Today, shares of Medallion Financial (NASDAQ:MFIN) are plunging more than 30% after the U.S. Securities and Exchange Commission alleged the company and its COO are engaging in fraud. During the pre-market session, MFIN stock plunged to a 13-month low, but has since recovered some of its losses.
MFIN Stock: SEC Charges Medallion With Fraud
According to the complaint, Medallion engaged in two forms of fraud. First, the SEC claims that Medallion and COO Andrew Murstein paid a media strategist working for Ichabod’s Cranium to publish positive stories about Medallion on several news outlets. These news outlets included Seeking Alpha, The Huffington Post and The Street. Regulators also believe that the media strategist was paid to create fake identities to make the stories appear more credible. As part of this, the SEC has also charged Ichabod’s Cranium and its CEO, Lawrence Meyers, with fraud.
Richard Best, the director of the SEC’s regional New York office added that:
“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.”
The second complaint from the SEC alleges that Medallion fraudulently increased the carrying value of Medallion Bank, which is a wholly owned subsidiary of Medallion Financial. The reason for this was to offset losses from its taxicab medallion loan business. A taxicab medallion is a transferrable permit to operate a taxi. The number of taxicab medallions are limited, which explains the demand behind them. Furthermore, regulators alleged that Murstein fired an auditing firm after the firm refused to increase Medallion Bank’s valuation.
What’s Next for MFIN Stock?
All in all, Medallion was charged with violating internal controls, books and records, and antifraud federal security laws. Furthermore, COO Andrew Murstein was charged with making false statements to an auditor. In terms of consequences, the SEC is seeking “permanent injunctions, disgorgement plus prejudgment interest, and civil penalties.” Additionally, the SEC wants to ban Murstein from any officer or director positions.
In response, the company told Seeking Alpha that it will “vigorously defend against the SEC’s unfounded charges and are confident we will be completely vindicated.”
It would be best to stay away from MFIN stock as the company deals with these charges. The claims by the SEC will stick with the stock for a long time. Once a company has lost its integrity, it’s no easy task to regain it.
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On the date of publication, Eddie Pan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
