The $100 million company that owns a New Jersey deli was delisted from an over-the-counter market platform because of public disclosure “irregularities,” according to the firm that booted that the mysterious delicatessen operator.
OTC Markets Group executives also told CNBC on Thursday that they are now examining the filings of a second firm — E-Waste — a shell company that has multiple ties to deli owner Hometown International.
Like Hometown International, E-Waste has an incredibly high market capitalization despite having little if any significant business operations.
Hometown International’s market capitalization has topped $100 million despite owning only a Paulsboro, New Jersey, deli, which had sales of less than $37,000 combined in the past two years.
Hometown International, which trades under the symbol HWIN, had a “buyer beware” label slapped on it Wednesday night when OTC Markets Group relegated it to Pink, a less prestigious over-the-counter platform.
OTC Markets CEO Cromwell Coulson said in a tweet Wednesday that Hometown International’s demotion and warning label were due to “public interest concerns” – and for “not complying with the rules.”
OTC Markets officials on Thursday would not say whether they have contacted the Securities and Exchange Commission, which regulates publicly traded companies, about their concerns with Hometown International.
But OTC Markets general counsel Dan Zinn noted that every suspension or action the firm takes against one of the 11,000 companies that trade on its over-the-counter market platforms is “all publicly available, so the SEC and FINRA [the regulator of broker-dealers] has access to all of these.”
“Frequently, we have a lot of back-and-forth with the SEC,” Zinn said in an interview. “We do it a lot, and we do it typically behind the scenes.”
The SEC did not immediately respond to a request for comment from CNBC.
Hometown International officials did not return requests for comment.
Order up
Until Wednesday night, Hometown International had been listed on the OTCQB market, the trading platform designated as “The Venture Market” by OTC Markets Group.
Hometown International was demoted to Pink, or “The Open Market.” It is where stocks go if they do not qualify for OTCQB or OTCQX, which is labeled “The Best Market” under OTC Markets.
Hometown International drew scrutiny from OTC Markets after hedge fund manager David Einhorn mentioned the company as a cautionary example to retail investors, given its extremely high valuation without significant sales at the deli.
“The pastrami must be amazing,” Einhorn cracked about the shop, which is located across the Delaware River from Philadelphia.
Indeed, the deli has won raves for its Sicilian and Italian hoagies from several curious customers, including Pete Genovese, a food critic at New Jersey’s Star-Ledger newspaper. There’s no pastrami on the menu, however.
Einhorn also had noted that the company’s CEO is a high school principal, Paul Morina, who also is the head coach of Paulsboro’s extremely successful high school wrestling team.
OTC Markets’ interest in Hometown International was further fueled by CNBC articles detailing regulatory sanctions against the firm’s accountants, first lawyer and a former broker connected to the father of the company’s chairman. Those articles also detailed criminal convictions of people connected to the firm, and legal issues surrounding the father of the chairman.
Jason Paltrowitz, executive vice president for corporate services at OTC Markets, said that “the simple thing, that it’s a deli trading at an obscene valuation” is not the reason the company was delisted.
“However, what concerned us here were the things that were being publicly disclosed,” Paltrowitz added. “There were irregularities in what was out in the public domain … if you dug deeper into the filings.”
“It wasn’t simply that it was a highly valued deli. That stuff happens,” he said. “But that did cause the review.”
Asked about the nature of the irregularities OTC Markets discovered in Hometown International’s paperwork, Zinn said, “We’re not going to get hyper-specific about any one company.”
OTC Markets said Hometown International may not reapply to be listed again on OTCQB for at least 90 days.
“The Caveat Emptor designation will remain until OTC Markets Group believes there is no longer a public interest concern,” OTC Markets said.
That designation includes a “skull-and-crossbones” icon next to a stock’s trading symbol “to inform investors that there may be reason to exercise additional care and perform thorough due diligence before making an investment decision in that security,” the company’s policy says.
E-Waste in the spotlight
Hours before OTC Markets delisted Hometown International from the OTCQB, an article by CNBC detailed E-Waste’s connections to the deli owner.
The stock of E-Waste, which is being traded on the Pink market, is priced at more than $8 per share, giving the company a market capitalization of more than $80 million despite not having any ongoing business.
Like Hometown International, E-Waste’s stock has as a rule traded in very small share amounts each day compared with the millions of shares each company has outstanding.
SEC filings indicate that Hometown International loaned E-Waste $150,000 late last year. Global Equity Ltd., a Hong Kong entity, is the biggest shareholder of both firms. Each company also has consulting agreements with a North Carolina company run by Peter Coker Sr., the father of Hometown International’s chairman.
The companies also use the same New York law firm for filings. Coker Sr.’s office in North Carolina is used as a mailing address for E-Waste.
E-Waste’s CEO is John Rollo, a Grammy-winning recording engineer and producer, and former operations vice president of a New Jersey switching and sensor manufacturer. He more recently has worked as a patient transporter at a northern New Jersey hospital.
Rollo has not returned requests for comment. Neither has Coker Sr.
OTC Markets’ Paltrowitz said that there is no “caveat emptor” label on E-Waste.
But he also said the firm’s status on the Pink market is “being reviewed.” It trades under the ticker symbol EWST.
Zinn said that OTC Markets has limited power over the stocks on its exchanges beyond relegating them to less-prestigious markets or slapping them with a warning label.
“We don’t have that power to say that symbol is revoked,” Zinn said.
Only the SEC has that power, he added.
Source: Business - cnbc.com
