The Securities and Exchange Commission (SEC) charged a New York-based financial company and one of its executives with engaging in illegal activities to boost its stock price.
The SEC charged Medallion Financial Corp. and its president and chief operating officer, Andrew Murstein, by paying companies, Ichabod’s Cranium and others to place positive stories about the company on various websites. Murstein allegedly knew of the scheme to create fake identities so their opinion pieces would appear credible to potential investors.
Medallion’s core business is making loans backed by taxicab medallions to taxicab owners and operators. However, the popularity of ride-sharing companies led to a decline in the value of taxicab medallions and, in turn, Medallion’s stock price. The complaint also alleges that Medallion and Murstein fraudulently increased the carrying value of Medallion Bank to offset losses relating to the taxicab medallion loans. Further, the SEC said that when the existing valuation firm refused to cave to Murstein’s pressure to increase the bank’s valuation, Murstein fired the firm and hired a new firm to provide an inflated valuation of the bank.
“Murstein allegedly paid for more than 50 articles and hundreds of positive comments, which were really paid advertisements placed across the web in an effort to deceive investors about the value of Medallion’s stock,” Richard Best, director of the New York Regional Office, said. “Companies also cannot shop for higher valuations when there is no evidence to support them.”
Murstein and Medallion were charged with violating the antifraud, books and records, internal controls, and anti-touting provisions of the federal securities laws. In addition, Murstein is charged with making false statements to Medallion’s auditor. The complaint also charges Ichabod’s Cranium and its owner, Lawrence Meyers, with touting and fraud.
The SEC seeks permanent injunctions, disgorgement plus prejudgment interest, and civil penalties. Also, the SEC seeks an officer-and-director bar against Murstein.
The investigation was conducted by Olivia Zach, Kenneth Gottlieb, and David Stoelting and supervised by Celeste Chase and Richard Best of the New York Regional Office.