SYLVIE DOUGLIS, BYLINE: This is PLANET MONEY from NPR.
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MARY CHILDS, HOST:
The other day, Jacob called me from the field. I was in my home studio. He was out doing a little reporting.
JACOB GOLDSTEIN, HOST:
CHILDS: Hi, Jacob.
GOLDSTEIN: I am just rolling up now. It's this little residential street past wood-and-brick houses to Hometown Deli in Paulsboro, N.J. There's an open sign, so it's still open. That's good.
GOLDSTEIN: I'll tell you what, it's just an ordinary little building - small, one story, gray, maybe - what? - cinderblock I would say. Here, I just parked on the side in the parking lot. It's got a couple of red awnings. So Mary, you know and I know why I've come here.
CHILDS: We do know that - because it's publicly traded.
GOLDSTEIN: Yes. Because there is a company that you can buy or sell stock in, and all that company owns is this little deli...
CHILDS: This is the crown jewel.
GOLDSTEIN: ...On this little street in New Jersey. This is the only jewel.
GOLDSTEIN: So, OK. So the company is called - what is it? I don't have it in front of me - Hometown International?
CHILDS: International, Inc., that's right. Yeah.
GOLDSTEIN: And can you look up just at this moment how much this company is worth according to the stock market?
CHILDS: It says market cap $101.439 M.
GOLDSTEIN: M as in...
GOLDSTEIN: So it's $101 million...
CHILDS: Million dollars.
CHILDS: You're looking at a hundred million dollar deli right now. Just take it in.
GOLDSTEIN: Hello and welcome to PLANET MONEY. I'm Jacob Goldstein.
CHILDS: And I'm Mary Childs (laughter).
GOLDSTEIN: Today on the show, why...
GOLDSTEIN: ...Why on earth - how is this deli - just this one little deli in this little street in this little town in New Jersey - why is this little deli worth - what is it?
CHILDS: One hundred and one point four three nine million dollars. It's a really nice deli.
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GOLDSTEIN: Mary, I'm going to go inside and see if they'll let me talk to them, but if something happens, I'll call you back.
I am at this moment back in my closet in my apartment. We will go back to the deli at the end of the show.
CHILDS: Because to be fair, the strange things aren't really happening in the deli. It's just a deli.
GOLDSTEIN: And that is really ultimately what is so interesting to me about this story, right? There is a physical deli, one deli in New Jersey. And typically, a deli in New Jersey would be owned by a family or by a small business person. It might be worth, whatever, a few hundred thousand dollars. But this deli is not like that, right? This deli in its sort of shape and form looks like Google or Exxon Mobil. You know, it has shareholders. It has a board. So you can either go to this deli and buy a turkey sandwich, or you can go on your computer and buy a share of stock in this $100 million deli.
CHILDS: Now, normally when you buy stock in a company, you're thinking about things like growth, future earnings. But this deli is just one deli. It does not appear to be growing into 20 delis or even two delis. So what is it doing on the stock market and how do we even know about it?
GOLDSTEIN: We know about it because a few weeks ago, a fund run by this famous investor - a guy named David Einhorn - published its quarterly letter to investors.
CHILDS: Now, David Einhorn's fund does not own stock in the deli. It's not making a big bet against the deli. It's just using the deli as an example of what's going on in the financial world right now. The letter says, quote, "It's as if there are no financial fraud prosecutors."
GOLDSTEIN: And the letter also lays out a few key details about the deli. One, that it's valued at $100 million of course.
CHILDS: Also, the letter says the company has made only $35,000 in revenue total over the last two years.
GOLDSTEIN: And the letter points out that the CEO of this $100 million deli is the wrestling coach at the local high school.
CHILDS: All this is just one paragraph in this letter. At the end of the paragraph, the letter says, quote, "Regulators who are supposed to be protecting investors appear to be neither present nor curious." By the way, we asked the hedge fund if they want to talk to us about this, and they did not.
GOLDSTEIN: But this letter, it's, like, all questions and no answers, right? I mean, a wrestling coach, $100 million. What's going on? So people in the financial press, they read this letter, publish a few short little items about the deli.
CHILDS: And this is where Dan Mangan gets involved. He's a reporter at CNBC.com who has done more than anybody else so far to figure out what is actually going on with this deli.
GOLDSTEIN: So where did you first see this?
DAN MANGAN: I had just gotten my second COVID shot Thursday.
GOLDSTEIN: Mazel tov. Yeah.
MANGAN: (Laughter) Thank you. And the story was flagged to me on Slack by my editor. And I was sitting in a YMCA in the Bronx. And I was looking at this. And my kind of head was - started to explode. And I was like, this is going to be a big story. You know, let's start pulling some paperwork on this.
GOLDSTEIN: Because this is a publicly traded company, they are required by law to file lots of paperwork with the federal government - right? - with the Securities and Exchange Commission to tell the world a lot about their company.
MANGAN: Yes. Right. That's exactly right.
CHILDS: So Mangan goes home. And he does something that we all should be doing more of. He looks up the public filings of this publicly traded company, which is how the system is supposed to work. The Securities and Exchange Commission - the SEC, the federal regulator - was founded to help Dan Mangan or anybody else who wants to know find out what publicly traded companies like Hometown International Inc. are getting up to.
GOLDSTEIN: So Mangan goes home, goes to the SEC's website and starts looking up these documents, you know, documents that every public company has to file and that anybody with an Internet connection can read. He starts with Hometown International Inc.'s latest annual report - classic. And like all annual reports, there are biographies of the key people at the company. It's right there on Page 11 under the headline "Directors, Executive Officers And Corporate Governance."
CHILDS: There's the CEO who, as that hedge fund letter says, is the local wrestling coach. He is also the high school principal. The bio does not mention any experience in the deli space. So that is one mystery, why he's running this deli.
GOLDSTEIN: Although, for the record, the annual report notes that he is a highly successful wrestling coach and was, quote, "named the 1994 State Wrestling Man-of-the-Year by Wrestling USA magazine." Also, it says his teams have won dozens of championships
CHILDS: Next to the CEO, Mangan sees the bio of the company's chairman, who is also mysterious but in a very different way.
MANGAN: So the other name is a guy named Peter L. Coker Jr., who is the chairman of the company. And, you know, Mr. Coker appears to be based in Hong Kong. He's the chairman of a company there called South Shore Holdings Ltd. And they own a hotel in Macau known as The 13. And it was billed as the most luxurious hotel in the world. I think the minimum stay there originally was going to be about $1,500 a night. They had a fleet of Rolls-Royce Phantoms available for limousine, you know, uses by their guests. And they had a bunch of big-deal investors.
GOLDSTEIN: So that's a big player to have running your deli.
MANGAN: That's right. And I don't think he's wearing a white smock and slicing bologna behind the counter on the weekend when he pops in there.
MANGAN: But I might be wrong.
CHILDS: So far, the annual report has shown Mangan that the CEO is a high school principal/wrestling coach. The chairman is based in Hong Kong with interest in Macau, which is like the Chinese Las Vegas.
GOLDSTEIN: And Mangan keeps flipping through the report. If you're following along at home, we are now on Page 13. And here, he sees a list of major shareholders in the company, which is also a requirement for an annual report and for good reason, you know, because it used to be pretty common for companies to have these secret ownership structures. And those structures were sometimes used to, basically, screw over investors or the public. So the regulators said, companies, you now have to publicly list everybody who owns more than 5% of your stock so we can keep track of who owns what.
CHILDS: Major owners of Hometown International Inc. include that wrestling coach/principal, also the father of the Hong Kong-based chairman and these two sets of companies.
MANGAN: There's one set that's based in Hong Kong - all the same building. The second set is in Macau, China - again, likewise, all based in one office or one building there.
GOLDSTEIN: These companies have these opaque names that tell you absolutely nothing about them, like IPC-Trading Company and VCH Ltd.
CHILDS: So far, this is just a list, right? This person. That person. This company. That company.
GOLDSTEIN: But then, on Page 15 of the annual report, Mangan finds action. He finds this very strange movement of money. The report says, effective as of May 1, 2020, we entered into a consulting agreement with VCH Ltd. Pursuant to this agreement, VCH shall receive $25,000 per month during the term of the agreement.
CHILDS: So what they are saying is Hometown Deli, which makes, basically, no money and is partly owned by VCH, is sending VCH $25,000 every month. And this seems like the sort of thing that that investor letter was talking about when they said regulators seem to be neither present nor curious. Like, you'd think they would be a little curious.
GOLDSTEIN: So Mangan writes all of this up, publishes it at cnbc.com. And then he goes further, right? He goes beyond what's available in that annual report and starts digging into the people and the companies who are listed there. And he finds case after case where people have gotten into trouble with various courts and regulators.
CHILDS: Mangan is in this moment, which, for me as a reporter, is the very best. You're finding something that leads to something else. You're reading filings. You're googling. You're building a map on your home office wall of clippings and photographs. And you're linking them with red yarn - very normal stuff. That is where Mangan is right now, digging into this shady valley.
GOLDSTEIN: He looks into the lawyer who represented Hometown Inc. in their very first filings with the SEC.
MANGAN: He was disbarred. He agreed to be disbarred following a guilty plea to a scheme to create a series of shell corporations in order - for investors.
CHILDS: The accounting firm that audits the books...
MANGAN: Their auditor, they've been their auditor for years. They were censured and fined last August by the Public Company Accounting Oversight Board.
GOLDSTEIN: Also, the father of the chairman of the company, who himself is a major shareholder of the company.
MANGAN: He's been sued for what was alleged to be business-related fraud.
GOLDSTEIN: One last guy we'll mention here who Mangan found - this is a guy who worked with the chairman's father, who back in high school was on the wrestling team with the guy who is now the principal/wrestling coach/CEO of this company. So that detail at least seems to explain how the wrestling coach came to be the CEO.
CHILDS: By the way, the guy who wrestled with the CEO, according to Mangan, he also got into trouble and was barred a few years back from working as a stockbroker.
GOLDSTEIN: So a lot of facts about a lot of people. Like, what does it all mean? What does it all add up to?
MANGAN: I don't know. Everyone keeps asking me that and asking me to explain that. And what's - you know, the great thing about the SEC filings and all these records I found about, is they can tell me, as you point out, a whole bunch of facts that are, you know, to varying degrees amusing, you know, perplexing, but they don't explain what the people involved could explain, which is why this is going on. The thing is, is that I think, you know, the reason you, me and everybody else was initially fixated on it is, again, the absurdly high stock market valuation, right? But what if that's not actually relevant - you know, the stock price really is not the story here, it's something else?
CHILDS: What if the key thing about this $100 million deli is not the $100 million part? There are, in fact, a few signs that point to this. For one thing, the company in its own documents in that annual report is not trying to sell itself as some great investment.
MANGAN: They're not saying, hey, come invest with us. We're going to make you a ton of money. They're like, hey, look, we don't know if we can keep the lights on, you know, a couple of months from now.
GOLDSTEIN: Maybe even more importantly, almost no one owns or is trading this stock, this company. It's not listed on the New York Stock Exchange or the Nasdaq. It's on what's known as the over-the-counter market, where very small public companies are traded. And - this part is crucial - according to the company's annual report, quote, "As of December 31, 2020, we had approximately 60 holders of common stock," meaning the whole company was owned by about 60 people.
CHILDS: And when you look at how much of this stock is traded, at least until that hedge fund letter, you see very little trading, like 100 shares one day, none the next. So it's not like the whole world has gone stock wild and everybody is trying to get in on the $100 million deli. It's more like a very small group of people trading small amounts of stock back and forth for small amounts of money.
GOLDSTEIN: And this fact is really important when we talk about that $100 million valuation. Because the way you get that $100 million number, the way you get the valuation of any publicly traded company, is you take the price that the shares just traded at and multiply by the total number of shares. So if one person buys one share for $10 and there are, say, 10 million shares total, then at that moment the company is worth 10 times $10 million - $100 million according to the stock market - right? - just because of that one trade. So, you know, you can say if you want to sound fancy, oh, the company has a market capitalization, a market cap of $100 million, but it's just because of that one trade for $10 worth of stock.
CHILDS: Which does still leave the question of why. It seems like Hometown International, Inc., this corporation, is some kind of box. The box has a deli inside. And the deli seems like the excuse for the box, but not the purpose of the box. Clearly, there's some money flowing through the box - remember those consulting contracts - but it seems like a lot of trouble to go through just for that.
GOLDSTEIN: Nobody at the company has called Dan Mangan back. We also called them to ask what's going on. Once again, shout out to the annual report. There's a phone number right there on top.
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AUTOMATED VOICE: Please leave your message for 856-75...
GOLDSTEIN: We couldn't reach him on the phone.
AUTOMATED VOICE: Sorry, mailbox is full. Thank you for calling. Goodbye.
CHILDS: The company wasn't going to tell us, so we called an expert.
ASWATH DAMODARAN: Aswath Damodaran - I'm a professor of finance at the Stern School of Business at NYU.
GOLDSTEIN: And I feel like looking at SEC filings and trying to understand public companies seems like something you've done a lot of. Is that fair to say?
DAMODARAN: Yeah, yeah. I've been looking at companies now for 40 years now - annual reports, 10-Ks, SEC filings - yes.
GOLDSTEIN: Damodaran said he was not sure what's going on here, but he did point out one important idea that might be relevant. Going public the traditional way is really hard if you're a company. You know, you have to jump through all these legal and regulatory hoops. So lots of companies look for, like, a side door to get their stock publicly traded without going through all the trouble of a traditional IPO - initial public offering.
CHILDS: One version of this you might have heard of recently is the SPAC - special purpose acquisition company. These are public companies that go raise a lot of money and then use it to buy a private company. So this is a way for the private company to go public without jumping through all of those IPO hoops. It is hoopless. Damodaran says this deli, Hometown International Inc., is not a SPAC - they haven't raised a bunch of money - but maybe it's sort of SPAC adjacent.
DAMODARAN: I'm going to create a word. You've heard of SPACs - right? - these special purpose entities that are creating all these IPOs. This is a SNAC. This is basically a special no purpose entity.
CHILDS: It's a deli SNAC. It's a SNAC from a - it is a deli. It's a SNAC.
GOLDSTEIN: That annual report we keep talking about, it does sort of point in that direction. It says, going forward, we intend to seek - blah blah blah - a business combination with a private entity, meaning, you know, some kind of merger. Damodaran says one thing that they might possibly have in mind is something called a reverse merger.
CHILDS: In a reverse merger, a private company wants to go public. And instead of doing the hoops and having an IPO, the company buys some semi-defunct but still publicly traded company. A few years back, there was a wave of this with Chinese companies buying these very small but publicly traded U.S. companies. Damodaran says maybe the people who set up Hometown International, Inc. had something like that in mind.
DAMODARAN: So what it then creates is a structure you can use to bring almost any business in any other part of the world into a U.S. publicly traded company.
GOLDSTEIN: Maybe Hometown International, Inc. was supposed to be the box for somebody in, whatever, Macau, China, to put some company into so that that company could become publicly traded in the United States.
And if that's the case, it's kind of - I don't know. It's impressive, right? - like that someone went to all that trouble. Right? It reminds us how much foreign companies value having their stock traded in the U.S. And, you know, of course, people want to list in the U.S. because there is so much money here, because it is this giant liquid stock market. Right? But part of the reason it's such a big liquid stock market is because of the transparency we have - right? - because investors know they, we can go online and read these annual reports that in the case of some companies, like this deli, tell you these very strange things.
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CHILDS: After the break, the actual deli.
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GOLDSTEIN: Here, I'm going into the $100 million deli.
CHILDS: So exciting - it's all happening now.
UNIDENTIFIED HOMETOWN DELI EMPLOYEE #1: How you doing, sir?
GOLDSTEIN: Hi. How you doing?
UNIDENTIFIED HOMETOWN DELI EMPLOYEE #1: Good.
GOLDSTEIN: I'm a reporter. I wondered, can I order a sandwich?
UNIDENTIFIED HOMETOWN DELI EMPLOYEE #1: Yeah, you can order a sandwich. But we're just not having any reporter. Like...
GOLDSTEIN: OK. So if I stop recording...
UNIDENTIFIED HOMETOWN DELI EMPLOYEE #2: (Unintelligible) Take that out there?
GOLDSTEIN: I'd be happy to take it out. If I put it back in my car, can I come back and get a sandwich?
UNIDENTIFIED HOMETOWN DELI EMPLOYEE #2: Absolutely.
UNIDENTIFIED HOMETOWN DELI EMPLOYEE #1: That's fine.
GOLDSTEIN: I appreciate it. Thank you.
CHILDS: Well, that was fast.
Back to that phone call - I'm in my studio at home, where I always am. Jacob is in Jersey. He just got bounced from the deli for walking in with a giant microphone.
GOLDSTEIN: No reporters allowed...
CHILDS: Did you just...
GOLDSTEIN: ...But I can order a sandwich. And so...
GOLDSTEIN: ...To be respectful of them, let's get off the phone. I'll talk to you in a minute.
CHILDS: OK. Bye.
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CHILDS: The suspense, though, you know? So like, should I be worried about Jacob? Like, we didn't set up a safe word. Like, I don't know - I'll just - I'll just wait.
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CHILDS: A $101 million deli. I mean, would that I had that kind of entrepreneurial spirit, you know?
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CHILDS: Jacob's calling. He made it - well, I hope.
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GOLDSTEIN: They were very polite.
GOLDSTEIN: They didn't want to talk business.
GOLDSTEIN: But let's see. What - it was like maybe five or six tables with, like, plastic red check tablecloths. And...
CHILDS: Wow, absolutely classic.
GOLDSTEIN: ...Got a turkey hoagie, which seemed straightforward.
CHILDS: Wow, bit of a healthy choice, I feel like.
GOLDSTEIN: I guess so. You know, I got to drive back to New York, so I don't want to get some, like, thing that's going to knock me out.
CHILDS: Yeah, you don't want to fall asleep on the road.
GOLDSTEIN: You know, I got to stay light. I've got to stay sharp.
CHILDS: Yeah, yeah, yeah - got to stay nimble. That's right.
GOLDSTEIN: Don't want to pass out on the Jersey Turnpike. All right. You ready?
CHILDS: It's good? Is the taste profile...
GOLDSTEIN: It is good.
CHILDS: ...Markedly different?
GOLDSTEIN: No, I like it. It's a nice roll. The roll's got seeds on it.
CHILDS: Oh, that's a nice touch.
GOLDSTEIN: There's a little oil. It's a delicious sandwich. It's a really good sandwich. It's good. I mean, it's not $100 million good.
GOLDSTEIN: It's a good sandwich.
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CHILDS: If you want to shop at a store that is neither shadowy nor a box, try the NPR store. Micro-Face merch, Jacob Goldstein's book - I'm just saying - shop.npr.org/planetmoney. That is shop.npr.org/planetmoney.
GOLDSTEIN: Today's show was produced by Dan Girma and Alexi Horowitz-Ghazi. Our editor is Bryant Urstadt. Our supervising producer is Alex Goldmark. I'm Jacob Goldstein.
CHILDS: And I'm Mary Childs. This is NPR. Thanks for listening.
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