Hometown International New Jersey Deli Is Actually Worth $2 Billion


The deli

Hometown International Inc., the deli in Paulsboro, New Jersey, that is a $100 million public company for very perplexing reasons, had another good day yesterday. After trading 27,381 shares, total, from the beginning of 2021 until last Thursday, an average of just 353 shares per day, it traded 42,762 shares on Friday — after David Einhorn pointed to its valuation as an example of current market excess — and then 14,989 shares yesterday. It closed at $13.01, up slightly from Friday’s close of $12.99, down slightly from Thursday’s pre-Einhorn close of $13.50.

Last Thursday, the deli was a $100 million public company because you do that calculation by multiplying the number of shares outstanding by the most recent trading price of the stock, even if the stock barely trades; here, the “$100 million” number came from trades worth about $3,900 per day. But now it’s a bit more. Instead of trading a couple of thousand dollars’ worth of stock a day, it traded $212,799 worth of stock yesterday. Instead of getting its very high valuation from a tiny number of trades between, presumably, insiders, it has gotten a lot of public attention while pretty much keeping its valuation.

Actually I am sorry to tell you this, but the valuation is really much higher than that. From Hometown’s Form 10-K, filed last month:

On April 15, 2020, the Company issued to each shareholder of record on said date: (i) five Class A Warrants, entitling the holder thereof to purchase five shares of the Company’s common stock at an exercise price of $1.25 per share (the “Class A Warrants”), (ii) five Class B Warrants, entitling the holder thereof to purchase five shares of the Company’s common stock at an exercise price of $1.50 per share (the “Class B Warrants”), (iii) five Class C Warrants, entitling the holder thereof to purchase five shares of the Company’s common stock at an exercise price of $1.75 per share (the “Class C Warrants”), and (iv) five Class D Warrants, entitling the holder thereof to purchase five shares of the Company’s common stock at an exercise price of $2.00 per share (the “Class D Warrants”), with each warrant expiring on April 15, 2035 (collectively, the “Warrants”).

The simple valuation math is that Hometown is worth $13.01 (yesterday’s closing price) times 7.8 million (the number of shares outstanding), or about $101 million. But ordinarily companies are valued based on their fully diluted equity value, taking into account stock options and warrants. Here, there are 7.8 million shares, but also an absurd 155.9 million warrants. That represents a fully diluted equity value of almost $1.9 billion.

Hometown raised $2.5 million on April 14, 2020, by selling 2.5 million shares of stock (at a dollar each) to a few big investors in a private sale. The next day, it issued those warrants to all of its shareholders (including the new ones). As far as I can tell, the warrants do not trade with the stock. The result is that if an insider of Hometown sells you his stock, he keeps warrants to buy 20 times as much stock at way-below-market prices. “We have an aggregate of 155,940,080 warrants issued and outstanding which are all currently exercisable,” says the 10-K. “The future issuance of common stock will result in substantial dilution in the percentage of our common stock held by our then existing shareholders.” I don’t really know why a company would issue warrants for 20 times its outstanding shares. But it does have the result that, if the stock price gets high, insiders can sell their stock to outsiders at the new high price and then reload by buying lots more stock at low prices. And then sell it to outsiders again.

I do not want to give you investing advice, but I will say that if you went out and spent $100 million to buy all of the stock of Hometown International — which, again, is a deli — you would end up owning only about 5% of the company.

 I … I would not personally do that trade? But obviously you do what you want. We are way past my ability to advise here. Look at me, doing math, like an absolute chump.

Elsewhere in deli news, Dan Mangan at CNBC continues to do actual reporting about Hometown:

[Peter] Coker Sr. is one of several key shareholders in Hometown International mentioned in Securities and Exchange Commission filings, as are entities in Hong Kong and Macao, China.

Public filings show that the entities in Hong Kong are all located on the same floor of the same building there. That is the case for the entities in Macao, as well. In Hong Kong, an investor named Manoj Jain, of Maso Capital Partners, has sole voting and investment power over the Homeland International shares held by each of the three entities, records show.

Coker Sr. personally holds 63,334 shares of Hometown common stock, with warrants for another 1.26 million shares. Coker Sr.’s own company, Tryon Capital, is being paid $15,000 per month through a consulting contract with Hometown.

Coker Sr. has himself been sued for allegedly hiding money from creditors and business-related fraud. He has denied wrongdoing in those cases, one of which settled out of court in recent years in North Carolina. He did not return repeated requests for comment from CNBC.

His partner in Tryon Capital, Peter Reichard, in 2011 entered a plea in a criminal case that led to his conviction for a scheme to illegally contribute thousands of dollars to the successful 2008 campaign of Bev Perdue, a Democrat who was elected that year as North Carolina’s first female governor.

The scheme involved the use of a bogus consulting contract between Tryon Capital Ventures and a fast-food franchisee who wanted to support Perdue. Coker Sr. was not charged in that case.

I dunno, there’s a lot going on at that deli.

It’s 4/20

“Dogecoin Rips in Meme-Fueled Frenzy on Pot-Smoking Holiday” is a real Bloomberg News headline today, and if you took finance classes in school you should spend a minute looking through your textbooks and trying to find the chapter about that. Somewhere there’s got to be an equation like “r = R sub f + alpha + beta sub 1 x factor 1 + beta sub 2 x factor 2 + beta sub 3 x factor 3 + … + [a picture of a Shiba Inu] x [a picture of a bong].” Finance! How does it work? Anyway:

The Shiba Inu-themed token traded near 42 cents on Tuesday, further stoking the social media frenzy that’s being propelled by the #DogeDay hashtag trending on Twitter on April 20, or 4/20 — pot-user slang for smoking cannabis.

Prices have jumped about 10% in the past 24 hours, according to data from crypto data provider CoinGecko.com. In the past week, Dogecoin has jumped more than 400% and now has a market value of more than $53 billion.

The meteoric gains have come even as other crypto assets start to break down. Bitcoin has fallen for five straight days, slumping below $55,000. Ether, the second-largest cryptocurrency, fell 5.2% to $2,093 on Tuesday.

See, Bitcoin and Ether have no exposure to the Shiba Inu factor, that’s your problem right there. “I see a lot of support at the $0.42 and $0.69 levels,” some Dogecoin technical analyst is going to have to write, “because those are the good joke numbers.” Actually I guess she’ll write “Such 4/20, many support, so resistance, much wow, how Fibonacci.” Do people even remember Doge, or has the coin totally replaced the meme?

We talked above, and yesterday, about the deli. People find the deli’s $100 million, or $2 billion, valuation very strange. But the deli is real! Dogecoin is explicitly a joke and it’s worth more than Ford Motor Co., because it’s 4/20 today. And you’re going to go to work today and build a discounted cash flow model for some industrial company and try to figure out its debt capacity and how to market it to potential strategic buyers, as though any of those things were things.

I will be disappointed if Elon Musk doesn’t announce that he’s buying GameStop Corp. today. Or the deli.

Binary options

A binary option is a simple bet. You bet a dollar that stock X will be above $50 in a month. If you’re right, you get paid some fixed amount, say $1: If the stock is at $50.01 or $60 or $500, doesn’t matter, you get the same dollar. If you’re wrong, you lose your bet: If the stock is at $49.99 or $40 or $0, doesn’t matter, you lose the same dollar. So it is “binary,” with only two discrete outcomes, unlike standard options whose payoffs vary with the price of the underlying stock.

There are occasional high-finance uses for binary options,

but they are kind of crude and weird instruments, and in modern usage “binary option” mainly refers to a product that is used to rip off retail traders. The discrete nature of binary options makes them attractive to retail gamblers: Instead of the smooth payoff charts of normal options, where you make more money the more right you are, binary options offer simple yes/no bets with large chunky payoffs. They feel more like football bets than most financial trades do. They are attractive to scammers in part because gamblers love them, and in part for the same simplicity that the gamblers love: Most people lose, and when they lose they lose all their money.

They are also attractive to scammers because they are not traded on exchanges or otherwise part of the normal financial system: If you buy a binary option from a scammer, he is not selling you some option product that he bought on an exchange. He is just taking the other side of the bet with you. And you can’t compare his prices to those of a normal bank or broker, or see the correct odds for the bet. So he can give you the incorrect odds, to make sure that you will usually lose. If he does this with enough people, he is just running a casino with a large house edge, and he can get rich.

There are a lot of binary-options businesses out there, selling to retail traders. This is mostly illegal in the U.S., but of course it mostly happens on the internet, and you would assume that some number of scammers abroad sell some number of binary options to U.S. retail customers. The U.S. Securities and Exchange Commission has brought several cases in recent years trying to shut down binary-options sellers, including Banc de Binary Ltd. (Cypriot), Bloombex Options (Israeli-German), and LBinary/Ivory Option (Israeli). All of them were accused of doing shady stuff, and doing it with U.S. investors. 

On Friday, though, the SEC brought a case against another Israeli binary-options company, called Spot Option Ltd., that is a little different. Spot Option, according to the SEC’s complaint, is not in the business of selling binary options to retail customers. It’s allegedly in the business of selling binary-options businesses to binary-options scammers (including Banc de Binary, Bloombex, LBinary, etc.). From the press release:

The SEC alleges that the defendants developed nearly all of the products and services necessary to offer and sell binary options through the internet, including a proprietary trading platform, and that they licensed these products and services to entities they called “white label partners,” who directly marketed the binary options. According to the complaint, Spot Option instructed its white label partners to aggressively market the binary options as a highly profitable investments for retail investors. As alleged, investors were not told that the defendants’ white label partners were the counter-parties on all investor trades, and thus profited when the investors lost money. To ensure sufficient investor losses and make the scheme profitable, Spot Option allegedly, among other tactics, instructed its partners to permit investors to withdraw only a portion of the monies the investors deposited, devised a manipulative payout structure for binary options trades, and designed its trading platform to increase the probability that investors’ trades would expire worthless. According to the complaint, the defendants’ deceptive business practices caused U.S. and foreign investors to lose a substantial portion of the money they deposited to their trading accounts. The defendants allegedly made millions of dollars as a result.

In the SEC’s telling, the binary-options business is so good and easy and lucrative that it comes in kit form: If you want to sell binary options to suckers, Spot Option will tell you how to do it, write scripts to pitch it, and give you the software to run it. From the complaint:

Spot Option developed and provided its Partners with a turnkey package of products, software, and services that included nearly all of the tools necessary to offer and sell Spot Option’s security-based and other binary options online to anyone.

Spot Option advertised to potential Partners that its package “generates great revenues with minimal efforts” and that it would enable Partners, under their own brand names, to operate an online business selling binary options in as little as four to six weeks. Spot Option described what if offered as a “business in a package” that allowed Partners to succeed “without doing the work.” Spot Option similarly said that its package “generates great revenues with minimal efforts as most of the work is done by the Spot Option team.” Spot Option also touted to prospective Partners the profitability of the business by noting that the average investor lost 80% of their investment within five months.

Again, “the average investor lost 80% of their investment within five months” means “you get to keep at least 80% of the money you raise after five months.” The binary-options operator is not running a market-making business, matching customer buys and sells; nor is it hedging the binary options in the market for the underlying stock. It is just taking customer bets, paying out the ones that win, and keeping the ones that lose. They mostly lose.

They mostly lose because Spot Options’s software sets the terms of the bets, and it makes sure the terms include a large house edge:

Spot Option determined and structured the key terms of the binary options offered and sold through its platform. Specifically, Spot Option’s platform provided investors with a choice of: (a) several forms of binary option; (b) numerous reference assets from multiple asset classes, including securities; (c) various expirations; (d) the investment amount; and (e) whether to predict the price of the reference asset would go up (e.g., buy a “call” option) or go down (e.g., buy a “put” option). Spot Option also set the amounts investors would receive for winning trades or would forfeit for losing trades (i.e., the profit/loss ratio), sometimes with the input of the Partners.

Spot Option structured the profit/loss ratio so that on any one trade investors always risked losing more money on an incorrect prediction than they stood to gain on a correct prediction. Spot Option typically set the ratio at a 70% to 85% profit for correct predictions and a 90% to 100% loss for incorrect predictions. Defendants knew that this payout structure made it extremely difficult if not impossible for investors to trade Spot Option’s binary options profitably over time because, on average, investors only won half of their trades.

And because the model of binary options dealers is not really “options dealer” (buy and sell options, hedge in the underlying, try to minimize risk and collect a spread) but rather “Las Vegas casino” (take the other side of every bet, make sure you have a lot of edge, exploit compulsive gambling behavior), the edge could be adjusted to prevent good gamblers from winning too much:

Spot Option’s Risk Management Services allowed Spot Option, on its own initiative or as requested by the Partners, to designate investors as “low,” “medium,” or “high” risk. The risk setting was displayed to the Partners through the CRM software. When investors made too much money, Partners requested Spot to change the investor’s profile to “high risk” to make it more probable the investor’s future trades would lose money. As a Spot Option employee who worked in Risk Management explained to a Partner, changing an investor’s risk level to “high,” “should be more aggressive and reducing his profits in the soon future.”

On November 17, 2014, for example, a Spot Option Risk Management employee informed a Partner that Spot Option’s system had placed a successful trader on the highest risk setting. “We are familiar with the client, he won some consecutive EUR/USD positions on Friday morning and won them all. Our system already put him with highest risk level. Let’s hope he will keep trading.”

Or to prevent bad gamblers from losing too quickly and walking away:

Similarly, the Partners could request that an investor be placed on a low risk setting in the hopes that making profitable trades would induce reluctant investors to trade or trade more, or add additional funds to their account. For example, on July 10, 2014, an employee at a Partner asked his manager to “Please make sure he [investor] is on low risk. I feel he is loaded.” On October 13, 2014, another employee wrote, “please put [investor] on low risk until i resive [sic] more money from him.” On the same day, another employee wrote “put [investor] on low risk need to put more money tnx.” On June 26, 2015, to induce a particular investor to deposit more funds, a Partner emailed Spot Option, “I need this client off high risk because we are getting too many losses and looks bad.”

It really was a turnkey system; in addition to pricing and risk management, Spot Option allegedly wrote its partners’ marketing materials:

Spot Option supported its Partners’ solicitation efforts by providing them with scripts that endorsed high pressure sales tactics and included false statements. Among other things, Spot Option’s scripts instructed the Partners’ call center employees to tell investors that most traders earned thousands of dollars a month trading binary options. For example, a Spot Option training script provided:

“Most clients produce an income of 1000s of $ / month, just from trading in their spare time on our simple, efficient, and comprehensive platform.” …

“Most of our clients activate their trading account with a small deposit of 4- 5,000$ to start learning how to trade and supplement, and in some cases replace, their income stream.”

And it worked: People put in money, did not take it out, and lost most of it.

Spot Option reports show that, for the period December 2014 through June 2016, on a monthly basis, investors across all Spot Option Partners withdrew only 18% to 25% of the total dollars that they deposited. These documents also show that the Partners’ monthly net deposits (which represented investor losses and Partner revenue), correspondingly totaled approximately 75% to 82% of investors’ total deposits. Other Spot Option reports show that for the period January 2014 through September 2017, on average, investors across all Spot Option Partners lost approximately 72% of their principal investments.

Seems like a good business to be in! Makes sense that someone would franchise it.


You could imagine a business model for a bank that was like “we’ll finance any legal activity that is reasonably safe and expected to return more than our cost of capital.”

 But in recent years many prominent banks have refined this model to add, as it were, morals clauses. They want to finance things that are good, and not finance things that are bad. “We’ll finance any legal activity” is more or less a bright-line, objective standard: You can look at the relevant laws, decide what’s legal, and finance that.

 “We’ll finance things that are good” is a much more ambiguous standard: You have to try to conform to the shifting and potentially conflicting moral, ethical and aesthetic views of your senior executives, junior employees, customers, institutional shareholders, regulators, politicians, activists, etc. Are guns good or bad? You will face pressure to stop lending to gun companies, and you will face pressure to keep lending to gun companies. 

It’s not just that people will disagree about goodness and badness, though; it’s that there are so many dimensions of goodness and badness. You form a Committee on Good and Bad Lending, and it starts writing down a list — no guns, no coal, yes racial and gender diversity, no billionaires with dubious ties to corrupt governments, no insurrection against democracy, etc. — and after writing down, like, the 50 hottest topics, you might feel pretty good about yourself. But then a banker comes to the committee with a proposal to finance a new soccer league. Soccer seems fun! There are no guns. Soccer teams travel, but really it’s no worse for the environment than most businesses. Let’s assume (counterfactually!) that there are no issues of racism or political corruption in international soccer, hahaha. Also it generates piles of cash. So, sure, wave it in.

But you have not counted on the fact that the soccer league is very bad, for soccer, and that billions of soccer fans have extremely strong moral, ethical and aesthetic views about the goodness of soccer:

European soccer fans are known for their intense passion for the sport. Now, they are aiming their ire at the American banking giant JPMorgan Chase for backing the so-called Super League.

“If your bank is @jpmorgan you simply have to move your money elsewhere,” one fan posted on Twitter. “Say NO to the #SuperLeague.”

A dozen top clubs from England, Italy and Spain shocked the soccer world with plans to form their own breakaway competition. The notion of a closed continental competition featuring a set group of teams has been explored before, but the seriousness of this proposal was underlined by more than $4 billion in financing from JPMorgan. …

“JP Morgan will regret setting up a #SuperLeague with my entire life savings,” one soccer fan wrote on Twitter. “Account is now closed and this £32.25 is going elsewhere!”

JPMorgan’s goodness/badness committee did take a look at this financing, but I suppose the goodness/badness committee is focused on more traditional risks and not full of soccer fans:

JPMorgan’s involvement was vetted by its internal reputation committee, which assesses high-profile and potentially controversial assignments, according to people briefed on the decision. But that committee didn’t fully expect the emotional reaction from sports fans that has flooded the airwaves around the world, these people added.

Eventually Yankees fans will start boycotting the banks that lend to the Red Sox, etc. It is very complicated to be a modern bank. 

By the way, here’s another thing I enjoyed about the Super League financing:

Twelve football clubs that have signed a binding agreement to form a new European “Super League” have been guaranteed a “welcome bonus” worth €200m-€300m each, according to people with direct knowledge of a deal that stands to reshape the world’s biggest sport. …

The money to launch the league will be provided by JPMorgan Chase, which has committed to underwriting a €3.25bn “infrastructure grant” that will be shared among the clubs as a “welcome bonus” on joining the competition. …

The rebel clubs have agreed to pay €264m a year to pay down the debt, a figure that includes a 2-3 per cent interest rate. JPMorgan declined to comment. 

As far as I can tell that says:

  1. The 12 clubs will borrow 3.25 billion euros from JPMorgan, meaning about 200 or 300 million euros each.
  2. Then they will pay the loans back at 2% to 3% interest.

But that sounds boring. The trick is that, when they get the money, instead of calling it a “loan” they will call it a “welcome bonus”? And JPMorgan will call it an “infrastructure grant”? But then the clubs will pay it back? Like a loan? It’s pretty good marketing. 


Sure whatever:

What do you do with a $69 million artwork that doesn’t physically exist?

That’s the question faced by the Singapore-based investor calling himself Metakovan, who made headlines last month when he bought the digital artwork “Everydays: The First 5000 Days” by the American artist Beeple at Christie’s.

The work is a non-fungible token (NFT) – a new type of virtual asset that has its ownership status and authenticity verified by blockchain. NFTs have exploded in popularity in 2021, with prices skyrocketing.

Metakovan, real name Vignesh Sundaresan, plans to put the artwork on display in four virtual world environments. He is working with architects to design gallery complexes that the public can enter via web browsers or virtual reality technology.

I am going to sell people a work of art that exists only in my mind:

ME: It’s really beautiful, and because it exists only in my mind I can guarantee that you will own the only instance of it.

BUYER: That’s super, sounds very non-fungible.

ME: It’s $20 million.

BUYER: Here you go. But how can I display this beautiful expensive art that I own?

 ME: So glad you asked! I will also sell you a gallery that exists only in my mind, which will be a tasteful and appropriate setting for your beautiful art, in my mind.

BUYER: Perfect.

ME: You’d better hire an architect.

Things happen

Former Goldman Analyst Barred by Finra for Insider Trading. BaFin files insider trading complaint against Deutsche Bank board member. Canadian National Makes $30 Billion Topping Bid for Kansas City Southern. SALT Cap Revolt Led by N.Y. Democrats Snarls Biden Spending Plan. Scientific Conclusions Need Not Be Accurate, Justified, or Believed by their Authors. “To look at the Muppets is to look at life itself.”

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Matt Levine at [email protected]

To contact the editor responsible for this story:
Brooke Sample at [email protected]

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