In mid-April, (famous to the financial sector) David Einhorn wrote a letter to the investors of his firm Greenlight Capital. He wrote about the usual suspects: winners, losers, and justification for the performance. Everyday material.
His overarching thesis, in the letter, was that the stock market was completely broken.
I don’t need to belabor many of his points as even the most common person with access to the Internet knows the word GameStop, but it was one of the bullet points Einhorn referenced alongside Elon Musk’s reckless “jet fueling” of the saga, Tether’s nefarious accounting, and Archegos’ family-office self-dealing. Einhorn sees a system that is fractured:
“It’s as if there are no financial fraud prosecutors; companies and managements that are emboldened enough to engage in malfeasance have little to fear.”David Einhorn
Letter to Greenlight Capital investors, Apr. 2021
No cops, no regulation, all Wild West.
In Einhorn’s letter, he also brought to light Your Hometown Deli (4.3 stars on 51 reviews!). Since this is a viral story and you’ve likely heard of it, here is the recap that major media outlets have been running with: A small deli in New Jersey made a combined $38,000 over the past two years and is (befuddlingly) publicly traded (HWIN) that has made it worth $100MM depending on its share price – despite closing for basically all of 2020 due to COVID.
Red flags everywhere:
- The shop’s CEO-slash-CFO-slash-Treasurer-slash-Director owns shares that are valued at $20MM – and he’s the wrestling coach of a nearby institution
- The VP of the shop is a high school math teacher
- Neither the shop owner nor the VP takes a salary for their work
“Small investors who get sucked into these situations are likely to be harmed eventually…”Einhorn
That’s the point, here. Meme stock, right? Another dubious investment vehicle, another way retail investors can try and catch and ride a wave that almost always ends with a wish in one hand and shit in the other. End of story.
Oh, and a couple more things, though. The shares trade “thinly on the over-the-counter market,” according to CNBC. The shop’s owner also has ownership in the group that leases the building to the deli. The chairman of Your Hometown Deli Limited Liability Company – Peter Coker, Jr. – owns or is in bed with multiple Eastern equity firms and whose dad was the CEO of a New Zealand-based jetpack company when New Zealand was a notorious front for criminals heavily implicated in the Panama Papers. (Not coincidentally, Coker, Jr. was also the chairman of New Zealand-based Wellington Securities beginning in 2002.)
And oh by the way the deli listed now-disbarred lawyer Gregg Jaclin on its early financial documents. Jaclin just happens to have recently been found guilty of fraud, SEC false filings, “schemes to conceal material fact from a government agency,” and obstruction of justice. Said a different way: Jaclin is guilty of federal crimes relating to setting up shell companies. The SEC entered a “final judgment against New Jersey lawyer Gregg E. Jaclin for running a fraudulent shell factory scheme through which sham companies were taken public and sold for a profit,” they wrote.
When Einhorn writes about the deli-as-cautionary-tale, that’s unequivocally true. Considering he is a player in the game and the stonks craze is partially responsible for Greenlight’s mediocre Q1 performance, it stands to reason he wants more regulation and to legislate out the unfair play.
But the subtext is the real story. The media reports on the viral nature of the deal but scratch one layer beneath the surface and it’s a complete joke. If you’re suckered into investing in Your Hometown Deli, trust me, I have some oceanfront property in Arizona to sell you.
Instead, it’s the Coker family, lifelong tax goons, drawing in people like Jaclin to help launder and stash money.
In 1992, the elder Coker applied for bankruptcy, The Morning Call noting him as a “solvent debtor who wishes to appear insolvent”; a man whose “memory regarding his assets has suffered from selectivity and incompleteness,” whose “sole reported income” is for the $1,800 a month his wife claims, whose filings omit “his multiple country club memberships and his monthly operating expenses.” (Now, Coker is the founder of Tryon Capital Ventures, to which Your Hometown Deli pays $15,000 a month for consulting services.)
On the other hand is the junior Coker who was ordered to pay $1.15MM in restitution for his “work” with Sitework Safety Supplies collecting payroll taxes from his employees but not handing them over to the IRS stemming from the mid-2010s. Coker, Jr. who, in the present, is the chairman of South Shore HoldingsA holding company that “conducts its engineering and property related services in Hong Kong, Mainland China, Macau, Singapore, and Malaysia.” which operates the “ultra-luxury” brand THE13… which applied for a stay in order to not suspend operations because its bank issued a demand for immediate payment of HK$2.48 billion (about $320MM USD).
An American who tried on tax evasion as a wealth vehicle that now operates an ultra-luxury deli in New Jersey.
This family is obviously crooked. The apple didn’t far very far from the tree. In regards to Your Hometown Deli, as Cory Doctorow writes, “It appears that mysterious people, possibly in China and Macau and Hong Kong, decided to park $100MM in a convenience store and got a couple (of) local high-school teachers in on the bit.”
You have probably suspected as much at some point: Rich people know how to stay rich. They know the loopholes, they have enough money to find the loopholes, and, if that doesn’t work, they know how to outright cheat – especially when the “fine” becomes a cost of doing business. We’ll do it the proper way until it doesn’t work for us, then we’ll just pay the fee, apologize, and continue to do it.
The Cokers’ actions are just exposed stupidity but, like seeing one roach inside your house, it means there are hundreds more inside your walls. As Yuval Noah Harari has written, once businesses became entities and had the same rights as humans, a myth (businesses as humans) became real. Capitalists (read: Adam Smith, Wealth of Nations) will argue this protection is necessary for people to take risks thus breeding innovation, competition, and investment in people. And that’s true. But the laws of unintended consequences gave iniquitous actors a meteoric rise to protection and control that becomes almost impossible to dismantle.
That’s what Einhorn is saying. Coker’s scheme was tipped off to Einhorn who exposed it with the help of a viral headline. (No doubt, an SEC investigation will follow.) But there are thousands (hundreds of thousands? millions?) of instances of these actual viruses that plague the stock market. While the fun, viral headline is “look what crazy retail investing has done to the stock market!!!”, the often ignored, underreported, and uncovered truth is something incredibly nefarious.