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SEC charges owners of New Jersey Deli with a $100M Valuation

177 points by nwsm 4y ago

mistrial9 4y ago
dang - I tried four times at increasing intervals (up to 20 minutes) to submit this same story (Bloomberg news) but was given a generic "posting too fast" .. ?
- dredmorbius 4y ago
  Email HN's mods concerning site / account issues at hn@ycombinator.com <https://news.ycombinator.com/newsfaq.html https://news.ycombinator.com/newsfaq.html>
nwsm 4y ago
For reference, here [0] is the HN thread about this deli from a year ago when the story of the deli went viral. [0] https://news.ycombinator.com/item?id=26836367 https://news.ycombinator.com/item?id=26836367
- xwowsersx 4y ago
  Thanks, I was looking for this.
mesofile 4y ago
Previous discussions: – Single New Jersey deli boasts a $105M market cap, despite $14K in sales https://news.ycombinator.com/item?id=26836367 https://news.ycombinator.com/item?id=26836367 – Everyone Loves the $100M Deli https://news.ycombinator.com/item?id=26867465 https://news.ycombinator.com/item?id=26867465
- dredmorbius 4y ago
  The 2nd of those links is Matt Levine's truly delicious Bloomberg story / column. Highly recommended, and I was going to link it myself. Paywall/Archive: <https://archive.ph/PL5lI https://archive.ph/PL5lI> This also validates Levine's dictum: everything is securities fraud. <https://archive.ph/k36EO https://archive.ph/k36EO>
- thehappypm 4y ago
  better P/E than Uber
ncmncm 4y ago
Who was defrauded?
- dredmorbius 4y ago
  From Matt Levine's 2019 column, investors, small or otherwise, who buy based on the fraudulent valuation: The pastrami must be amazing. Small investors who get sucked into these situations are likely to be harmed eventually, yet the regulators – who are supposed to be protecting investors – appear to be neither present nor curious. From a traditional perspective, the market is fractured and possibly in the process of breaking completely. <https://archive.ph/PL5lI https://archive.ph/PL5lI> Discussed at the time (h/t mesofile): <https://news.ycombinator.com/item?id=26867465 https://news.ycombinator.com/item?id=26867465>
  - djbebs 4y ago
    That's a terrible argument, and could be used to justify charging every company.
    - lokar 4y ago
      They (allegedly) broke very clear regulations on trading securities. What's the problem?
      - ncmncm 4y ago
        I keep getting downvotes for asking this question: Was there so much as one, single individual who lost money as a result of their activity? If you don't have an answer, just say that. I am aware that the final buyer ended up paying more that they would otherwise have needed to. But that was not the question: they, too, knew exactly what they were getting.
        dredmorbius 4y ago
        You've rejected substantive responses several times too many.
rubiquity 4y ago
I also saw in the news today that the MoviePass executives are being sued by the SEC. Nothing like a correction to bring about the prosecution of the previous run up's fraudsters!
- at-fates-hands 4y ago
  In case someone is interested in the MoviePass details: https://www.businessinsider.com/former-moviepass-executives-sued-by-the-sec-for-fraud-2022-9 https://www.businessinsider.com/former-moviepass-executives-...
- ISL 4y ago
  It takes a long time to bring legal proceedings. If you're accustomed to seeing high-profile prosecutions of highest-flying debacles appear somewhat after the peak of any exuberance, that can be readily explained by simple phase-delay.
williape 4y ago
And the excellent Planet Money podcast on the same: https://www.npr.org/2021/05/05/993754418/planet-money-the-100-million-deli https://www.npr.org/2021/05/05/993754418/planet-money-the-10...
vishnugupta 4y ago
There is a (as usual) great take by Matt Levine[1] when SPACs were in rage just after which regulators began clamping down on SPAC route of taking companies public. [1] https://www.bloomberg.com/opinion/articles/2021-04-30/hometown-international-the-100-million-deli-is-a-weird-spac https://www.bloomberg.com/opinion/articles/2021-04-30/hometo...
addcn 4y ago
Nice old fashioned securities fraud. Vintage. None of that SPAC **coin influencer discord garbage
- subroutine 4y ago
  > Hometown International, took control of the outstanding shares of Hometown International and a separate shell company, E-Waste Corp., artificially inflated the price of both issuers’ stock through manipulative trading, and used the entities to acquire privately-held companies in reverse mergers, with the intent to thereafter dump their shares at grossly inflated prices. This sounds kinda like a SPAC tbh.
  - kgermino 4y ago
    It (allegedly) basically was, except (oversimplifying) they skipped the whole “registering as a SPAC” part and pretended to be a functioning company that happened to merge with someone else.
dredmorbius 4y ago
Also at the NYT: <https://www.nytimes.com/2022/09/27/business/100-million-dollar-deli.html https://www.nytimes.com/2022/09/27/business/100-million-doll...> (h/t mesofile). Matt Levine's brilliant Bloomberg take is worth revisiting: Archive: <https://archive.ph/PL5lI https://archive.ph/PL5lI> Discussed on HN at the time: <https://news.ycombinator.com/item?id=26867465 https://news.ycombinator.com/item?id=26867465>
ralmidani 4y ago
The title kinda sounds like the feds thought the deli was actually worth $100M and wanted the owners to file taxes accordingly.
- lotsofpulp 4y ago
  There are no taxes owed by a company due to a company’s shares being bought and sold.
- tpmx 4y ago
  That's because this post is very obvious clickbait. Perhaps you could flag and/or downvote it.
  - nwsm 4y ago
    How is it clickbait? I'm linking to an SEC press release and I think the title I gave is fair.
lifeisstillgood 4y ago
>>> diminish the trust investors must have in the integrity of the markets, It's interesting the use of the phrase "investors". I say this because there is a difference between "the public in general" and "investors" having faith in "the markets". As we go into a downturn (over here the UK feels like Slim Pickens clinging on the bomb and whooping as we fall), we need to be careful about whose market is being protected. I think I am saying that even if the SEC is making sure no-one at the poker table is dealing from the bottom, there are millions who are not at the table, and millions more who feel the whales are taking way more than they should be able to. If most people feel they are getting screwed, saying "we protect the integrity of the market" might not help.
- SllX 4y ago
  It’s not that interesting. Investors are the ones who are concerned with the financial markets and that’s everyone with money staked in the financial markets. The SEC is a bunch of working stiffs too but their assembly line is the integrity of the US financial markets. Anything outside of that is beyond their jurisdiction.
- JumpCrisscross 4y ago
  > there are millions who are not at the table, and millions more who feel the whales are taking way more than they should be able to This is not the SEC's remit. To the degree it's anyone's remit, it's the Fed, Treasury and the CFPB's job.
  - lifeisstillgood 4y ago
    I think it's wider than that - we really are talking about how to share the wealth of all society with all its citizens. But yes, it's why we cannot hope to leave it to the SEC or the Fed. The UK just learnt what happens when the Government and the central bank disagree on even the most basic questions.
  - alistairSH 4y ago
    Or, possibly Congress’ job, as they set tax policy. Prior to the 1980s, we taxed the whales out of existence. Perhaps not a direct cause/effect, but at the same time that we’ve reduced the top marginal rate from 70%+ to 37%, we’ve seen a more unequal income and wealth distribution.
yalogin 4y ago
Is this that different from a SPAC?
- JumpCrisscross 4y ago
  > Is this that different from a SPAC? SPACs are reverse mergers with bells and whistles. Reverse merger just means a private company mergers with a public company, the shell, where the motivation for merging is that the shell is public. Shells are usually vestiges of a failing or failed company. They went public because they thought they would idk sell sandwiches, they didn't sell enough sandwiches, so now their most valuable asset is the listing itself. When they are bought, there is no cash or goodies for the new owner to control. If anything, the less there the better. SPACs go public with the ex ante intent of merging with a private company. When they merge, they dangle the promise of their pool of cash to potential acquirers. It's more deliberate, complicated and lucrative (for the bankers).
msbarnett 4y ago
Defector wrote a good story about trying to visit the deli last year https://defector.com/a-cnbc-reporter-ruined-my-lunch-plans-a-visit-to-the-n-j-deli-worth-100-million/ https://defector.com/a-cnbc-reporter-ruined-my-lunch-plans-a... edit: Apparently I missed the follow-up, in which he did get to try the cheesesteak https://defector.com/despite-stellar-cheesesteaks-hometown-delis-stock-stays-flat/ https://defector.com/despite-stellar-cheesesteaks-hometown-d...
crorella 4y ago
Relevant in the Trump case, as they are being charged for the same thing and they were complaining of political persecution since they were the only one being charged for that. Well, not anymore. EDIT: Context - https://www.wsj.com/podcasts/the-journal/people-of-the-state-of-new-york-v-donald-j-trump/a7f5eea4-fc44-4f42-82da-e0eb5fac4613 https://www.wsj.com/podcasts/the-journal/people-of-the-state...
- deleted 4y ago
  [deleted]
neaden 4y ago
While this one went pretty ridiculously big and so got attention, I wonder how many small versions of this exist, claiming a valuation of a million or two and slip under the radar.
- themagician 4y ago
  There are probably thousands, if not tens of thousands, of schemes and scams going on like this at any given time. They happen so often because there is so little enforcement. The SEC only goes after the most egregious offenders. And what a lot of people don't realize is that the SEC can not bring criminal charges… which is what most people think of when they read, "SEC charges." But the SEC can only bring civil action. While they can recommend a case to the DOJ, they rarely do. Maybe someone else knows why? Because I don't. With $40,000 in real revenue, this is a case of people with nothing to lose. They bet big and lost. The penalty is basically go back to zero… which is pretty close to where they started. One of the reasons I truly believe (perhaps misguided) in more equitable distributions of wealth is that I believe it would massively cut down on scams… of which everything seems to be these days. If people were not so desperate, and they risked losing something (UBI, their benefits, and the quality if life that could provide, etc.) maybe every other thing wouldn't be a freaking scam or scheme of some sort. Disclaimer: I have become extremely jaded, particularly in the post-COVID world. I see a new coffee shop open up and I instantly start to wonder, "What manner of scam is going on here?"
  - JumpCrisscross 4y ago
    > penalty is basically go back to zero Penultimate paragraph: "in a parallel action, the U.S. Attorney’s Office for the District of New Jersey announced criminal charges against Patten, Coker Sr., and Coker Jr."
  - Sohcahtoa82 4y ago
    > The penalty is basically go back to zero Worse than that. They're facing criminal charges. If they get thrown in prison for a couple years, I'd argue they don't just go back to zero, they go negative. It's hard to get a job with a criminal record that includes fraud.
mercy_dude 4y ago
I would have more faith in SEC trying to protect the “integrity of the market” when they pursue all the Congressman and their family cronies actively using insider information to trade.
- uup 4y ago
  That’s legal so I’m not sure what the SEC can do about that.
- qbasic_forever 4y ago
  It's legal, that's the sad thing and why there is no action against it until congress takes action to make it illegal. Yes there is a massive conflict of interest there.
  - mercy_dude 4y ago
    Not sure what part of insider trading is legal [1] [1] https://www.businessinsider.com/congress-stock-act-violations-senate-house-trading-2021-9#rep-mikie-sherrill-a-democrat-from-new-jersey-20 https://www.businessinsider.com/congress-stock-act-violation...
- jjtheblunt 4y ago
  I think https://www.congress.gov/bill/117th-congress/house-bill/2655 https://www.congress.gov/bill/117th-congress/house-bill/2655 is currently aimed at this problem.
Animats 4y ago
If they'd inflated the valuation of some crypto thing, they'd have the crypto crowd cheering them on. But they did it with something people understand, a deli. So it's obvious the value was inflated. The SEC brings the hammer down on about two crypto scams a month. This month, Sparkster, Ltd., and Chicago Crypto Capital, Inc. Last month, Dragonchain, Bloom, and Crypto Crusaders. The SEC is still working on the crypto scams of 2018-2019. Remember Initial Coin Offerings? There's a big backlog of those. So they haven't gotten to NFTs and DeFi yet. Soon, though. The SEC just doubled their crypto enforcement staff. With NFTs, if you sell something that already exists, it's a collectable. That's probably OK. If you sell something that doesn't exist yet, such as metaverse land for a metaverse that isn't running, that's probably not OK. That's a security offering. See "Howey Test".
- wmf 4y ago
  The SEC is still working on the crypto scams of 2018-2019. One problem with this narrative is that they managed to kill off Kik/Kin and Telegram TON before they launched but they let other pump and dumps play out. Clearly it's possible for the SEC to do their job effectively but they just aren't doing it. (Not to mention Libra/Diem which was an outlier.)
  - HWR_14 4y ago
    Alternatively, the SEC can do their job but don't have the necessary tech-savvy manpower to do it enough.
    - TakeBlaster16 4y ago
      Is it tech-savvy people they need? The Howey test doesn't say anything about tech or computers. I would have guessed they need finance-savvy lawyers.
      - HWR_14 4y ago
        I assume that you need a tech person and a lawyer to go after crypto. The lawyer lacks knowledge (and the ability to give expert testimony) of exactly how the coins work and therefore how the law can be applied. I could be wrong, I'm just extrapolating from my experience that normally the limit of tech talent and lawyers is whichever came second.
deleted 4y ago
[deleted]
twawaaay 4y ago
This is baffling to me. Investors make their own valuations to figure if something is actually cheaper or more expensive than other people make it. It is literally the whole point of investing -- you are trying to figure out if what you are getting for your money is more valuable than the cash in hand.
- ceejayoz 4y ago
  Sure, and we have a variety of rules to protect those investors from making decisions based on fraudulent data. That's a good thing.
  - twawaaay 4y ago
    There is two parts to this problem. Certain data needs to be made public and has to be truthful. On the other hand anybody should be able to make their own opinion of what is the value of the company based on the data. Everybody who sells will want to increase the "official" valuation and everybody who buys will want to do as cheap as possible. Everybody is free to try to sell at any price they want and everybody should be free to decide not to buy it. There are certain exceptions... but stock exchange I think should not be one of them.
ralph84 4y ago
Meh, the stock was traded over the counter. It’s always been the Wild West for OTC stocks. They’re OTC for a reason. More interesting is all of the Chinese scam stocks that managed to get NYSE or NASDAQ listed.
balderdash 4y ago
For those of you new to this: In the context of a securities transaction, a manipulative act is one that sends “a false pricing signal to the market” and therefore does not reflect the “natural interplay of supply and demand.”[1] It is typically undertaken to create a false image that the security’s value is based on supply and demand, and thereby induces unwitting investors to buy the security. Market manipulation is regulated under a number of statutes and rules. Most notably, Section 9(a)(2) of the Securities and Exchange Act (Exchange Act), titled “Manipulation of Security Prices,” prohibits transactions in certain securities that create “actual or apparent active trading in such security, or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others.” [2] https://www.arnoldporter.com/en/perspectives/publications/2016/07/2016_07_22_criminal_and_regulatory_enfor_13099 https://www.arnoldporter.com/en/perspectives/publications/20...
- runlaszlorun 4y ago
  From those of us who are new to this: How dare you bring your fancy pants “facts” into this convo? Just kidding. Good info thanks for posting. > a manipulative act is one that sends “a false pricing signal to the market” and therefore does not reflect the “natural interplay of supply and demand.” That sounds like 75% of my short stint in marketing. I know… forgive me for I have sinned. The company had a great list of clients who were tech firms known themselves to be savvy at marketing. This and a solid Series A let me to think there was product/market fit. Then my task during the first week, as the only technical guy in a small marketing department was to take down from their website 27 of the 30 companies listed since they’d only done a 30 day trial and were now screaming to be taken off. Oh, good times… And, yes, I was marketing marketing software to marketers.
_HMCB_ 4y ago
And to think I almost had Jersey Mike’s tonight. At $100 mill, these have got to be tasty subs.
londons_explore 4y ago
So what exactly was their crime? Purchasing some shares in their own company for more than they were 'worth', in the hope this would deceive other people into doing the same? Doesn't really sound like it should be a crime any more than Walmart is committing a crime for selling some goods for far more than they're 'worth'.
- flatiron 4y ago
  It’s called market manipulation and is very much a crime.
crazygringo 4y ago
So I understand they bought their own shares at wildly inflated prices so other people would buy at the same wildly inflated prices and they'd basically pocket the free money... ...but I don't get why those other people would do that, buy those shares at all? Why would this fraud even work at all? Who sees some OTC stock trading at some value and says, oh I'll buy a bunch at that price too, even though I don't know the first thing about this company at all? Why does this scam work at all -- who falls for it? Or is there some step here that I'm missing?
- arcticbull 4y ago
  Well you see, number go up.
- Anunayj 4y ago
  Unfortunately people fall for them! Yes it's perplexing, but look at any shitcoin, they literally have no utility most of the times, and solely capitalize on people's fear of missing out on the next coin that "goes to the moon". Or say Tesla stocks. Things are often worth what other people think it is.
- causality0 4y ago
  Idiots. If there's one thing the US government is good at, it's protecting rich idiots from the natural consequences of their choices.
  - snicker7 4y ago
    You don't have to be rich to invest in the stock market.
    - causality0 4y ago
      The top ten percent owns 89 percent of all stock market value. The top one percent owns 54 percent.
paulpauper 4y ago
This trio is being charged with multiple counts of wire fraud. It's not just civil. They could conceivably face life sentences (especially the 80-year old). [They should have done some fake Musk, Saylor, or Cathy Wood livestreams isntead...those guys never get arrested or caught and make millions.] This goes to show how tough the feds are when it comes to white collar crime, contrary to the popular myth that the US is soft on white collar crime. https://greyenlightenment.com/2021/12/03/the-myth-of-white-collar-leniency/ https://greyenlightenment.com/2021/12/03/the-myth-of-white-c... Again, this is assuming you get caught, but if you do, you're rfuckked...I dunno why anyone would engage in securities fraud; your adversary is the U.S. federal govt. --the most powerful entity in the world with unlimited resources and known for making examples out of criminals.
anonu 4y ago
Matt Levine had a fun article in April 2021 on this: https://www.bloomberg.com/opinion/articles/2021-04-20/hometown-international-new-jersey-deli-is-actually-worth-2-billion https://www.bloomberg.com/opinion/articles/2021-04-20/hometo...
mhb 4y ago
...from approximately $1 per share in October 2019 to nearly $14 per share by April 2021, leading to a grossly inflated market capitalization of $100 million. So the valuation before the gross inflation was $7M? Even though that makes 14 times less sense, it still seems a bit high.
- fisherjeff 4y ago
  Uh yeah, generously assuming 25% margins on $40k revenue, that’s like a 700x P/E… for a deli.
tomcam 4y ago
I always knew that joint wasn’t worth a dime over $87 million
treelovinhippie 4y ago

177 points by nwsm 4y ago

dang - I tried four times at increasing intervals (up to 20 minutes) to submit this same story (Bloomberg news) but was given a generic "posting too fast" .. ?

dredmorbius 4y ago
Email HN's mods concerning site / account issues at hn@ycombinator.com <https://news.ycombinator.com/newsfaq.html https://news.ycombinator.com/newsfaq.html>

nwsm 4y ago

For reference, here [0] is the HN thread about this deli from a year ago when the story of the deli went viral. [0] https://news.ycombinator.com/item?id=26836367 https://news.ycombinator.com/item?id=26836367

xwowsersx 4y ago
Thanks, I was looking for this.

mesofile 4y ago

Previous discussions: – Single New Jersey deli boasts a $105M market cap, despite $14K in sales https://news.ycombinator.com/item?id=26836367 https://news.ycombinator.com/item?id=26836367 – Everyone Loves the $100M Deli https://news.ycombinator.com/item?id=26867465 https://news.ycombinator.com/item?id=26867465

dredmorbius 4y ago
The 2nd of those links is Matt Levine's truly delicious Bloomberg story / column. Highly recommended, and I was going to link it myself. Paywall/Archive: <https://archive.ph/PL5lI https://archive.ph/PL5lI> This also validates Levine's dictum: everything is securities fraud. <https://archive.ph/k36EO https://archive.ph/k36EO>
thehappypm 4y ago
better P/E than Uber

ncmncm 4y ago

Who was defrauded?

dredmorbius 4y ago
From Matt Levine's 2019 column, investors, small or otherwise, who buy based on the fraudulent valuation: The pastrami must be amazing. Small investors who get sucked into these situations are likely to be harmed eventually, yet the regulators – who are supposed to be protecting investors – appear to be neither present nor curious. From a traditional perspective, the market is fractured and possibly in the process of breaking completely. <https://archive.ph/PL5lI https://archive.ph/PL5lI> Discussed at the time (h/t mesofile): <https://news.ycombinator.com/item?id=26867465 https://news.ycombinator.com/item?id=26867465>
- djbebs 4y ago
  That's a terrible argument, and could be used to justify charging every company.
  - lokar 4y ago
    They (allegedly) broke very clear regulations on trading securities. What's the problem?
    - ncmncm 4y ago
      I keep getting downvotes for asking this question: Was there so much as one, single individual who lost money as a result of their activity? If you don't have an answer, just say that. I am aware that the final buyer ended up paying more that they would otherwise have needed to. But that was not the question: they, too, knew exactly what they were getting.
      - dredmorbius 4y ago
        You've rejected substantive responses several times too many.

rubiquity 4y ago

I also saw in the news today that the MoviePass executives are being sued by the SEC. Nothing like a correction to bring about the prosecution of the previous run up's fraudsters!

at-fates-hands 4y ago
In case someone is interested in the MoviePass details: https://www.businessinsider.com/former-moviepass-executives-sued-by-the-sec-for-fraud-2022-9 https://www.businessinsider.com/former-moviepass-executives-...
ISL 4y ago
It takes a long time to bring legal proceedings. If you're accustomed to seeing high-profile prosecutions of highest-flying debacles appear somewhat after the peak of any exuberance, that can be readily explained by simple phase-delay.

williape 4y ago

And the excellent Planet Money podcast on the same: https://www.npr.org/2021/05/05/993754418/planet-money-the-100-million-deli https://www.npr.org/2021/05/05/993754418/planet-money-the-10...

vishnugupta 4y ago

There is a (as usual) great take by Matt Levine[1] when SPACs were in rage just after which regulators began clamping down on SPAC route of taking companies public. [1] https://www.bloomberg.com/opinion/articles/2021-04-30/hometown-international-the-100-million-deli-is-a-weird-spac https://www.bloomberg.com/opinion/articles/2021-04-30/hometo...

addcn 4y ago

Nice old fashioned securities fraud. Vintage. None of that SPAC **coin influencer discord garbage

subroutine 4y ago
> Hometown International, took control of the outstanding shares of Hometown International and a separate shell company, E-Waste Corp., artificially inflated the price of both issuers’ stock through manipulative trading, and used the entities to acquire privately-held companies in reverse mergers, with the intent to thereafter dump their shares at grossly inflated prices. This sounds kinda like a SPAC tbh.
- kgermino 4y ago
  It (allegedly) basically was, except (oversimplifying) they skipped the whole “registering as a SPAC” part and pretended to be a functioning company that happened to merge with someone else.

dredmorbius 4y ago

Also at the NYT: <https://www.nytimes.com/2022/09/27/business/100-million-dollar-deli.html https://www.nytimes.com/2022/09/27/business/100-million-doll...> (h/t mesofile). Matt Levine's brilliant Bloomberg take is worth revisiting: Archive: <https://archive.ph/PL5lI https://archive.ph/PL5lI> Discussed on HN at the time: <https://news.ycombinator.com/item?id=26867465 https://news.ycombinator.com/item?id=26867465>

ralmidani 4y ago

The title kinda sounds like the feds thought the deli was actually worth $100M and wanted the owners to file taxes accordingly.

lotsofpulp 4y ago
There are no taxes owed by a company due to a company’s shares being bought and sold.
tpmx 4y ago
That's because this post is very obvious clickbait. Perhaps you could flag and/or downvote it.
- nwsm 4y ago
  How is it clickbait? I'm linking to an SEC press release and I think the title I gave is fair.

lifeisstillgood 4y ago

>>> diminish the trust investors must have in the integrity of the markets, It's interesting the use of the phrase "investors". I say this because there is a difference between "the public in general" and "investors" having faith in "the markets". As we go into a downturn (over here the UK feels like Slim Pickens clinging on the bomb and whooping as we fall), we need to be careful about whose market is being protected. I think I am saying that even if the SEC is making sure no-one at the poker table is dealing from the bottom, there are millions who are not at the table, and millions more who feel the whales are taking way more than they should be able to. If most people feel they are getting screwed, saying "we protect the integrity of the market" might not help.

SllX 4y ago
It’s not that interesting. Investors are the ones who are concerned with the financial markets and that’s everyone with money staked in the financial markets. The SEC is a bunch of working stiffs too but their assembly line is the integrity of the US financial markets. Anything outside of that is beyond their jurisdiction.
JumpCrisscross 4y ago
> there are millions who are not at the table, and millions more who feel the whales are taking way more than they should be able to This is not the SEC's remit. To the degree it's anyone's remit, it's the Fed, Treasury and the CFPB's job.
- lifeisstillgood 4y ago
  I think it's wider than that - we really are talking about how to share the wealth of all society with all its citizens. But yes, it's why we cannot hope to leave it to the SEC or the Fed. The UK just learnt what happens when the Government and the central bank disagree on even the most basic questions.
- alistairSH 4y ago
  Or, possibly Congress’ job, as they set tax policy. Prior to the 1980s, we taxed the whales out of existence. Perhaps not a direct cause/effect, but at the same time that we’ve reduced the top marginal rate from 70%+ to 37%, we’ve seen a more unequal income and wealth distribution.

yalogin 4y ago

Is this that different from a SPAC?

JumpCrisscross 4y ago
> Is this that different from a SPAC? SPACs are reverse mergers with bells and whistles. Reverse merger just means a private company mergers with a public company, the shell, where the motivation for merging is that the shell is public. Shells are usually vestiges of a failing or failed company. They went public because they thought they would idk sell sandwiches, they didn't sell enough sandwiches, so now their most valuable asset is the listing itself. When they are bought, there is no cash or goodies for the new owner to control. If anything, the less there the better. SPACs go public with the ex ante intent of merging with a private company. When they merge, they dangle the promise of their pool of cash to potential acquirers. It's more deliberate, complicated and lucrative (for the bankers).

msbarnett 4y ago

Defector wrote a good story about trying to visit the deli last year https://defector.com/a-cnbc-reporter-ruined-my-lunch-plans-a-visit-to-the-n-j-deli-worth-100-million/ https://defector.com/a-cnbc-reporter-ruined-my-lunch-plans-a... edit: Apparently I missed the follow-up, in which he did get to try the cheesesteak https://defector.com/despite-stellar-cheesesteaks-hometown-delis-stock-stays-flat/ https://defector.com/despite-stellar-cheesesteaks-hometown-d...

crorella 4y ago

Relevant in the Trump case, as they are being charged for the same thing and they were complaining of political persecution since they were the only one being charged for that. Well, not anymore. EDIT: Context - https://www.wsj.com/podcasts/the-journal/people-of-the-state-of-new-york-v-donald-j-trump/a7f5eea4-fc44-4f42-82da-e0eb5fac4613 https://www.wsj.com/podcasts/the-journal/people-of-the-state...

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neaden 4y ago

While this one went pretty ridiculously big and so got attention, I wonder how many small versions of this exist, claiming a valuation of a million or two and slip under the radar.

themagician 4y ago
There are probably thousands, if not tens of thousands, of schemes and scams going on like this at any given time. They happen so often because there is so little enforcement. The SEC only goes after the most egregious offenders. And what a lot of people don't realize is that the SEC can not bring criminal charges… which is what most people think of when they read, "SEC charges." But the SEC can only bring civil action. While they can recommend a case to the DOJ, they rarely do. Maybe someone else knows why? Because I don't. With $40,000 in real revenue, this is a case of people with nothing to lose. They bet big and lost. The penalty is basically go back to zero… which is pretty close to where they started. One of the reasons I truly believe (perhaps misguided) in more equitable distributions of wealth is that I believe it would massively cut down on scams… of which everything seems to be these days. If people were not so desperate, and they risked losing something (UBI, their benefits, and the quality if life that could provide, etc.) maybe every other thing wouldn't be a freaking scam or scheme of some sort. Disclaimer: I have become extremely jaded, particularly in the post-COVID world. I see a new coffee shop open up and I instantly start to wonder, "What manner of scam is going on here?"
- JumpCrisscross 4y ago
  > penalty is basically go back to zero Penultimate paragraph: "in a parallel action, the U.S. Attorney’s Office for the District of New Jersey announced criminal charges against Patten, Coker Sr., and Coker Jr."
- Sohcahtoa82 4y ago
  > The penalty is basically go back to zero Worse than that. They're facing criminal charges. If they get thrown in prison for a couple years, I'd argue they don't just go back to zero, they go negative. It's hard to get a job with a criminal record that includes fraud.

mercy_dude 4y ago

I would have more faith in SEC trying to protect the “integrity of the market” when they pursue all the Congressman and their family cronies actively using insider information to trade.

uup 4y ago
That’s legal so I’m not sure what the SEC can do about that.
qbasic_forever 4y ago
It's legal, that's the sad thing and why there is no action against it until congress takes action to make it illegal. Yes there is a massive conflict of interest there.
- mercy_dude 4y ago
  Not sure what part of insider trading is legal [1] [1] https://www.businessinsider.com/congress-stock-act-violations-senate-house-trading-2021-9#rep-mikie-sherrill-a-democrat-from-new-jersey-20 https://www.businessinsider.com/congress-stock-act-violation...
jjtheblunt 4y ago
I think https://www.congress.gov/bill/117th-congress/house-bill/2655 https://www.congress.gov/bill/117th-congress/house-bill/2655 is currently aimed at this problem.

Animats 4y ago

If they'd inflated the valuation of some crypto thing, they'd have the crypto crowd cheering them on. But they did it with something people understand, a deli. So it's obvious the value was inflated. The SEC brings the hammer down on about two crypto scams a month. This month, Sparkster, Ltd., and Chicago Crypto Capital, Inc. Last month, Dragonchain, Bloom, and Crypto Crusaders. The SEC is still working on the crypto scams of 2018-2019. Remember Initial Coin Offerings? There's a big backlog of those. So they haven't gotten to NFTs and DeFi yet. Soon, though. The SEC just doubled their crypto enforcement staff. With NFTs, if you sell something that already exists, it's a collectable. That's probably OK. If you sell something that doesn't exist yet, such as metaverse land for a metaverse that isn't running, that's probably not OK. That's a security offering. See "Howey Test".

wmf 4y ago
The SEC is still working on the crypto scams of 2018-2019. One problem with this narrative is that they managed to kill off Kik/Kin and Telegram TON before they launched but they let other pump and dumps play out. Clearly it's possible for the SEC to do their job effectively but they just aren't doing it. (Not to mention Libra/Diem which was an outlier.)
- HWR_14 4y ago
  Alternatively, the SEC can do their job but don't have the necessary tech-savvy manpower to do it enough.
  - TakeBlaster16 4y ago
    Is it tech-savvy people they need? The Howey test doesn't say anything about tech or computers. I would have guessed they need finance-savvy lawyers.
    - HWR_14 4y ago
      I assume that you need a tech person and a lawyer to go after crypto. The lawyer lacks knowledge (and the ability to give expert testimony) of exactly how the coins work and therefore how the law can be applied. I could be wrong, I'm just extrapolating from my experience that normally the limit of tech talent and lawyers is whichever came second.

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twawaaay 4y ago

This is baffling to me. Investors make their own valuations to figure if something is actually cheaper or more expensive than other people make it. It is literally the whole point of investing -- you are trying to figure out if what you are getting for your money is more valuable than the cash in hand.

ceejayoz 4y ago
Sure, and we have a variety of rules to protect those investors from making decisions based on fraudulent data. That's a good thing.
- twawaaay 4y ago
  There is two parts to this problem. Certain data needs to be made public and has to be truthful. On the other hand anybody should be able to make their own opinion of what is the value of the company based on the data. Everybody who sells will want to increase the "official" valuation and everybody who buys will want to do as cheap as possible. Everybody is free to try to sell at any price they want and everybody should be free to decide not to buy it. There are certain exceptions... but stock exchange I think should not be one of them.

ralph84 4y ago

Meh, the stock was traded over the counter. It’s always been the Wild West for OTC stocks. They’re OTC for a reason. More interesting is all of the Chinese scam stocks that managed to get NYSE or NASDAQ listed.

balderdash 4y ago

For those of you new to this: In the context of a securities transaction, a manipulative act is one that sends “a false pricing signal to the market” and therefore does not reflect the “natural interplay of supply and demand.”[1] It is typically undertaken to create a false image that the security’s value is based on supply and demand, and thereby induces unwitting investors to buy the security. Market manipulation is regulated under a number of statutes and rules. Most notably, Section 9(a)(2) of the Securities and Exchange Act (Exchange Act), titled “Manipulation of Security Prices,” prohibits transactions in certain securities that create “actual or apparent active trading in such security, or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others.” [2] https://www.arnoldporter.com/en/perspectives/publications/2016/07/2016_07_22_criminal_and_regulatory_enfor_13099 https://www.arnoldporter.com/en/perspectives/publications/20...

runlaszlorun 4y ago
From those of us who are new to this: How dare you bring your fancy pants “facts” into this convo? Just kidding. Good info thanks for posting. > a manipulative act is one that sends “a false pricing signal to the market” and therefore does not reflect the “natural interplay of supply and demand.” That sounds like 75% of my short stint in marketing. I know… forgive me for I have sinned. The company had a great list of clients who were tech firms known themselves to be savvy at marketing. This and a solid Series A let me to think there was product/market fit. Then my task during the first week, as the only technical guy in a small marketing department was to take down from their website 27 of the 30 companies listed since they’d only done a 30 day trial and were now screaming to be taken off. Oh, good times… And, yes, I was marketing marketing software to marketers.

_HMCB_ 4y ago

And to think I almost had Jersey Mike’s tonight. At $100 mill, these have got to be tasty subs.

londons_explore 4y ago

So what exactly was their crime? Purchasing some shares in their own company for more than they were 'worth', in the hope this would deceive other people into doing the same? Doesn't really sound like it should be a crime any more than Walmart is committing a crime for selling some goods for far more than they're 'worth'.

flatiron 4y ago
It’s called market manipulation and is very much a crime.

crazygringo 4y ago

So I understand they bought their own shares at wildly inflated prices so other people would buy at the same wildly inflated prices and they'd basically pocket the free money... ...but I don't get why those other people would do that, buy those shares at all? Why would this fraud even work at all? Who sees some OTC stock trading at some value and says, oh I'll buy a bunch at that price too, even though I don't know the first thing about this company at all? Why does this scam work at all -- who falls for it? Or is there some step here that I'm missing?

arcticbull 4y ago
Well you see, number go up.
Anunayj 4y ago
Unfortunately people fall for them! Yes it's perplexing, but look at any shitcoin, they literally have no utility most of the times, and solely capitalize on people's fear of missing out on the next coin that "goes to the moon". Or say Tesla stocks. Things are often worth what other people think it is.
causality0 4y ago
Idiots. If there's one thing the US government is good at, it's protecting rich idiots from the natural consequences of their choices.
- snicker7 4y ago
  You don't have to be rich to invest in the stock market.
  - causality0 4y ago
    The top ten percent owns 89 percent of all stock market value. The top one percent owns 54 percent.

paulpauper 4y ago

This trio is being charged with multiple counts of wire fraud. It's not just civil. They could conceivably face life sentences (especially the 80-year old). [They should have done some fake Musk, Saylor, or Cathy Wood livestreams isntead...those guys never get arrested or caught and make millions.] This goes to show how tough the feds are when it comes to white collar crime, contrary to the popular myth that the US is soft on white collar crime. https://greyenlightenment.com/2021/12/03/the-myth-of-white-collar-leniency/ https://greyenlightenment.com/2021/12/03/the-myth-of-white-c... Again, this is assuming you get caught, but if you do, you're rfuckked...I dunno why anyone would engage in securities fraud; your adversary is the U.S. federal govt. --the most powerful entity in the world with unlimited resources and known for making examples out of criminals.

anonu 4y ago

Matt Levine had a fun article in April 2021 on this: https://www.bloomberg.com/opinion/articles/2021-04-20/hometown-international-new-jersey-deli-is-actually-worth-2-billion https://www.bloomberg.com/opinion/articles/2021-04-20/hometo...

mhb 4y ago

...from approximately $1 per share in October 2019 to nearly $14 per share by April 2021, leading to a grossly inflated market capitalization of $100 million. So the valuation before the gross inflation was $7M? Even though that makes 14 times less sense, it still seems a bit high.

fisherjeff 4y ago
Uh yeah, generously assuming 25% margins on $40k revenue, that’s like a 700x P/E… for a deli.

tomcam 4y ago

I always knew that joint wasn’t worth a dime over $87 million

treelovinhippie 4y ago