The Securities and Exchange Commission charged Medallion Financial Corp., a Delaware company headquartered in New York, NY, 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.
According to the SEC's complaint, 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. 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.
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 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.
The SEC's investigation was conducted by Olivia Zach, Kenneth Gottlieb, and David Stoelting, and supervised by Celeste Chase and Richard Best of the New York Regional Office. The litigation will be handled by Mr. Stoelting.
To read the full SEC press release and SEC Complaint, click here.
MEDALLION FINANCIAL CORP. RESPONDS TO SEC ACTION
Medallion Financial Corp., a finance company that originates and services loans in various consumer and commercial industries, issued the following statement on December 29, 2021 in response to a complaint filed by the U.S. Securities and Exchange Commission (“SEC”) alleging violations of federal securities laws. The related SEC investigation was previously referenced in the Company’s Forms 10-Q for the quarters ended June 30 and September 30, 2021.
We intend to vigorously defend against the SEC’s unfounded charges and are confident we will be completely vindicated. In the interim, we will continue to focus on growing our business, building on our recent record financial performance, and doing right by our shareholders and those with whom we do business.
We believe that none of the allegations in the SEC complaint gives rise to a securities violation and are confident that the full record will show that Medallion Financial Corp. and Andrew Murstein complied with the law.
The actions in question occurred five or more years ago at a time when short sellers were engaged in an online campaign to drive down the Company’s stock price for their personal profit by spreading misleading and disparaging information and misrepresenting its business. Medallion sought only to provide the market with an accurate understanding of its financial position and prospects and an appropriate and transparent valuation of Medallion Bank and its other assets.
The SEC’s attempt to mischaracterize Medallion’s good-faith efforts defies logic when the SEC does not even allege that the Company’s actions had any market impact whatsoever on the price of Medallion stock and Mr. Murstein has never sold a single share of Medallion stock.
Medallion and the Murstein family that founded it have provided life-changing opportunities over the past 50-plus years to underserved communities through loans to thousands of borrowers that other financial institutions turned away. Mr. Murstein has successfully led Medallion through numerous challenges, from the devastation of 9/11 through the continuing pandemic, and significantly diversified its business. The remarkable success of Medallion Bank since its formation in 2002 is a testament to Mr. Murstein’s ability to navigate the rapidly changing market for financial services.