SEC Charges Taxi Lender With Fraud

The Securities and Exchange Commission has charged the head of a New York financial firm with fraud, saying he paid media consultants to write bogus stories and offered kickbacks to valuation firms, all to prop up a banking subsidiary that lent money to taxi drivers and held the cabbies’ medallions as collateral. 

The driver of this unusual tale is Andrew Murstein, president and chief operating officer of Medallion Financial. The SEC charged both Murstein and the company this week with cooking the books to mislead Medallion’s investors, and with making false statements to Medallion’s audit firm. Also charged were media consulting company Ichabod’s Cranium and its owner, Lawrence Meyers, for assisting Murstein.

So what happened? According to the SEC, Medallion had a long history of financial success in the 2000s and early 2010s, making loans to taxi drivers in New York and Chicago and holding their medallions as collateral. By 2014 Medallion’s stock price had hit an all-time high of $17 per share and the company was paying cash dividends every quarter. 

Around 2015, however, everything started to spin out of control. Uber, Lyft, and other ride-sharing apps walloped the taxi market, and the value of medallions plunged. Medallion’s share price dropped to $3, the cash dividends dried up, and short-sellers were publishing all sorts of negative takes online about Medallion’s future. 

To steer things back on course, the SEC lawsuit says, Murstein first hired Meyers — “whose specialty was stealth public relations” — to promote Medallion Financial anonymously online. Meyers proceeded to make hundreds of posts, most of them under pseudonyms, on websites such as Seeking Alpha,,, Crain’s and In early 2016 Murstein even hired a second ghost-poster to tout the company, and had Meyers train the new touter. Meyers was paid $65,000 for his own writing work, the SEC says.

By late 2016 financial journalists had discovered Murstein’s marketing campaign and “confronted him with the obvious fact that hiring and paying someone to anonymously tout was a violation of the securities laws,” as the SEC lawsuit describes it. Murstein denied any knowledge of the effort and paid the second touter $15,000 to sign a non-disclosure agreement and a liability release. 

Allegations of Valuation Fraud

Murstein also launched a separate scheme to inflate the value of its Medallion Bank subsidiary and therefore push the company’s share price back up, the SEC says. 

First, he talked up the idea of selling a minority interest in Medallion Bank, and used those expressions of interest to argue for a higher valuation for the business. When one outside valuation firm wouldn’t go along with his objective — specifically, to raise the bank’s fair value from $152 million in early 2016 to $193 million by that summer — Murstein fired the firm “and went opinion-shopping for a firm that would agree to value the bank at his targeted number.”

Murstein soon found an investment bank that would agree to the $193 million, the SEC says, in exchange for the more lucrative business of selling that minority stake in Medallion sometime further down the road. The investment bank then kept raising its fair value estimates for Medallion Bank, and Medallion reported those numbers to investors. By the end of 2016, the bank’s reported fair value was $280 million — nearly four times greater than the market cap of its parent company, Medallion Financial.

The wheels came off, however, when the investment bank couldn’t find any potential buyers for that minority stake. Without potential buyers offering potential numbers for a sale price, you can’t justify a fair value estimate. The SEC even included one killer line from the investment bank to Murstein: “[C]learly the market reaction to the capital raise was substantially different than your expectations and more in line with your stock value.” Ouch.

Ultimately the SEC charged Murstein and Medallion with making false statements to investors in 2016 and 2017. For the record, Murstein is still COO of Medallion, and his father, Alvin Murstein, is also chairman and CEO of the company. The company did not immediately publish any statement about the SEC’s lawsuit. 

Medallion did publish its most recent quarterly report in November and said its medallion investments now account for only about 3 percent of total assets. That’s down from about 7 percent at the end of 2019, as Medallion tries to unwind its taxi business. 

The accusations of planting false media posts are clearly the more interesting part of the story here, but the accusations of misleading investors and auditors are, really, the more relevant to internal control professionals. The allegations against Murstein and Medallion are yet another example of hard-charging executives ignoring internal controls, Generally Accepted Accounting Principles, and federal securities law. 

Filed under: out of gas.

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