Hometown Deli Potential Fraud Case

If you enjoyed the GameStop Saga, well, buckle up; you are about to learn about “Your Hometown Deli” in New Jersey.

Put your seat belts on because you are about to go for a ride, not as much as recent shareholders of Hometown International, Inc. (“HWIN”) are, but by the end of this article, your head should be spinning.

We are sure stranger things will happen in the next few months, but this is a story for the ages, or at least for this week. The main question you will get out of this story is where’s the SEC, the security regulators, because someone is indeed getting screwed in the proverbial way, that is.

When we see that a stock trading on the pink sheets that soars in value to $100 million, the hairs on the back of our neck start to stand up, and yours should too.

The pink sheets, as a reminder, is the name for the stock listings that trade over-the-counter (“OTC”) rather than on a major US stock exchange. Listing on the pink sheets usually indicates that the company cannot meet the requirements to be listed on a major exchange such as the New York Stock Exchange. Typically, securities listed OTC are considered “penny stocks” or low-priced securities; trading in the OTC market is considered highly speculative.

When we decided to take a deep dive into this “amazing” (we are being facetious here) company, by digging into the financials, we discovered a strange phenomenon. In 2020 the “Deli’s” revenue was less than $14,000.00, and made less than $21,000.00 in 2019, however, total costs and expenses for 2020 was $638,414.

How can this happen, and why are they buying so much “meat,” yet have no one to sell that to? Oh, and how big is this market the Deli is in?

Great questions you have asked; let us see if we can break this down for you.

First Hometown International, Inc. owns one store – yup, you read that correctly – one little store located in a town called Paulsboro in New Jersey, right near the Delaware border. With 6,000 residents, Your Hometown Deli does not have the best target market for a multimillion-dollar company, but then again, this multimillion-dollar company does not even have the revenue for such a large market capitalization.

Do they really spend $638,000 on deli meat? No, their actual operating expenses are low or on average for a restaurant with revenue of less than $20,000. However, what you wouldn’t expect to see in a tiny little deli earning less than $20,000 a year are the consulting fees it is obligated to pay monthly.

On May 1, 2020, the company entered into two consulting partnerships, one with Tryon Capital Ventures, LLC, a North Carolina limited liability company, agreeing to pay them $15,000 a month and another agreement with VCH Limited, a company formed in Macau, which owns 10% of the common shares, $25,000 per month. In their disclosure documents, they write that they intend to continue to renew these consulting agreements yearly.

Let’s backtrack here and figure out who owns this company. Hometown International, Inc. was incorporated in May 2014 under the laws of the State of Nevada. It operates just one Delicatessen in New Jersey, called Your Hometown Deli, incorporated in January of the same year. The management group operating this Deli was able to convince someone or a group of investors to buy 2,500,000 shares of the company on April 14, 2020, for $2,500,000, roughly $1.00 a share for a company earning less than $20,000 a year. That must be some salesman; well, actually no – the owner is not a salesman, but a school principal.

The President and CEO of this meatless empire is none other than Mr. Paul Morina, a former member of Paulsboro, NJ town council and the current principal and wrestling coach of Paulsboro High School, making this small town principal the CEO of a $100 million company which has almost no revenue to speak of.

Mr. Morina owns 1.5 million shares of common stock or 19% of the outstanding shares; he also has rights to 30 million shares through warrants he owns, making his stake worth approximately $13,500,000, as of the closing price of April 15.

Speaking about the closing price, what is a share Deli empire trading at on the OTC market? On February 8, 2021, it was trading at $14.50, giving it a market cap of over $100 million, and as of April 15, it was trading at $9.00 a share, giving it a $70 million market cap.

The issue here is that for some reason, investors are pumping up this stock, and the owners are getting rich; there wasn’t that much information about this company before Greenlight Hedge Fund manager, David Einhorn, mentioning this company in his recent letter to clients as one of the more bizarre and risky market activities that threatens investors. Some important questions that should be asked are:

• Mr. Einhorn, has the same concerns we have had; where are the stock market regulators?
• Should the SEC not be proactive rather than reactive?
• Why do they feel the need to react once small investors get caught up in investment fraud situations?

FINRA, the SEC, and other regulatory entities should be actively investigating these types of situations; it appears that a Chinese firm and other large investor groups bought into a business, and then it appears created consulting agreements with the business to get paid back their money overtime each month. With very little news and research on these companies’ smaller investors see activity on message boards and jump in, unprepared for the risks associated with these types of investments, until it is too late.

We encourage you to reach out to our firm if you believe you may have been a victim of securities fraud or lost funds, money, or securities. Also, the statements contained herein and made are our opinions only. Every case or situation is different, which is why we encourage you to contact a lawyer immediately should you believe you may have a case. We can be reached at 561-777-7700.