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After the SEC charges illegal stock promotion, a taxi-medallion business in NYC plunged 59%

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Taxi cabs drive through streets of Manhattan, NYC

The stock price of a NYC-based taxi medallion firm plunged as high as 59% following allegations by the SEC that it engaged in illegal stock promotion.

After the SEC allegation that Andrew Murstein, the chief operating officer and president of Medallion Financial, were involved in illegal stock promotion activities, shares in Medallion Financial plunged as high as 59%. 

According to the SEC complaint Medallion hired media strategy companies to publish more than 50 articles and hundreds of positive comments on the company’s website, including on investment-related platforms SeekingAlpha, and TheStreet.com.

From late 2014 to 2017, Medallion was alleged to have worked with Ichabod’s Cranium, a California-based media company, to create fake identities in order to make their opinion articles appear credible to potential investors.

“Murstein allegedly purchased more than 50 articles and hundreds positive comments in an attempt to deceive investors as to the stock’s true value,” Richard Best, Director of the SEC New York Region Office, said.

Taxi medallions allow taxi drivers to operate in cities. They can be transferred, and they were once attractive investments due to their limited supply. The arrival of disruptive ride-hailing services like Uber and Lyft has changed all that.

Medallion sought to reverse a precipitous drop in its share price, which has tumbled 43% since 2014 while the S&P 500 is up more than 160%. 

Separately, the SEC claimed that the company fraudulently increased the carrying value of its wholly-owned subsidiary, Medallion Bank to offset losses in its taxicab Medallion loans. Following pressure from Murstein’s appraisal firm, Medallion refused to raise its valuation of the company and the company hired a new firm that would provide a higher valuation. 

The SEC has also charged Murstein and Medallion with violating federal securities laws, including antifraud, books, records, anti-touting and internal controls provisions. Murstein is also charged with making false statements regarding Medallion’s auditor. Finally, Ichabod’s Cranium’s and Lawrence Meyers, its owner, are being charged for touting and fraud. 

The SEC seeks civil penalties, permanent injunctions and disgorgement of ill gotten gains, plus pre-judgment interest. Murstein will be banned from holding officer or director positions. 

Insider received a statement from Medallion disputing the SEC charges. It also claimed that short sellers were responsible for the stock price declines of more than five years ago.

“We will vigorously defend the SEC’s unfounded accusations and are confident that we will be completely vindicated.” The actions in question occurred more than five years ago, at a time when short-sellers were engaged in an internet campaign to lower the Company’s stock prices for their personal profits by spreading misleading and disparaging material and misrepresenting its business. “Million was only trying to give the market an accurate understanding of the Company’s financial position and prospects, and an appropriate valuation of Medallion Bank (and its other assets”),” the statement read.

 Medallion’s stock pared its losses to about 25% in afternoon trades. 

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