Winston-Salem businessman pleads guilty to securities fraud

A Winston-Salem businessman has pleaded guilty to securities fraud and conspiracy to commit securities fraud involving a New Jersey delicatessen and two publicly-traded companies, according to a Dec. 20 news release from the U.S. Attorney's Office for the District of New Jersey.

U.S. Attorney Philip Sellinger said James Patten, 64, has admitted to orchestrating a large-scale market manipulation scheme related to Hometown International Inc. and E-Waste Corp. Sentencing is scheduled for April 3.

The securities fraud count carries a maximum penalty of 20 years in prison and a $5 million fine. The conspiracy to commit securities fraud carries a maximum penalty of five years in prison and at least a $250,000 fine.

According to an ongoing separate but related investigation, the Securities and Exchange Commission said the companies had a combined $220 million market capitalization via "grossly inflated prices" at the peak of the alleged share-price manipulation.

Patten moved to Winston-Salem in August 2017, according to the U.S. Attorney's Office indictment filed Sept. 22, 2022. The SEC complaint, filed four days later, listed Patten's address in the 200 block of Lucerne Lane.

According to the U.S. Attorney indictment, from 2014 through September 2022, Patten and co-defendants Peter Coker Sr. of Chapel Hill and Peter Coker Jr. of Hong Kong "conspired to enrich themselves through a scheme to manipulate securities prices via a pattern of coordinated trading, which injected inaccurate information into the marketplace, creating false impressions of supply and demand for these securities."

The Paulsboro, N.J., deli was open for business on and off through the indictment period, producing less than $40,000 in annual revenue.

Hometown International, utilizing the "HWIN" ticker symbol, was listed as the umbrella corporation with the deli as a wholly-owned subsidiary. E-Waste Corp. utilized the "EWST" ticker symbol.

The defendants, through the coordinated trading, were able to manipulate Hometown International's share price from $1 per share in October 2019 to nearly $13 per share by April 2021, producing "a grossly inflated" market capitalization of $100 million.

Meanwhile, E-Waste's share price jumped from 10 cents to $10, which was a market capitalization of $120 million "for a shell company with no revenue."

According to the indictment, Patten worked as a stockbroker before being barred by the Financial Industry Regulatory Authority in 2006.

During 2014, two New Jersey residents began the process of opening a local deli in Paulsboro. One of them discussed his interest in opening the business with Patten, a long-time friend, who suggested the creation of Hometown International.

"Unbeknownst to the deli owners, after Hometown International was formed, Patten and his associates began positioning (it) as a vehicle for a reverse merger that would yield substantial profit to them."

A "reverse merger" is a stock transaction in which an existing public company merges with a private entity. A successful reverse merger would allow the defendants to sell shares of each entity at a significant profit.

In October 2019, Hometown International began trading on the OTC Marketplace - part of a U.S.-based financial market providing price and liquidity information for almost 10,000 over-the-counter securities that are lightly traded.

Patten told the deli owners that creating Hometown International would allow for easy expansion in the event the deli was successful, according to the indictment.

The defendants took similar actions to gain control of E-Waste's stock and management.

The defendants also arranged for the transfer of millions of shares of stock to other entities, including those controlled by Coker Jr., in an effort to mask their control of the shares.

The defendants transferred shares to family members, friends and associates. Although some of those individuals were set up as officers, Patten remained in charge.

According to the indictment, three unidentified investors lived in Greensboro, included one listed as an immediate family friend of Coker Sr.

The defendants used those accounts to commit a number of coordinated trading events involving stock on both sides of the transaction. These tactics artificially inflated the share price of both stocks by giving the false impression there was a genuine market interest.

According to the indictment, the scheme began to fall apart following an April 2021 news article "exposing Hometown International and E-Waste's ever-inflated market valuations." There were subsequent articles by national and business media outlets.

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