Deli stock fraud defendant seeks probation in $100 million case

James Patten, one of three men who admitted to a stock manipulation scheme tied to a small New Jersey deli, is asking a federal judge to sentence him to no prison time. For retail investors, the case is a reminder that thinly traded stocks can show eye-catching market values even when the underlying business is tiny or inactive.

Patten is scheduled to be sentenced July 21 by U.S. District Judge Christine O’Hearn in New Jersey federal court. Prosecutors have asked for a sentence of 12 to 18 months, according to their filing, while noting that federal sentencing guidelines call for a much longer range of 70 to 87 months.

Patten pleaded guilty in December 2023 to securities fraud. He, Peter Coker Sr. and Peter Coker Jr. admitted they worked to push up the share prices of two lightly traded companies so those companies would appear attractive for reverse mergers. A reverse merger is a deal in which a private company becomes public by combining with an already public company, often faster than through a traditional initial public offering.

Defense points to co-defendant’s shorter sentence

Patten’s lawyer, Adam Brody, argued in a sentencing submission that Patten should receive less punishment than Coker Sr., who got six months in jail and six months of home detention. Brody wrote that Patten was Coker Sr.’s employee during the conduct at issue and said that if Coker Sr.’s sentence was fair, Patten should receive a lighter one.

Coker Jr., the third defendant, received a 40-month prison sentence for his role in the scheme. Both Coker Sr. and Coker Jr. have since been released, according to the case record described in the filings.

Brody also cited Patten’s remorse and health history, including seizures in February and May, as reasons to spare him from prison. The defense filing said Patten, who lives in Winston-Salem, North Carolina, has worked as a warehouse materials handler for Coca-Cola and as a part-time handyman at a taproom and brewery since his guilty plea.

Prosecutors say prison is still needed

Prosecutors said a sentence above those given to the Cokers would be unfair, but argued Patten should still serve time. They pointed to Patten’s prior mail fraud conviction in 2010, which resulted in a 27-month prison sentence.

“A prison sentence is necessary because his return to fraud so soon after spending approximately two years in prison is troubling,” prosecutors wrote, noting that Patten was released in 2012 and that the deli-related conspiracy began roughly two years later.

Some pages in the government and defense sentencing submissions were redacted after Judge O’Hearn made the filings public following a CNBC request.

A tiny deli and a nine-figure market value

The case drew attention because one of the companies, Hometown International, owned only Your Hometown Deli in Paulsboro, New Jersey. The deli was small and losing money, yet the company’s market capitalization, the stock market value calculated from its share price and shares outstanding, at one point topped $100 million. The other company, E-Waste, was described as a shell company with no significant business operations.

The deli was run by Paul Morina, a high school principal and wrestling coach who had been Patten’s friend and teammate. Morina was unaware of the stock manipulation scheme, according to the filings.

In a letter to the judge, Patten wrote that after his release from prison in 2012, he thought he had learned his lesson, but “failed.” He said he should have refused to join the scheme and added, “I have no one to blame but myself.”

This story draws on original reporting from CNBC.