US SEC accuses taxi lender Medallion of fraud, stock slump

NEW YORK, Dec.29 (Reuters) – The United States Securities and Exchange Commission has charged Medallion Financial Corp and its chairman with fraud for attempting to inflate the lender’s share price to taxi medallion buyers, amid competition from Uber (UBER.N) and Lyft.

Medallion shares fell $ 3.83, or 45.3%, to $ 4.62 in morning trading, after falling to $ 3.50 earlier.

In a lawsuit filed in Manhattan federal court on Wednesday, the SEC said Medallion and President Andrew Murstein paid a California media strategist to anonymously promote Medallion on websites such as Huffington Post, Seeking Alpha, TheStreet.com and Crain’s New York Business.

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Murstein, 57, a Medallion founder whose family is the largest shareholder in the New York-based company, is said to have kept touts on Medallion’s payroll for nearly two years and paid money to keep a silence.

According to the complaint, Murstein also fraudulently inflated the value of Medallion’s banking unit to offset loan losses and, against his auditor’s advice, fired a valuation firm that refused to monitor the project.

The alleged schemes happened from 2014 to 2017, as the growing popularity of ridesharing companies such as Uber and Lyft drove the prices of medallions, which are licenses to operate taxis and collect fares, down.

Medallion paid Murstein $ 11.4 million during that time, according to SEC documents.

“Murstein reportedly paid for more than 50 articles and hundreds of positive reviews, which were actually paid ads,” said Richard Best, director of the SEC’s New York office, in a statement. “Companies also can’t seek higher valuations when there is no evidence to back them up.”

In a statement, Medallion said it intends to defend itself against the SEC’s “unsubstantiated” accusations and is confident the record would show the company and Murstein complied with the law.

The SEC has also charged media strategist Ichabod’s Cranium Inc and its owner Lawrence Meyers with fraud. Their lawyer did not immediately respond to requests for comment.

According to the SEC, the value of New York City lockets fell to $ 150,000 in 2017 from $ 1.3 million in 2013. Some locket lenders have gone bankrupt because homeowners defaulted on their loans.

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Reporting by Jonahtan Stempel in New York and Susan Heavey in Washington, DC; Editing by Louise Heavens and Chizu Nomiyama

Our standards: Thomson Reuters Trust Principles.


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