.
Patten was in good spirits at court Tuesday, making jokes about CNBC's coverage of the case and saying he felt pretty good. Coker Sr. was joined by his wife, Susan, and kept quiet, his hands folded or resting on his chin. The judge said that a pre-hearing test Tuesday morning revealed both men had alcohol in their system. Coker said he and his wife had drinks at dinner the night before, while Patten denied he had any alcohol in the past 48 hours.
The judge said Patten also tested positive for buprenorphine, an FDA-approved prescription drug used to treat pain and opioid addiction. Patten denied he had taken it. The judge said the lab would review the test and reminded Patten that he was under oath when he denied he had consumed alcohol and the drug.
Patten and Coker are accused of several federal crimes, including fraud, for allegedly pumping up the value of a publicly traded company that achieved a market capitalization of more than $100 million last year despite having only Your Hometown Deli in Paulsboro, New Jersey, to its name. The deli made less than $40,000 in sales a year.
Federal prosecutors have described the case as a tale of international fraud and betrayal. Peter Coker Jr., 53, the son of Coker Sr., is based in Hong Kong and is considered at large. Federal authorities sought to detain Coker Sr. before agreeing to a conditional release. Agnifilo said he has not been in contact with Coker Jr. The attorney also declined to say whether Coker Jr. would return to the United States, or whether he had been in touch with his father.
Coker Sr. surrendered his passport to authorities in North Carolina on Friday. Both he and Patten are out on $100,000 bond and not permitted to leave the continental United States.
The SEC also sued the men in a civil case over the alleged plot.
The men were charged for their involvement in Hometown International and a similar shell company called E-Waste. Prosecutors alleged that the men sought to enrich themselves by inflating the prices of Hometown International and E-Waste. At one point, their values on so-called over-the-counter markets had surged by 939% and 19,900%, respectively.
The men are charged with conspiracy to commit securities fraud, securities fraud and conspiracy to manipulate securities prices. The fraud and manipulation charges carry a maximum sentence of 20 years and a maximum fine of $5 million.
Patten is also charged with manipulation of securities, wire fraud and money laundering.
According to the indictment, the men duped the founders of Your Hometown Deli — Paul Morina, a former high school wrestling teammate of Patten's, and Morina's co-worker Christine Lindenmuth — telling them that the umbrella corporation could help with the restaurant's expansion. Neither Morina, principal and wrestling coach at Paulsboro High School, nor Lindenmuth, a math teacher at the same school, were mentioned by name in court documents.
The defendants then coordinated to control and transfer Hometown International stock between themselves and their friends for the purpose of inflating the share price, prosecutors said.
Patten didn't comment when asked Tuesday morning whether he had since spoken to Morina.
Prosecutors said Patten and the Cokers personally enriched themselves through consulting contracts that paid $15,000 a month to Coker Sr.'s company, North Carolina-based Tryon Capital, and $25,000 a month to Coker Jr.'s company, Macao-based VCH Limited. James Patten was a partner at Tryon Capital.
The men had similar, albeit smaller, consulting contracts with E-Waste.
Ultimately, the men planned to use both Hometown International and E-Waste as vessels for reverse mergers, which would allow other companies to go public through the two vehicles, authorities said.
Coker Sr. and Patten have had brushes with regulators and the law before.
Coker Sr. was sued in 1992 for allegedly hiding money from creditors and alleged business-related fraud. He has denied wrongdoing in those cases, one of which was settled out of court in recent years in North Carolina. The same year, Coker Sr. was also accused of indecent exposure to minors.
In 2006, Patten was barred from FINRA, the broker-dealer regulator, for not complying with an arbitration award of more than $753,000 for violating securities laws, unauthorized trading and churning a client's account.
Patten in 2010 pleaded guilty to a federal mail fraud charge. The FBI said he sent an investor a false financial statement after he took about half of the $538,000 she gave him to invest and used it to cover bad investments he had made using her account. He was sentenced to 27 months in prison.
The peculiarities surrounding Your Hometown Deli first caught the eye of hedge-fund manager David Einhorn in 2021.
"The pastrami must be amazing," Einhorn quipped at the time. After the indictments last month, he tweeted: "I guess the pastrami wasn't so great."
–CNBC's Dan Mangan contributed to this report.