Medallion Financial Corp, which provided loans to New York’s financial players and taxi drivers, was recently fined $4 million for creating and distributing fake news stories online to boost its stock price.
The company was quite popular a decade ago, especially as ride-sharing services like Uber and Lyft emerged, heavily impacting the taxi medallion market.
Andrew Marstein, who gained some media attention for hiring Nicki Minaj to perform at his son’s Bar Mitzvah back in 2015, now faces a ruling requiring him to pay over $1 million due to a lawsuit from the Securities and Exchange Commission (SEC), as stated in a filing from May 29.
The SEC’s complaint, filed in December 2021 under the leadership of Gary Gensler, alleges that Marstein and Medallion Financial misled investors by withholding crucial information regarding the fair value of Medallion Bank, as noted by Judge Kaplan in another filing.
Reports highlight how Marstein attempted to discreetly fund these misleading stories, as the rise of Uber and Lyft caused investors to lose confidence in taxi-related stocks, negatively affecting Medallion’s stock price.
Judge Kaplan found that securities laws were breached when top executives hired a media strategist, publishing at least 50 stories on various platforms from 2014 to 2017. Notably, the lenders for taxi medallions failed to disclose that the authors of these misleading blogs were compensated, and many stories were modified by Marstein himself.
The narratives were crafted to appear as though they came from real investors who had a positive outlook on medallion stock.
Judge Kaplan highlighted that neither Medallion Financial nor Marstein disclosed his involvement in hiring and training individuals to generate these narratives.
Marstein’s actions were described as either intentional or reckless, particularly regarding his recruitment of those who created favorable opinions about Medallion’s financial standing.
It was also noted that one evaluation firm overlooked the decline in the medallion portfolio and relied on an inflated $193 million valuation from the company.
Despite the falling medallion prices, the banking value noticed a bump, rising from $266 million to $280 million over a couple of quarters ending in 2016.
The SEC filings reveal that Lawrence Meyers, a leading communications consultant engaged by Marstein, is subject to a $100,000 fine.
All defendants involved will not admit to or deny the claims as part of the settlement agreement.
A spokesperson for Medallion commented that settling with the SEC will help them move forward, alleviating several years of issues and focusing on company growth.
He noted that it eliminates distractions and uncertainties linked to ongoing litigation, which is in the best interest of both the company and its shareholders.
News about the settlement first came from American bankers on Tuesday.
According to reports, Marstein and his father, Leon, earned over $42 million between 2002 and 2014, besides enjoying time with high-profile celebrities like Minaj. The company has also expanded into areas such as professional lacrosse and NASCAR.
A source mentioned that it seems the SEC is taking a softer approach given management changes and staffing challenges.
There are concerns whether board members and executives could evade such scrutiny.
President Trump’s SEC Chairman Paul Atkins has taken over Gensler’s role.
A former SEC attorney remarked that this move indicates a desire to wrap up actions initiated under previous administrations.
The Atkins-led SEC aims for quicker resolutions and lower civil penalties, particularly if they can’t prove companies benefit from fraudulent activities.
Medallion’s shares closed at $9.50 recently. Each yellow taxi in New York City requires a medallion, and under Mayor Bloomberg, prices soared to around $1 million.
However, competition from ride-sharing services has significantly eroded profits and left many drivers in debt.
The medallion system has been in place since 1996, rooted in the efforts of Marstein’s father, a Polish immigrant who began trading part of the cab medallion business.
When drivers purchased their permits, they typically covered a third of the costs upfront, financing the remaining amount over time with interest.
In light of the turmoil caused by digital competitors, former Mayor Bill de Blasio announced a cap in November 2021 on medallion loans at $170,000, with interest repayments capped at 5%.
Recently, Medallion has shown interest in transitioning toward more traditional consumer and commercial banking avenues.
