A man has pleaded guilty for his role in a stock manipulation scheme that artificially inflated the value of E-Waste Corporation, an unsuccessful electronics processing startup, to $120 million, despite the company having no operations or revenue.
The company was incorporated in Florida in early 2012, according to documents it filed with the Securities and Exchange Commission (SEC). Company leaders intended to “develop an e-waste recycling business,” they wrote, aiming to recycle or refurbish all manner of electronic devices from consumers, businesses, local governments and more. The filing noted the company “may be slow to achieve profitability, or may not become profitable at all.”
The business did not succeed. According to later SEC documents, “the company was not able to raise sufficient capital to execute its business plan.”
But despite its failure, the company was later valued at $120 million. In 2020, the nascent company was targeted by a stock manipulation scheme, according to the U.S. Attorney’s Office for the District of New Jersey, which indicted three individuals for the alleged fraud in 2022.
The indictment alleges three defendants “undertook a calculated scheme” to gain control of two publicly-traded companies, E-Waste Corporation and a New Jersey deli, through various stock purchases.
Then, the defendants allegedly transferred millions of shares of stock in both companies to various entities the defendants controlled, according to the indictment. For example, they “transferred shares to family members, friends and associates and gained control over their trading accounts by obtaining their log-in information in order to conceal the defendants’ involvement,” the U.S. Attorney’s Office stated.
Masking their involvement in this way, the defendants allegedly used the accounts to commit “a number of coordinated trading events,” creating the impression of genuine market interest in both companies, according to the indictment.
Their ultimate goal was to attract companies interested in engaging in reverse mergers with E-Waste Corporation and the deli company, the indictment alleged. A reverse merger involves a private company merging with an existing publicly traded firm, effectively allowing the private company to go public without conducting an initial public offering. The indictment alleges the defendants aimed to then sell their shares at a profit, after fraudulently attracting a company to such a merger.
E-Waste Corporation’s stock was inflated by nearly 20,000%, according to the indictment. The SEC reported E-Waste Corporation was valued at $120 million, despite being “a shell company with no revenue.”
The scheme gained widespread attention – ultimately leading to its failure – after a series of CNBC articles highlighted the high valuations in 2021.
In September 2022, the SEC charged James Patten, Peter Coker Sr. and Peter Coker Jr. with securities violations, and the U.S. Attorney’s Office for the District of New Jersey announced criminal charges against the defendants.
In December 2023, Patten, 64, of Winston-Salem, North Carolina, pled guilty to securities fraud and conspiracy to commit securities fraud, admitting his involvement in the cases. His sentencing is set for April.
The other defendants have pleaded not guilty.