Shares of Medallion Financial plunged Wednesday after U.S. regulators accused the New York-based lender to taxi drivers of seeking to illegally boost its stock price amid intense competition from Uber Technologies and Lyft.
The Securities and Exchange Commission alleged that after a string of banner years, Medallion floundered as the popularity of ride-sharing apps caused the value of taxi medallions, which were used as collateral for loans, to plummet. As the company’s stock slumped since 2013, it tried to drown out short-sellers by flooding media websites with bogus news articles, the SEC said in a complaint filed in federal court.
Medallion shares were halted Wednesday after the stock slid more than 50% to $3.94. They then resumed trading, paring losses to about 28% as of 11:51 am in New York.
The company traded almost as high as $18 a share eight years ago. The regulator said the company’s president, Andrew Murstein, paid a public relations firm to produce hundreds of posts — often under pseudonyms — that touted Medallion. Articles, which were designed to appear as if they came from actual investors who were bullish on the company, appeared on sites like Huffington Post, Seeking Alpha and TheStreet.com.
The regulator also accused Murstein of pressuring investment banks to inflate the valuation of the company’s Medallion Bank unit. The move, which wasn’t disclosed to investors, resulted in the subsidiary’s fair value jumping to $280 million at the end of 2016, from $166 million just two quarters earlier even as the price of medallions slumped, the SEC said.
“Companies also cannot shop for higher valuations when there is no evidence to support them,” Richard Best, director of the SEC’s New York regional office, said in a statement.
The SEC said it’s suing to force the company to repay investors for the alleged violations that occurred between 2014 and 2017.
The regulator is also seeking to fine the company and bar Murstein from serving as an officer or director of a publicly traded company for some period of time.
“We intend to vigorously defend against the SEC’s unfounded charges,” Medallion said in a statement. “None of the allegations in the SEC complaint gives rise to a securities violation, and we are confident that the full record will show that Medallion Financial Corp. and Andrew Murstein complied with the law.”
In its 2020 annual report, Medallion said that it’s shifting away from the taxi business to focus on consumer lending. Besides financing cab medallions, the company says it offers loans for home improvements, commercial businesses and buying recreational vehicles.
