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Prosecutors want $100 million NJ deli SEC case postponed

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Hometown Deli, Paulsboro, N.J.

Mike Calia | CNBC

Federal prosecutors in New Jersey want the Securities and Exchange Commission to postpone its civil case against the alleged masterminds behind a $100 million fraud scheme involving a small-town deli so it won’t get in the way of their ongoing criminal case. 

Prosecutors for the District of New Jersey filed a motion on Wednesday saying the SEC’s case “substantially” overlaps with their ongoing criminal case and the civil matter should be postponed until the litigation, including a potential trial, is completed, court records show. 

Postponing the civil case would “preserve the integrity” of the ongoing prosecution by preventing the defendants from seeing the extent of the government’s evidence against them, federal prosecutors argued in the filing. 

During the discovery phase of civil and criminal matters, defendants have the ability to see the evidence that’s going to be used against them in trial but they have access to far more materials in civil matters because the confines are broader. 

The SEC and the attorneys for the suspects consented to the request, which is common in such cases. Judge Christine O’Hearn has yet to rule on the matter. 

A telephone conference is scheduled in the criminal case for Dec. 14, but it’s expected to be mostly procedural and an opportunity for the prosecutors and defense attorneys to update the judge on the status of the litigation. 

In September, James Patten and father-and-son duo Peter Coker Sr. and Peter Coker Jr. were arrested and charged with securities fraud for allegedly orchestrating a scheme that inflated the prices of two publicly traded companies, Hometown International and E-Waste Corp, a shell company.

Courtroom sketch of James Patten, left, and attorney Ira Sorkin at N.J. District Court in Camden, N.J., Oct. 11, 2022

Source: Elizabeth Williams

Makamer, a bioplastics startup, merged with Hometown International, earlier this year.

Even though Hometown International’s only asset was Your Hometown Deli, a now-closed tiny sandwich shop in Paulsboro, New Jersey, that had under $40,000 in annual revenue, the trio used manipulative trading to inflate its market capitalization to more than $100 million, prosecutors alleged. 

The scheme began when Patten convinced the owner of Your Hometown Deli, esteemed local high school wrestling coach and principal Paul Morina, to put the restaurant under the control of Hometown International, an umbrella company they created, prosecutors alleged

“Unbeknownst to the deli owners, almost immediately after Hometown International was formed, Patten and his associates began positioning Hometown International as a vehicle for a reverse merger that would yield substantial profit to them,” prosecutors said previously in a news release. 

“Shortly thereafter, Patten, Coker Sr., and Coker Jr. undertook a calculated scheme to gain control of Hometown International’s management and its shares from the deli owners.”

Peter Coker Sr. and his wife, Susan Coker, at N.J. District Court in Camden, N.J., Oct. 11, 2022

Source: Jerry Frasier and Vinny Castaldo

The men concocted a similar scheme to take control of E-Waste. The tactics “artificially inflated” the values of Hometown International and E-Waste stock by 939% and 19,900%, respectively, prosecutors said. 

Coker Sr. and Patten have pleaded not guilty.

Patten’s attorney Ira Sorkin, the high-profile litigator who once repped the notorious Ponzi scheme fraudster Bernie Madoff, didn’t comment when asked whether the case is expected to go to trial. 

Coker Sr.’s attorney Marc Agnifilo, who previously defended “pharma bro” Martin Shkreli and disgraced movie producer Harvey Weinstein, couldn’t be reached. It’s not clear whether the Hong Kong-based Coker Jr. has an attorney, and he remains a fugitive. Morina didn’t respond to a request for comment. 

Patten, Coker Sr. and Coker Jr. were charged a little over a year after Hometown International’s dubious stock was revealed by hedge fund manager David Einhorn in a letter to clients warning of the dangers retail investors face. 

“Someone pointed us to Hometown International (HWIN), which owns a single deli in rural New Jersey … HWIN reached a market cap of $113 million on February 8. The largest shareholder is also the CEO/CFO/Treasurer and a Director, who also happens to be the wrestling coach of the high school next door to the deli,” Einhorn said in the April 2021 letter. “The pastrami must be amazing.”

After news of the indictment broke, he quipped on Twitter: “I guess the Pastrami wasn’t so great.”



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Cathie Wood Extends Hot Streak With ARK Space Exploration ETF

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Cathie Wood’s

new

ARK Space Exploration & Innovation ETF

ARKX -1.09%

is already on track to be one of the most successful fund launches ever despite criticism that it doesn’t necessarily reflect the nascent space-exploration market.

Investors poured $536.2 million into the actively managed exchange-traded fund, known as ARKX, in its first five days of trading, according to FactSet data through Tuesday. That trounces the industry average of three years to gather $100 million and puts the fund on course to top $1 billion in assets within days, analysts said.

Such a milestone would put the fund in rare company: The fastest ETF to reach $1 billion was

State Street’s

SPDR Gold Trust

GLD -0.01%

fund, which hit the mark in just three days back in 2004.

“That speaks to the overall power of ARK right now,” said Nate Geraci, president of ETF Store, an investment-advisory firm. “At this point, investors think anything Cathie Wood touches turns to gold.”

The fund is ARK Investment Management LLC’s first launch in two years and stands in contrast to the lukewarm receptions its earlier products received. ARK’s flagship innovation fund, begun in 2014, took more than 3 1/2 years to reach $1 billion. Its last launch, the fintech innovation ETF in 2019, took about 21 months.

A lot has changed for ARK, though. In the span of a year, Ms. Wood’s ARK has transformed from a small, upstart manager of a handful of ETFs to one of the biggest fund managers in the U.S. The share prices of the firm’s five other actively managed ETFs doubled or tripled last year on the back of surging growth stocks such as

Tesla Inc.

and Roku Inc., earning Ms. Wood a cultlike following of individual investors who hang on her every tweet and video.

But those growth stocks are now the epicenter of a selloff that has left ARK’s older funds down at least 14% from their highs earlier this year. Rather than rolling out another fund primary tied to the tech trade, ARK has tilted nearly half of its space ETF toward manufacturers including

Lockheed Martin Corp.

,

Boeing Co.

and

Deere

DE 0.03%

& Co., a sector of the stock market that has benefited in recent months from rising interest rates and inflation expectations.

The fund is different enough for investors who say they are fans of Ms. Wood but also wary of plowing more money into a faltering tech trade.

“Most of Cathie’s ETFs are tech-heavy,” said Tré Diemer, 20 years old, a student at William & Mary who said he bought a couple of thousand dollars of ARKX shares Monday. “You look at this ETF and see a lot of names she hasn’t been as involved with.”

He already owns a variety of growth stocks and has been eyeing Ms. Wood’s other funds as a home for some of the money he earns from working as an emergency medical technician and running deliveries for

DoorDash Inc.

But tech and Ms. Wood’s other funds seemed overvalued, a point reinforced by the recent losses he said he sustained.

“You can look at this almost as a reopening ETF,” said Mr. Diemer, referring to underlying stocks poised to benefit most from a rebounding economy.

Not everyone is a fan of the fund’s makeup. Some took to social media, creating memes to mock ARK’s decision to include Deere and other companies that appear to have no significant ties to the fund’s theme of investing in space exploration and innovation. One showed a Deere tractor roving across a Mars landscape, another on the moon.

Deere, for its part, responded with several of its own memes, including one showing a UFO beaming up a tractor. Some analysts said the inclusion of Deere is less of a stretch when considering that the company makes satellite-guided machinery.

Other stocks included in the fund that seem at odds with its mandate include ARK’s passively managed 3D-printing ETF and shares of

Netflix Inc.

and

Amazon.com Inc.

Meanwhile, some of the few pure-play space stocks such as the satellite and imaging company

Maxar Technologies Inc.

didn’t make the cut. Neither did Rocket Lab USA Inc. nor Astra Space Inc., two rocket makers that are merging with blank-check companies to go public.

Ren Leggi,

a client portfolio manager at ARK, acknowledged that the holdings are causing some confusion but said that they are all in line with the fund’s mandate. “When we’re talking about space exploration and innovation, we define it as everything above ground,” said Mr. Leggi.

Share Your Thoughts

What explains the success of Cathie Wood’s latest exchange-traded fund? Join the conversation below.

The advancement of drone technology plays a big part in why several companies, including Amazon, are in the fund, said Mr. Leggi. Netflix would benefit from the rollout of satellites that enable further adoption of broadband internet for streaming, and some rocket parts are 3D-printed, he added. As for the space companies left out, Mr. Leggi said valuations of some were too rich, especially those involved with special-purpose acquisition companies, while others didn’t pass their initial evaluation of whether the stock could sustain a 15% annualized return rate.

“We still continue to track a lot of companies in case we get a market environment where there’s a broader selloff and we can get in at an attractive price,” Mr. Leggi said.

Some investors remain unconvinced.

“I was not too fond of its holdings,” said Carter Wang, who is 19 and has roughly $3,000 in four of ARK’s earlier funds. He is a fan of Ms. Wood, citing her aggressive calls on Tesla as a key reason behind his decision to invest in several of the firm’s funds. But Mr. Wang, a business management economics major at the University of California, Santa Cruz, called the inclusion of ARK’s 3D-printing ETF odd, leading him to pass on the fund.

For several ARK investors, Ms. Wood’s past performance is key. With shares of ARKX trading around $21, some investors said they see a chance to get into the firm’s next success, likening it to ARK’s innovation fund, whose share price is six times higher since it launched in 2014 and continues to command investors’ attention. (The ETF saw record daily inflows one day last week, pulling in more than $700 million.)

“It doesn’t really bother me,” said James Carter, a 31-year-old tech writer in Washington, D.C., who snapped up shares on the space fund’s first day of trading. He said his mind was set on investing in the fund since he first heard about it earlier this year, even before any of its underlying stocks had been announced. He is holding out for the possibility that the fund ends up including shares of Elon Musk’s privately held rocket company, Space Exploration Technologies Corp.

“I was kind of late” with the other funds, Mr. Carter said of his other ARK investments. “So I specifically set money aside for the new ARK fund just because of my interest in ARK. I wanted to get in early.”

What You Need to Know About Investing

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

WeWork Agrees to SPAC Deal That Would Take Startup Public

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WeWork has agreed to merge with a special-purpose acquisition company, according to people familiar with the matter, in a deal that would take the shared-office provider public nearly two years after its high-profile failure to launch a traditional IPO.

The planned merger with the BowX Acquisition Corp. SPAC would value WeWork at $9 billion including debt, the people said. WeWork would also raise $1.3 billion, including $800 million in a so-called private investment in public equity, or PIPE, from Insight Partners, funds managed by Starwood Capital Group, Fidelity Management and others, the people said.

In January, The Wall Street Journal reported that WeWork was in talks to combine with BowX.

WeWork is a big player in the market for flexible office space. It signs long-term leases with landlords, then after renovating a space and furnishing it, subleases small offices or even whole buildings to tenants for as little as a month at a time. Should the merger close in the coming months as expected, it would cap what has been a long and bumpy road toward a listing for WeWork.

The company is taking advantage of a torrent of new SPACs to accomplish what it failed to pull off in 2019, when public investors rejected the money-losing company and its visionary yet erratic leader, Adam Neumann, who subsequently resigned as chairman and CEO. Further hit by the coronavirus pandemic, which has emptied out offices throughout the country, WeWork has closed locations, renegotiated leases and cut thousands of jobs in a bid to slash expenses.

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Business

Short Sellers Boost Bets Against SPACs

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Short sellers are coming for SPACs.

Investors who bet against stocks are targeting special-purpose acquisition companies, one of the hottest growth areas on Wall Street. The dollar value of bearish bets against shares of SPACs has more than tripled to about $2.7 billion from $724 million at the start of the year, according to data from S3 Partners.

Some of the stocks under attack belong to large SPACs that surged in recent months, in part because they were backed by high-profile financiers. A blank-check company created by venture capitalist

Chamath Palihapitiya

that plans to merge with lending startup Social Finance Inc. is a popular target, with 19% of its shares outstanding sold short, according to data from S&P Global Market Intelligence. The short interest in

Churchill Capital Corp. IV,

a SPAC created by former investment banker

Michael Klein

that is merging with electric-vehicle startup Lucid, more than doubled in March to about 5%.

Others are wagering against companies after they combine with SPACs. Muddy Waters Capital LLC announced last week it was betting against

XL Fleet Corp.

, a fleet electrification company that went public in December after merging with a SPAC. XL has since said Muddy Waters’s report, which alleged XL inflated its sales pipeline and made misleading claims about its technology among other issues, had “numerous inaccuracies.” 

XL’s stock price dropped the day Muddy Waters released its report by about 13%, to $13.86, from its prior close on March 2. Shares closed Friday at $12.79.

Shares of

Lordstown Motors Corp.

fell nearly 17% Friday after Hindenburg Research released a report saying the electric-truck startup had misled investors on its orders and production. The company, which merged with a SPAC in October, said the report contained half-truths and lies. The short interest in Lordstown shares rose to 5% from 3.4% in the week before the report’s publication, according to data from S&P.

“SPACs are an area of focus,” said Muddy Waters’s

Carson Block.

The veteran short seller said SPACs largely make up the universe of companies he views as both “abysmal” and relatively free from technical challenges, such as high short interest, which can make betting against them difficult.

SPACs are shell firms that raise capital by issuing stock with the sole purpose of buying or merging with a private company to take it public. They are dominating the market for new stock issues, becoming a status symbol for celebrities while pumping the value of acquisitions, like betting company

DraftKings Inc.,

into the tens of billions of dollars.

Hedge funds that buy into SPACs early see them as a way to make lofty returns without much risk. Individual investors are attracted by the chance to get positions in newly public companies that they could rarely purchase through traditional IPOs. The Securities and Exchange Commission issued a statement on Wednesday warning that it “is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it.”

A monthslong rally in the stocks lost steam recently amid a broad selloff in technology and high-growth companies. An index of SPAC stocks operated by Indxx fell about 17% from mid-February to March 10, while the Nasdaq Composite Index declined about 7.3% over the same period.

“These are all momentum stocks, and a lot of people want to short them,” said

Matthew Tuttle,

whose firm Tuttle Tactical Management runs an exchange-traded fund that allows investors to hold a portfolio of SPAC stocks. Mr. Tuttle is preparing to launch an ETF that bets against “de-SPAC” stocks of companies that have merged with a SPAC—like electric-truck manufacturer

Nikola Corp.

and baked-goods maker

Hostess Brands Inc.

—and a separate fund that invests in the stocks.

Private companies are flooding to special-purpose acquisition companies, or SPACs, to bypass the traditional IPO process and gain a public listing. WSJ explains why some critics say investing in these so-called blank-check companies isn’t worth the risk. Illustration: Zoë Soriano/WSJ

Postmerger companies are particularly attractive to short because they have larger market capitalizations, making their shares easier to borrow, and because early investors in the SPACs are eager to sell shares to lock in profits, analysts and fund managers said.

Short sellers borrow stocks they believe are overvalued and immediately sell them, hoping to repurchase the shares for a lower price when they need to be returned and to pocket the difference. The strategy proved dangerous in recent months when individual investors organized on social media to push up stocks like GameStop Corp., forcing short sellers to buy shares and cap their losses, helping to drive prices still higher.

Continued strong investor demand for SPACs could catch short sellers in a similar squeeze. Shorting SPACs can also be risky because their shares have a natural floor at $10, the price at which they can be redeemed before a merger, and because they are prone to sharp price moves, analysts said.

Still, the portion of shares sold short in SPACs and their acquisitions is climbing.

A blank-check company created by venture capitalist Chamath Palihapitiya that plans to merge with lending startup Social Finance Inc. is a popular target.



Photo:

Brendan McDermid/Reuters

Some are betting against stocks they believe rose too fast, to unsustainable valuations. The price of bioplastics company

Danimer Scientific Inc.

nearly tripled to $64 in the first six weeks of the year after it was bought by a SPAC. The short interest in Danimer stock has climbed to 8.5% from around 1% in January, and its share price has traded down to about $42, according to data from S&P.

Others are making bearish bets to hedge against potential losses in SPAC stocks they own.

Veteran short seller

Eduardo Marques

cited SPACs and their boosting the number of U.S.-listed stocks as a short-selling opportunity, according to a pitch for a stock-picking hedge fund called Pertento he plans to launch this year. America’s roster of public companies had shrunk from the mid-1990s onward, but that trend has recently reversed, partly because of SPACs.

Their popularity has helped spark new Wall Street offerings.

Goldman Sachs Group Inc.

this year started offering clients set baskets of similar stocks to short, pitching them as a way to hedge SPAC exposure, people who have seen the offering said. Clients typically customize the baskets Goldman offers, which are thematic and sector-focused, such as on bitcoin and electric vehicles.

Kerrisdale Capital founder

Sahm Adrangi

started shorting postmerger SPAC companies earlier than most, with a public bet in November against the stock of frozen-food maker

Tattooed Chef Inc.,

which still trades above its price at that time. But the stock has fallen about 13% during the recent market slump.

“We saw these stocks go up a lot and now that people are de-risking, these highflying SPACs are coming down to earth,” Mr. Adrangi said.

—Amrith Ramkumar and Mike DeStefano contributed to this article.

SHARE YOUR THOUGHTS

How long do you think the SPAC boom will continue, and why? Join the conversation below.

Write to Matt Wirz at matthieu.wirz@wsj.com and Juliet Chung at juliet.chung@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Grab Is in Talks to Go Public Through a SPAC Merger

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Grab Holdings Inc. is in talks to go public through a merger with a SPAC that could value the Southeast Asian ride-hailing startup at as much as $40 billion, making it by far the largest such deal on record.

The Singapore company is discussing a deal with a special-purpose acquisition company affiliated with Altimeter Capital Management LP that would value it at between $35 billion and $40 billion, according to people familiar with the matter. (Altimeter has two SPACS; it couldn’t be learned which one is in talks with Grab.)

As part of the deal, Grab would raise between $3 billion and $4 billion in a so-called PIPE, a funding round that typically accompanies a SPAC merger, the people said. That amount could still change as Grab and Altimeter will start meeting with mutual funds and other potential investors soon, some of the people said.

The parties could announce the deal in the next few weeks, though the talks could still fall apart and Grab could revert to an earlier plan to stage a traditional initial public offering on a U.S. exchange this year.

Should they move forward with a SPAC deal, it would be the high-water mark in a recent explosion of such transactions, in which an empty shell raises money in an IPO with plans to later find one or more companies to merge with. In some cases, the SPAC ends up with only a small sliver of the newly public target.

The vehicles have caught fire in the last couple of years, with everyone from former baseball player Alex Rodriguez to ex-House Speaker Paul Ryan getting in on the action. They have helped break a bottleneck between the private and public markets as companies that were reluctant to go public line up to combine with SPACs, which offer in many cases a speedier route to a listing without costs and disclosure limitations that accompany traditional IPOs.

The biggest SPAC deal to date is United Wholesale Mortgage’s roughly $16 billion combination with Gores Holdings IV Inc., announced in September. The biggest one so far this year is electric-vehicle company Lucid Motors Inc.’s agreement last month to merge with Michael Klein’s

Churchill Capital Corp.

IV, a deal valued at nearly $12 billion, according to Dealogic.

So far this year, a record $70 billion-plus has been raised for SPACs, which account for more than 70% of all public stock sales, according to Dealogic. A slew of companies are in talks for a SPAC merger or already have agreed to one, including office-sharing firm WeWork, online photo-book maker Shutterfly Inc. and online lender Social Finance Inc.

In addition to ride-hailing, Grab, which traces its roots back to 2011, delivers restaurant, grocery and other items and provides digital financial services to merchants.

Its backers include

SoftBank Group Corp.

,

Uber Technologies Inc.

and

Toyota Motor Corp.

It was last publicly valued at around $15 billion in an October 2019 fundraising round, according to PitchBook.

Its valuation is on the rise as public investors pile into other ride-hailing and food-delivery companies. Uber’s shares have jumped sharply in the past several months, while

DoorDash Inc.

went public in December at a valuation far in excess of where it had raised money privately. The restaurant-delivery company now has a market capitalization of nearly $47 billion.

Altimeter’s SPACs—Altimeter Growth Corp. and Altimeter Growth Corp. 2—raised $450 million and $400 million in October and January IPOs, respectively. Altimeter Capital, of Menlo Park, Calif., has around $16 billion under management and primarily invests in technology companies.

The firm has racked up a string of successful investments and was one of the main participants in a January round of funding

Roblox Corp.

raised ahead of its IPO at $45 a share. In its debut Wednesday, shares of the videogame platform traded more than 50% above that level and continued rising Thursday.

SoftBank, which invested through its Vision Fund, is also poised to win big on Grab, just as another of its bets proves to be a gigantic winner: The Japanese technology-investing giant has now made roughly $25 billion on paper on its $2.7 billion investment in South Korean e-commerce company

Coupang Inc.,

which soared 41% in its trading debut Thursday.

Private companies are flooding to special-purpose acquisition companies, or SPACs, to bypass the traditional IPO process and gain a public listing. WSJ explains why some critics say investing in these so-called blank-check companies isn’t worth the risk. Illustration: Zoë Soriano/WSJ

Write to Maureen Farrell at maureen.farrell@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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