The staggering $113 million market cap of a cash-losing New Jersey deli turns out to be the product of a Hong Kong hedge fund’s complex plan to float a foreign company through a so-called reverse merger.
Hometown International Inc, which has a single deli in Paulsboro, New Jersey, stunned observers earlier this year as its parent company rose in value in the over-the-counter trade, the loosely regulated market for small businesses.
Hedge Fund manager David Einhorn called the case an example of “quasi-anarchy” in the markets, noting that Hometown had $21,772 in sales in 2019 and just $13,976 in 2020, when the pandemic shut it down from March to September.
“The pastrami must be great,” Einhorn wrote sarcastically in an April investor comment.
Now a long article in the New York Times magazine investigates and reveals that Hong Kong hedge fund Maso Capital Partners helped boost the value of its stock, owned by just a few dozen entities, by taking a stake with the intention of completing a reverse merger.
Now a popular craze on major exchanges, reverse mergers with special purpose acquisitions, or SPACs, allow a private company to go public without the intensive auditing and disclosure requirements of a traditional IPO.
Hometown International Inc, which owns a single deli (above) in Paulsboro, New Jersey, stunned observers earlier this year as the parent company rose in value to $113 million.
Paul F. Morina, the principal and wrestling coach of Paulsboro High School, is the CEO of the Nevada company that owns the delicatessen
Hometown International Inc was first founded in Nevada in 2014 and opened the Paulsboro store, Your Hometown Deli, in 2015.
Routine filings revealed that the company was initially 95 percent owned by Paul F. Morina, the director and wrestling coach of Paulsboro High School, and Christine Lindenmuth, a math teacher at the school.
Morina was listed as CEO and Lindenmuth as CFO and treasurer.
In 2019, Hometown entered the over-the-counter (OTC) market for $1 per share.
Peter Lee Coker Jr, an Asia-based financier, appears to be the mastermind behind the plan
Unlike public listings on exchanges such as the Nasdaq and the New York Stock Exchange, OTC stocks trade directly between buyer and seller and the regulations are looser for companies.
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 show.
He’s the chairman of Hometown, according to SEC filings.
Coker Jr, the son of Tryon Capital’s CEO, has spent decades working in Asian finance and most recently led the group behind a struggling luxury resort in Macau.
Hometown had ties to Tryon Capital from the start. One of Tryon’s analysts attended Paulsboro High School and signed the lease for the building that the sandwich shop has been renting since 2015. Fast company.
The remaining 5 percent of shares not owned by Morina and Lindenmuth appear to have been divided among the family and friends of Tryon’s executives, according to the Times.
Hometown also paid Tryon a monthly consulting fee, and an employee of Tryon was listed as Morina and Lindenmuth’s secretary.
Coker Jr, Morina and Lindenmuth could not be reached by DailyMail.com and have not publicly commented on the matter. No one has been charged with any crime.
Hometown’s stock price has been visible 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 of 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 it had a viable retail store in Paulsboro (see above)
The company has been subject to intense scrutiny by the Securities and Exchange Commission from its inception.
“Revise your disclosure during your filing to indicate that you are a shell company,” the SEC warned Hometown in 2015.
The company protested that it was a continuity with a viable storefront, and the SEC relented and allowed the listing to go ahead.
In early 2020, Coker Jr approached Maso Capital Partners, the Hong Kong hedge fund, and presented Hometown as a potential reverse merger vehicle, according to the Times.
Reverse mergers with Special Purpose Acquisition Companies (SPACs) have become all the rage on the major exchanges, with companies like WeWork pursuing public listing by merging with a so-called blank check company.
SPACs provide companies with access to capital through public exchanges, but allow them to avoid the painful investor scrutiny associated with a traditional IPO.
In the OTC market, a SPAC listing could provide a foreign company with access to US investors. As such, 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 resort in Macau
Maso put $2.5 million into Hometown and gave himself a stake in the merged entity that ultimately emerged from the deal, the Times reported.
A Macau-based company, Global Equity Limited, followed with an investment of about $2 million, which they bought from Peter Coker Jr, who bought his shares of Lindenmuth and Morina for $3,000, the filings show.
It appears that Coker Jr flipped shares to his Asian investors at a wild profit, pushing Hometown’s paper valuation to dazzling levels.
“We took the opportunity to invest in Hometown at a reasonable valuation, with the opportunity to assist in the 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 less than $500 million. The target will then merge with Hometown and take it over, acquiring a share of more than 51 percent.
Overnight, the empty company will transform once a deal goes through.
“The name changes, the ticker changes, the board changes, the management changes, everything changes when the target company enters the US capital market,” Jain said.