The staggering $113 million market capitalization of a money-losing deli in New Jersey has been revealed to be the product of a Hong Kong hedge fund’s complex plan to take a foreign company public through a so-called reverse merger.
Hometown International Inc, which owns a single deli in Paulsboro, New Jersey baffled observers earlier this year when its shares soared in value in over-the-counter trading, the loosely regulated market for small companies.
Hedge Fund manager David Einhorn called the case an example of ‘quasi-anarchy’ in the markets, noting that Hometown had had $21,772 in sales in 2019 and only $13,976 in 2020, when the pandemic shuttered it from March to September
‘The pastrami must be amazing,’ Einhorn wrote sarcastically in an April investor note.
Now, a lengthy article in the New York Times magazine examines the case, revealing that Hong Kong hedge fund Maso Capital Partners helped drive up the value of the stock, which is owned by just a few dozen entities, by taking a stake with the intent to complete a reverse merger.
Now a popular fad on major stock exchanges, reverse mergers with special purpose acquisition companies, or SPACs, allow a private company to go public without the intense scrutiny and disclosure requirements of a traditional initial public offering.
Hometown International Inc, which owns a single deli (above) in Paulsboro, New Jersey baffled observers earlier this year when its parent company soared in value to $113 million
Paul F. Morina, the principal and wrestling coach at Paulsboro High School, is the CEO of the company incorporated in Nevada, which owns the deli business
Hometown International Inc was first incorporated in Nevada in 2014, and opened the Paulsboro storefront, Your Hometown Deli, in 2015.
Routine regulatory filings revealed that initially, the company was 95 percent owned by Paul F. Morina, the principal and wrestling coach at Paulsboro High School, and Christine Lindenmuth, a math teacher at the school.
Morina was listed as the CEO and Lindenmuth as the CFO and treasurer.
In 2019, Hometown went public on the over-the-counter (OTC) market at $1 per share.
Peter Lee Coker Jr, a financier based in Asia, appears to be the mastermind of the plan
Unlike public listings on exchanges such as the Nasdaq and New York Stock Exchange, OTC stocks are traded directly between buyer and seller, and regulations on companies are looser.
At the time of Hometown’s public listing, a financier named Peter Lee Coker Jr gained control of the company through a 37 percent stake, filings reveal.
He is the chairman of Hometown, according to SEC filings.
The son of the managing director at Tryon Capital, Coker Jr has spent decades working in finance in Asia, most recently leading the group behind a struggling luxury resort in Macau.
Hometown had ties to Tryon Capital from its inception. One of Tryon’s analysts attended Paulsboro High School, and signed the lease for the building the deli has rented since 2015, according to Fast Company.
The remaining 5 percent of shares not owned by Morina and Lindenmuth appear to have been distributed among the family and friends of Tryon executives, according to the Times.
Hometown also paid Tryon a monthly consulting fee and a Tryon employee was listed as the secretary to Morina and Lindenmuth.
Coker Jr, Morina, and Lindenmuth could not be reached by DailyMail.com and have not commented publicly on the case. None have been charged with any crime.
Hometown’s stock price is seen since its OTC listing in 2019. Only a handful of entities own shares of the company, which is not freely traded on the open market
Initially, the company was 95 percent owned by Paul F. Morina, the principal and wrestling coach at Paulsboro High School, and Christine Lindenmuth, a math teacher at the school
Hometown Inc denied it was a shell company when questioned by the SEC, saying that it had a viable storefront operating in Paulsboro (seen above)
The enterprise drew intense scrutiny from the Securities and Exchange Commission from the beginning.
‘Please revise your disclosure throughout your filing to state that you are a shell company,’ the SEC warned Hometown in 2015.
The company protested that it was a going concern with a viable storefront, and the SEC relented, letting the listing go forward.
In early 2020, Coker Jr approached Maso Capital Partners, the Hong Kong hedge fund, and pitched Hometown as a possible reverse merger vehicle, according to the Times.
Reverse mergers with special purpose acquisition companies (SPACs) have become a fad on the major stock exchanges, with companies such as WeWork pursuing a public listing by merging with a so-called blank-check firm.
SPACs provide companies with access to capital through public exchanges, but allow them to avoid the painful investor scrutiny that a traditional initial public offering brings.
In the OTC market, a SPAC listing could offer a foreign company access to U.S. investors. In itself, there is nothing technically illegal about such mergers.
Peter Coker Jr is the chairman of Hometown International, the holding company for a New Jersey deli, according to SEC filings. He previously led the group behind a Macau resort
Maso put $2.5 million into Hometown, giving itself a stake in whatever merged entity ultimately resulted from the deal, the Times reported.
A Macau-based firm, Global Equity Limited, followed with an investment of about $2 million, which they acquired from Peter Coker Jr, who bought his shares from Lindenmuth and Morina for $3,000, filings show.
Coker Jr’s flipping of shares to his Asian investors at a wild profit appears to be what drove up the paper valuation of Hometown to eye-watering levels.
‘We took the opportunity to invest in Hometown at a reasonable valuation, with the ability to assist in its acquisition strategy using our extensive network of private companies,’ Maso’s co-chief investment officer Manoj Jain told the Times.
He plans to find a target company for under $500 million. The target will then merge with Hometown and take it over, acquiring a greater than 51 percent share.
Overnight, the shell company will transform once a deal goes through.
‘The name changes, the ticker changes, the board changes, the management changes, everything changes as the target company enters the U.S. capital market,’ Jain said