Medallion Financial must pay a multimillion civil money penalty as part of a settlement it has reached with the Securities and Exchange Commission, which accused the New York-based company of engaging in fraud.
The parent of Medallion Bank has agreed to pay $3 million in fines, appoint a chief compliance officer by the end of summer and retain an independent compliance consultant. The consultant will review and evaluate the sufficiency of its policies, procedures and internal controls as it relates to investor communications and the company's internal account controls around the valuation of its assets.
In addition, Medallion's longtime president and chief operating officer, Andrew Murstein, is required to pay a civil money penalty of $1 million, which must be made in four installments of $250,000 over the course of the next 12 months. The first payment is due by the end of June.
In agreeing to the settlement, neither Medallion nor Murstein — whose grandfather founded the specialty finance company in 1937 and whose family remains the largest shareholder — admitted or denied the allegations, the company said in a statement.
The $2.8 billion-asset company also said: "Our agreement with the SEC puts this legacy matter behind us and enables us to apply our full focus to continuing to grow the company, build on our strong financial performance and serve our shareholders and customers. It removes the distraction, cost and uncertainty of continued litigation and is in the best interest of the company and our shareholders."
Medallion built its business by making loans to cab owners and operators. The SEC accused the company and Murstein of engaging in two separate schemes to reverse its sinking stock price at a time when rides-haring apps such as Uber and Lyft had
According to the SEC's December 2021 complaint, from late 2014 through 2017 Murstein tried to boost the stock price, which had plummeted as the
Murstein hired Lawrence Meyers, a public relations specialist, to anonymously promote Medallion Financial online. Meyers allegedly made hundreds of postings, most of which used pseudonyms, and Murstein allegedly hired another anonymous writer who was trained under Meyers.
The SEC accused Murstein of not disclosing to investors that he recruited, hired or paid people to tout Medallion anonymously. In the complaint, the SEC said that Murstein "acted knowingly or recklessly in hiring and keeping touters on the Medallion Financial payroll for nearly two years."
In the second scheme, Murstein allegedly tried to increase Medallion's stock price by increasing the carrying value, or fair value, of Medallion Bank, despite having no basis for doing so. Murstein pressured the valuation firm that had been hired to determine the fair value, and when they would not budge, he fired the firm and found an investment bank that would provide the requested valuation number in exchange for future work, the SEC alleged.
Murstein took the actions without informing investors, the SEC said. The increases in fair value in the second half of 2016 and all of 2017 were the result of "expressions of interest" in the company from "investment bankers and interested parties," which was misleading, the SEC said.
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"Medallion Financial's sudden increases in fair value … resulted from Murstein's behind-the-scenes conduct, which included firing Medallion Financial's valuation firm, instructing the new valuation firm on the correct value, biasing the new firm with possible incentives, and concealing information from Medallion Financial's auditor," the SEC wrote in its complaint.
Those actions had financial ramifications, the SEC claimed. The reported fair value of Medallion Bank was overstated by at least $110 million at the end of 2016 and by at least $85 million at the end of 2017.
The company's medallion loan portfolios were also overvalued, causing its reported total assets and total shareholders' equity to be overstated by more than $140 million at year-end 2016 and by more than $115 million at year-end 2017, excluding the impact of income taxes, the SEC said.
Medallion has been shifting away from its roots in the taxicab industry. In recent years, it has branched out into consumer lending, making loans for both recreational vehicles and home improvement projects. Taxi medallion loans now make up less than 0.5% of the total loan book.
The company recorded a $3 million charge in the fourth quarter of 2024 related to the SEC settlement, as well as a benefit of $5.5 million related to insurance coverage for legal costs.
The SEC's settlement also included Meyers, who was a co-defendent in the case. He must pay a civil money penalty of $100,000 over the next 12 months.
