SEC Charges Medallion Taxicab Lender with Fraud
Posted on 01/04/2022
Medallion Financial Corporation is a growth-oriented publicly traded finance company (NASDAQ:MFIN) with positions in niche markets including consumer lending, commercial lending, and taxi medallion lending. On December 29, 2021, the Securities and Exchange Commission (SEC) charged Medallion Financial and its President and Chief Operating Officer, Andrew Murstein of New York, NY, with illegally engaging in two schemes in an effort to reverse the company’s plummeting stock price. Medallion Financial was founded by Alvin Murstein and currently led by his son Andrew Murstein. Alvin Murstein has been the Chairman of the Board of Directors of Medallion Financial since its founding in 1995. Medallion Financial went public in 1996.
Medallion’s core business was making loans backed by taxicab medallions to taxicab owners and operators. However, the popularity of ride-sharing companies like Uber and Lyft led to a decline in the value of taxicab medallions and of Medallion’s stock price.
According to the SEC’s complaint, Murstein and Medallion allegedly directed two separate schemes to inflate the company’s stock price, in part with the help of California-based media strategy company, Ichabod’s Cranium, Inc., and its owner, Lawrence Meyers, both of whom were also charged by the SEC with fraud. Murstein allegedly paid for more than 50 articles and hundreds of positive comments, which were really paid advertisements placed across the web in an effort to deceive investors about the value of Medallion’s stock.
According to the press release, “The complaint, filed in federal district court in Manhattan, alleges that Murstein and Medallion engaged in illegal touting by paying Ichabod’s Cranium and others to place positive stories about the company on various websites, including Huffington Post, Seeking Alpha, and TheStreet.com. With Murstein’s knowledge, Meyers and others created fake identities so their opinion pieces would appear credible to potential investors. The complaint further alleges that Medallion and Murstein fraudulently increased the carrying value of Medallion Bank (the Bank), a wholly owned subsidiary of Medallion, to offset losses relating to the taxicab medallion loans. The complaint alleges that when the existing valuation firm refused to cave to Murstein’s pressure to increase the Bank’s valuation, Murstein fired the firm and hired a new firm to provide an inflated valuation of the Bank.”
The press release adds, “The SEC’s complaint charges Murstein and Medallion with violating the antifraud, books and records, internal controls, and anti-touting provisions of the federal securities laws. Murstein is also charged with making false statements to Medallion’s auditor. The complaint also charges Ichabod’s Cranium and Meyers with touting and fraud. The SEC seeks permanent injunctions, disgorgement plus prejudgment interest, and civil penalties. In addition, the SEC seeks an officer-and-director bar against Murstein.”
Medallion Financial has denied wrongdoing.