As Uber rises and the cost of taxi medallions plummets, a lender is suing local cab operators who defaulted

As Uber rises and the cost of taxi medallions plummets, a lender is suing local cab operators who defaulted

The borrowers owe more on their loans than their properties are worth.

Homeowners in financial trouble?

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Guess again.

This time, it is not homes that are losing their value but the taxicab licenses, commonly called medallions, that are required for companies to operate within Chicago. Disruption in the industry, in the form of increased competition from Uber and other ride-sharing companies, has caused medallion values to plunge. Also caught in the fallout: banks extending credit to taxi companies.

Since April 28 alone, a New York credit union has filed five lawsuits over a total of six medallions owned by five Chicago taxi owner-operators, alleging they’re in default on their loans and seeking about $1.4 million. That brings to 28 the number of lawsuits that Lomto Federal Credit Union has brought against cab companies so far this year in Cook County Circuit Court.

The lender, in its lawsuits, acknowledges that tech startups have burst a bubble in the transportation industry.

Chicago taxi medallions now are worth about one-sixth of what they were four years ago, down to about $60,000 from a peak of $370,000, according to one estimate by another bank. Unlike rideshare companies, which allow people to use a smartphone app to order and pay for rides from drivers using personal vehicles, cab companies are required to have a city-issued medallion affixed to the hood of each of their vehicles.

Uber, which entered the Chicago market in 2011 with 40 drivers, has built a rapidly growing company that has been valued at more than $60 billion by its investors. Rival Lyft, valued at $7.5 billion, debuted in Chicago in 2013.

“Since the entrance of Uber and other ride-sharing companies into the public passenger vehicle market, Chicago taxicab medallions have consistently lost value,” according to one of the lawsuits Lomto filed since April 28 in Cook County.

“The value of the medallion will continue to decrease significantly,” the suit says.

The issue isn’t limited to Chicago.

Bhairavi Desai, executive director of the New York Taxi Workers Alliance, said in an emailed statement that competition from ride-sharing companies is turning “full-time professional jobs … into low-pay, insecure gigs.”

“For drivers who also own the medallion, it means they face bankruptcy and foreclosures and longer hours to just make ends meet,” Desai said. “It’s a race to the bottom for a workforce already on the edge of poverty.”

For Lomto and other lenders, meanwhile, it means souring loans on their balance sheets.

New York-based Signature Bank last year wrote down the value of, or set aside reserves for, each Chicago taxi medallion in its loan portfolio, company documents show. Citing dropping medallion prices, the company charged off $108.6 million in taxi loans in Chicago last year. Charge-offs occur when a loan is deemed uncollectable.

Signature holds another $55.2 million of loans tied to Chicago medallions and has made provisions for $12.2 million of those loans potentially going bad. That means Signature’s exposure to the Chicago taxi market is now down to $43.1 million. That comes out to about $60,000 per medallion, Signature says.

Doing business with the taxi industry has been a bumpy ride for lenders both big and small.

Capital One blamed an earnings drop last year partly on rising losses in its national loan portfolio for taxi medallions. In late 2015, New York-based Montauk Credit Union, which, according to the National Credit Union Administration, primarily served taxi industries in New York, Chicago and Philadelphia, was seized by New York financial regulators due to “unsafe and unsound” conditions and later merged with another credit union.

Medallion Financial also has been dealt a blow by the taxi industry. The New York-based company, whose business lines include originating, acquiring and servicing loans that finance taxicab medallions, estimated the value of Chicago taxi medallions to be about $60,000 at the end of last year, down from a high of $370,000 in 2013. It cited increased competition from ride-sharing apps as a factor for pressures in the taxi industry. Medallion Financial said in company documents that about 20 percent of its medallion loan portfolio was at least 90 days past due at the end of the year, up from about 4 percent the prior year.

Records from the city of Chicago support the lenders’ claims about dwindling medallion values.

The top price paid for a city cab medallion so far this year has been $100,000, according to city records on medallion sales.

In the taxi industry equivalent of a foreclosure, Lomto, founded 80 years ago by New York City cab medallion owners, is asking for the medallions back and says it’s entitled to all proceeds of the businesses in the meantime. It also wants the court to prevent the taxi companies from selling or transferring the medallions.

Its most recent lawsuits have been filed against Future Cab Co., Modan Enterprise, Durrani Ent., Nanayaw and Vali Trans, all of Chicago.

In February 2014, for example, Lomto lent $260,000 to Future Cab so it could refinance its medallion. The loan, requiring monthly payments, comes due in 2019. The lawsuit alleges Future Cab is in default because it has been missing payments, and the court filing says that under the loan agreement, Future Cab is supposed to turn over its medallion to Lomto in case of a default.

But the company refuses to hand over the medallion, Lomto alleges. The lender also says it’s entitled to all revenues generated through the cab, a white 2010 Toyota Camry Hybrid, according to city records.

Lomto is asking the court for a preliminary injunction and temporary restraining order to prevent Future Cab from selling or transferring the medallion and from operating a cab with the medallion. The reason: The value of the medallion could drop if, say, the taxi were found liable in an accident.

“The medallion is losing value every day to the market entry of ride-sharing companies,” the lawsuit says.

Lomto wants the court to award a judgment of more than $248,000 due on Future Cab’s loan as of last month.

The background, allegations and relief sought in the lawsuit against Modan and others are similar.

Lomto made two loans for a combined $500,000 in 2013 to Modan to refinance two medallions, both for white 2011 Toyota Camry Hybrids. The loans mature next year. Lomto, based in Woodside, N.Y., is asking the court to award it about $480,000 in the Modan case.

Cook County Circuit Judge Kathleen Pantle on Thursday approved two emergency temporary restraining orders against Modan and Nanayaw, meaning they’re now not supposed to be driving the cabs in question.

Lomto lent $185,000 to Nanayaw in May 2012, a debt that matured Friday, according to the lawsuit. Lomto says it’s owed about $175,000.

Lomto is represented by Chicago lawyer Frank Andreou. The credit union and Andreou declined to comment beyond the lawsuits, but Andreou said “amicable resolution is always preferred over litigation.”

Four of the five recently sued cab companies couldn’t be reached for comment.

Salman Durrani of Durrani Ent., one of the cab companies Lomto is suing, agrees with the credit union on one matter: He said he is “not making money due to Uber.”

He said he tried to communicate that fact to Lomto in hopes of getting his loan modified but that he was unable to do so.

byerak@chicagotribune.com

Twitter @beckyyerak

Copyright © 2017, Chicago Tribune
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Uber’s Financials Revealed

APR 15, 2017 @ 04:29 AM

When facing bad public relations, one of the oldest plays in the playbook is to try and change the narrative. Execs are departing? You’re being sued over possibly stolen technology? Stories of sexual harassment in the workplace are making national news? How about you openly share some of your heretofore mostly secret financial performance to get people focused on some cold, hard numbers, instead? Whether this is literally what went on in the minds of the executive team at Uber, yesterday’s data dump showing that Uber booked a staggering $20 billion in rides last year certainly got a lot of attention.

Unfortunately for Uber, the financials shared with Bloomberg, paint a decidedly mixed picture beneath that eye-popping figure. While Uber’s growth has been remarkable and remains very strong as it approaches 7 years old — business more than doubled in 2016 — the company has yet to demonstrate a sustainable or profitable business model. Perhaps worse though is that despite at least $8 billion in cash burn Uber has little in the way of a strong competitive moat to show for its efforts.

(Disclaimer: I worked for Uber in 2015 for the communications and policy team. All data in this report, however, is based on publicly available information about the company’s growth and profitability.)

First, the good news

In 2016, Uber managed to record revenue of $6.5B on those $20B in bookings. That’s a “take rate” of more than 32%. Over time, Uber has been able to record a higher percentage of the cost of each ride as revenue, typically giving drivers a smaller slice of the fare. Drivers used to typically receive 80% of each ride’s cost but now are clearly averaging a lower figure.

It’s also true that growth remained strong throughout last year. Uber told Bloomberg $6.9 billion of the bookings came in Q4 and from other data provided made it possible to impute $5.4 billion was booked in Q3. That means just $7.7 billion was from the first half of the year and the final three months were nearly equal to the first six. That kind of growth isn’t just healthy it’s meteoric. By way of comparison, Facebook added about $10B to its top line last year, but that was from $17B –> $27B. Uber managed more absolute dollar growth on a smaller base. It’s likely there’s much more growth to come.

Indeed these booking figures have been soaring for years, from about $3B in 2014 to $9B in 2015 to last year’s $20B. NYU finance professor Aswath Damodaran, a longtime Uber skeptic, suggested back in 2014 the entire global rides-for-hire market was $100B. While the growth of Uber has doubtless hurt incumbents like taxi services, it’s actually unlikely it has taken a 20% global share. Instead the combination of innovations Uber has delivered — on-demand rides through an app with route tracking, upfront pricing, et al. — has allowed it to grow the market in for-hire rides.

The figures above are all, incidentally, exclusive of China which Uber left last year through a sale of its business to rideshare giant Didi. Uber had been burning $1 billion+ in China for the past two years. The drain of that business is now a footnote on its financials and, perhaps equally importantly, allows the company to concentrate management attention elsewhere. While exiting China might not have been the desired course of action, it doubtless leaves Uber better to compete in India, Latin America, and Europe.

Next, the not-so-good news

All those gains in bookings are fairly easily to understand but breaking it down into financial performance is much harder. For accounting reasons, Uber correctly only records its “take” as revenue under Generally Accepted Accounting Principles, or GAAP as it’s known. At least it does this most of the time. The accounting fiction Uber has operated under is that the real transaction is between rider and driver, with Uber merely a market maker. On traditional Uber rides that means the piece it claims is a “license fee” for use of the software and underlying marketplace. Priceline and Groupon similarly only book their slice of the pie as revenue, not the total amount of the hotel room or discount voucher they sell.

What’s concerning with Uber is that something very different happens with UberPool, the company’s shared-car service. It’s an essential component of growth in that it allows for more riders without an increase in drivers. But on UberPool, the company told Bloomberg, “the company counts the entire amount of an UberPool fare as revenue.”

I’ve sent a request into the company asking to clarify why, but based on what I do know here’s the likely reason: With UberPool, the company often charges a flat rate irrespective of distance traveled or otherwise discounts the offering. It then pays the driver based on a formula accounting for time and distance whether or not the ride ends up being shared. (For those unfamiliar, if you request an UberPool and you’re the first person picked up, there’s a chance you will never be matched with another ride and end up riding alone. You don’t pay more when this happens, but Uber is on the hook for standard UberPool rates to the driver.)

In these cases, Uber is basically paying the driver a rate for work and charging the rider something often very different — there’s no way to claim this is any sort of license fee. The gross margin on UberPool is likely quite low, then, given that rides can be as low priced at $3-5 in some markets. But taking the price paid as revenue necessarily inflates that figure versus a traditional Uber ride even if said ride costs 2x as much. Example: Rider pays $5 for an UberPool ride, revenue = $5 — that’s often $5 x 2 or $10. By contrast, rider pays $10 for an UberX ride, Uber’s revenue averages about $3.20 but the margin is only impact by the costs of payment processing, fraud, insurance, etc.

With all that, Uber grew its reported revenues from about $1.8B to $2.9B over those last two quarters of 2016. It was able to translate more than 70% of bookings growth into actual revenue and saw its loss only expand by about $60 million. But what a loss it was; Uber bled $991 million in red ink just in Q4. And here’s where that gets scary: Of $2.8B in losses last year, more than 1/3 were incurred just in the fourth quarter. What that demonstrates is though the ratio of losses : revenue may be shrinking, the absolute size of the loss continues to grow.

With a self-reported $7B+ in cash still on hand and another $2.3B in available credit, Uber isn’t in any short-term danger of a cash crunch. But the fact that losses have still grown with revenue suggests something approaching $1B each quarter is a possible scenario for 2017. There is no precedent for these kinds of losses in startup history. Worse still is that seven years into the Uber story, it’s reasonable to argue whether this business model works as currently constituted.

On Twitter, startup investor and AngelList founder Naval Ravikant suggest this isn’t a problem: “If Uber raised prices 15%, it’d be profitable.” Except it isn’t that simple. If Uber raised prices 15% and kept 100% of the increment, it would’ve earned an additional $3B last year — perhaps just enough to offset its losses. If Uber raised prices and — in a more likely scenario — only kept the 1/3 it normally receives, the extra $750M would have covered about 1/4 of the company’s loss.

Then, of course, there’s the issue of whether a price increase so large would have no impact on demand. Everything I know about the company says instead that it would. Uber routinely has used lower prices to expand the number and frequency of riders. Few goods are truly inelastic and on-demand rides don’t fit the model well. When they are inexpensive enough, people will find themselves in Ubers often. But if prices rise, options like transit, driving one’s own car, biking, et al. begin to look much more attractive. Even if volume fell just a few percent with such a large price increase, the gap that would leave would be in the nine figures.

And finally, the worst news

Underlying the assumption that Uber even could raise prices is the belief that it has created a competitive “moat” that gives it a path toward monopolistic power. There is scant evidence that’s true, however. Uber has strong competition around the globe, from Lyft in the U.S. to Ola in India and a major player working against it nearly everywhere else. In attractive markets like New York City, there are numerous options, including Gett, Juno, and Via.

Uber fans tend to draw comparisons to Amazon, which long made a habit of money-losing quarters and has seemingly emerged on the other side as an unassailable force, slowly crushing its retail competition. But Amazon spent much of the last two decades creating its fortress, which consists of things like a network of distribution centers located ever closer to customers, more power over suppliers who have little choice but to sell on Amazon, and arguably the greatest loyalty program ever created in Amazon Prime.

For all the success of Uber, it has few assets to show for those billions in losses. Beloved by many customers, its brand is also among the more hated in technology. Anecdotally, I know dozens of people who will simply never do business with Uber. And the recent firestorm surrounding the company over that began with the Susan Fowler story and escalated over President Donald Trump and his travel fan has doubtless added to the #neverUber rolls. The exodus of top-level executives is rarely a good sign for recruitment; and at Uber it’s a lengthening list.

Further, while it does have an excellent technology suite, there are still too many times when Uber offers a frustratingly inaccurate estimate of wait times and even untrustworthy pricing on some occasions. The closest thing to Amazon’s assets is that Uber has the longest roster of drivers in nearly all markets. That bigger supply leads to shorter waits and greater availability than competitors.

Unfortunately for Uber, it’s often at odds with those drivers as it cuts rates, pushes UberPool (where drivers are convinced they earn less), and fights them in court over whether they ought to be treated as employees. Drivers very frequently take advantage of their freedom as independent contractors to work for multiple services and few express much loyalty toward Uber. Further, unlike an Amazon distribution center in Northern Virginia that might serve the D.C. metro area for decades to come, Uber’s driver pool consists of a lot of transient part timers, many recent immigrants who will likely be in shorter supply for the next several years, and retirees who typically won’t be Ubering forever.

Yet even if Uber somehow turns around its driver relations, a goal of the recently departed executive Jeff Jones that seems far distant, it still faces a reality that other recent tech giants haven’t deal with: Uber is not a returns-to-scale business. Facebook’s giant user base allows it to sell more and more advertising without significantly growing its headcount. Netflix might spend millions on a new show but can stream it to new users for pennies without paying any extra for the content. And, Amazon, for all its reliance on old-school logistics like UPS, physical goods management, and the like can ship more packages to more people over time. Partly that’s robotics, partly it’s more efficient methods, partly it’s through acting as a market and taking a cut of others’ sales. It also can fund its retail ambitious through Amazon Web Services, it’s dominant hosting provider.

Uber looks more like a ground-based airline: It can’t carry more people without more drivers (planes). Once it fills all the seats in an UberPool (maximizes yield), it has maxed out returns. It can’t raise prices with viable competitors around (unless they match the increases). And the market for new drivers is constrained (perhaps not quite as severely as aircraft or gates at airports) by population growth, availability of other attractive jobs, affordability of vehicles, etc. Uber can do little or nothing to mitigate those.

Where does this leave the company? In a rather uncertain place. Those betting on self-driving cars to solve Uber’s economics down the road are assuming that competition there won’t be robust, which seems far-fetched. And in the meantime, the company is literally losing billions every year without demonstrating that its business should continue to receive the kind of investor faith it has to date. While this doesn’t mean Uber is going away, it also casts doubt on whether it’s poised to deliver on its $69B valuation anytime soon.

                                     

 

I write about technology, trends and companies on the leading edge.
I’m a multiple-time entrepreneur, working in the heart of Silicon Valley for the past quarter century — most recently at Uber. Currently, I live in Seattle and spend most of my time working on a book and a new blog. I’ve got a BA in political science and an MBA from Stanford. Having been around technology and business on the leading edge, I write mostly about what’s new and what’s coming for companies and the country. You can find me on Facebook, Twitter and Google+ You can e-mail me at forbes_at_rogodotnet

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The Best Description of Bannonism

UNDER THE BANNER OF BANNON

What Steve Bannon really wants

What does Donald Trump want for America? His supporters don’t know. His party doesn’t know. Even he doesn’t know.

If there is a political vision underlying Trumpism, however, the person to ask is not Trump. It’s his éminence grise, Stephen K. Bannon, the chief strategist of the Trump administration.

Bannon transcended his working-class Virginia roots with a stint in the Navy and a degree from Harvard Business School, followed by a career as a Goldman Sachs financier. He moved to Los Angeles to invest in media and entertainment for Goldman, before starting his own investment bank specializing in media. Through a combination of luck (a fallen-through deal left him with a stake in a hit show called Seinfeld) and a knack for voicing outrage, Bannon remade himself as a minor luminary within the far edge of right-wing politics, writing and directing a slew of increasingly conservative documentaries.

Bannon’s influence reached a new high in 2012 when he took over Breitbart News, an online news site, following the death of creator Andrew Breitbart. While at Breitbart, Bannon ran a popular talk radio call-in show and launched a flame-throwing assault on mainstream Republicans, embracing instead a fringe cast of ultra-conservative figures. Among them was Trump, a frequent guest of the show. They established a relationship that eventually led Bannon to mastermind Trump’s populist romp to the White House, culminating in his taking the administration’s most senior position (alongside the chief of staff, Reince Priebus).

It’s impossible to know for sure what Bannon will do with his newfound power; he honors few interview requests lately, ours included. (The White House did not respond to our request to speak with Bannon.) But his time as a conservative filmmaker and head of Breitbart News reveals a grand theory of what America should be. Using the vast amount of Bannon’s own publicly available words—from his lectures, interviews, films and more—we can construct elements of the vision for America he hopes to realize in the era of Trump.

The three tenets of Bannonism

Bannon’s political philosophy boils down to three things that a Western country, and America in particular, needs to be successful: Capitalism, nationalism, and “Judeo-Christian values.” These are all deeply related, and essential.

America, says Bannon, is suffering a “crisis of capitalism.” (He uses the word “crisis” a lot—more on that later.) Capitalism used to be all about moderation, an entrepreneurial American spirit, and respect for one’s fellow Christian man. In fact, in remarks delivered to the Vatican in 2014, Bannon says that this “enlightened capitalism” was the “underlying principle” that allowed the US to escape the “barbarism” of the 20th century.

Since this enlightened era, things have gradually gotten worse. (Hence the “crisis.”) The downward trend began with the 1960s and ’70s counterculture. “The baby boomers are the most spoiled, most self-centered, most narcissistic generation the country’s ever produced,” says Bannon in a 2011 interview.

He takes on this issue in more detail in Generation Zero, a 2010 documentary he wrote and directed. The film shows one interviewee after another laying out how the “capitalist system” was slowly undermined and destroyed by a generation of wealthy young kids who had their material needs taken care of by hardworking parents—whose values were shaped by the hardship of the Great Depression and World War II—only to cast off the American values that had created that wealth in the first place. This shift gave rise to socialist policies that encouraged dependency on the government, weakening capitalism.

Eventually, this socialist vision succeeded in infiltrating the very highest levels of institutional power in America. “By the late 1990s, the left had taken over many of the institutions of power, meaning government, media, and academe,” says Peter Schweizer, a writer affiliated with Bannon’s Government Accountability Institute, a conservative think tank, in Generation Zero. “And it was from these places and positions of power that they were able to disrupt the system and implement a strategy that was designed to ultimately undermine the capitalist system.” (As he says “undermine the capitalist system,” the film zooms in on the word “Lucifer” in that now-infamous epigraph from Saul Alinsky.)

Underlying all of this is the philosophy of Edmund Burke, an influential 18th-century Irish political thinker whom Bannon occasionally references. In Reflections on the Revolution in France, Burke presents his view that the basis of a successful society should not be abstract notions like human rights, social justice, or equality. Rather, societies work best when traditions that have been shown to work are passed from generation to generation. The baby boomers, Bannon says in a lecture given to the Liberty Restoration Foundation (LRF), failed to live up to that Burkean responsibility by abandoning the tried-and-true values of their parents (nationalism, modesty, patriarchy, religion) in favor of new abstractions (pluralism, sexuality, egalitarianism, secularism).

For both Burke and Bannon, failure to pass the torch results in social chaos.

Steve Bannon, appointed chief strategist and senior counselor to President-elect Donald Trump, arrives for the Presidential Inauguration of Trump at the US Capitol in Washington, DC, January 20, 2017.
Bannon at Trump’s inauguration. (AFP Photo/Pool/Saul Loeb)

The new liberal order

Once in power, the liberal, secular, global-minded elite overhauled the institutions of democracy and capitalism to tighten its grip on power and the ability to enrich itself. The “party of Davos,” as Bannon long ago dubbed this clique, has warped capitalism’s institutions, depriving middle classes everywhere of the wealth they deserve.

This pattern of exploitation came to a head in the 2008 global financial and economic crisis. Wall Street—enabled by fellow global elites in government—spun profits out of speculation instead of investing their wealth in domestic jobs and businesses. When the resulting bubble finally burst, the immoral government stuck hardworking American taxpayers with the bailout bill.

This is the kind of thing that led Bannon to say in that 2011 LRF lecture that there is “socialism for the very wealthy.” The rest of the country, he says, is “common sense, practical, middle-class people.”

There is also “socialism for the very poor,” he adds. “We’ve built a welfare state that is completely and totally unsupportable, and now this is a crisis.”

Bannon wants all of this liberal-sponsored “socialism” to end. He celebrates CNBC host Rick Santelli’s famous 2009 tirade about “those who carry the water and those who drink the water,” which sparked what became the Tea Party, a populist movement focused on tax cuts, fiscal scrimping, and a narrow interpretation of constitutional rights. Channeling the spirit of the Tea Party, Bannon blames Republicans as much as Democrats for taking part in cronyism and corruption at the expense of middle class families.

“We don’t really believe there is a functional conservative party in this country and we certainly don’t think the Republican Party is that,” says Bannon in a 2013 panel in which he discusses Breitbart’s vision. “We tend to look at this imperial city of Washington, this boomtown, as they have two groups, or two parties, that represent the insiders’ commercial party, and that is a collection of insider deals, insider transactions and a budding aristocracy that has made this the wealthiest city in the country.”

In short, in Bannonism, the crisis of capitalism has led to socialism and the suffering of the middle class. And it has made it impossible for the current generation to bequeath a better future to its successors, to fulfill its Burkean duty.

Judeo-Christian values

So what exactly are these traditions that Americans are meant to pass along to future generations? In addition to “crisis of capitalism,” one of Bannon’s favorite terms is “Judeo-Christian values.” This is the second element of his theory of America.

Generation Zero, Bannon’s 2010 documentary, has a lot to say about “American values,” and a lot of this matches closely the ideals of the Tea Party. But since 2013 or 2014, Bannon’s casual emphasis on American values has swelled to include a strong religious component. The successful functioning of America—and Western civilization in general—depends on capitalism, and capitalism depends on the presence of “Judeo-Christian values.”

For Bannon, capitalism was not only responsible for bringing the US out of the war successfully; it also brought about the restoration of Europe and the Pax Americana that followed, he explains in his 2014 speech to the Vatican conference. But capitalism alone is not enough. Unmoored from a Judeo-Christian moral framework, capitalism can be a force of harm and injustice—exemplified by the US’s economic decline.

To restore the health of America’s economy and patch its shredded social fabric, Bannon wants capitalism to be re-anchored by the Judeo-Christian values he believes made the country great throughout its history. This shared morality ensures that businesses invest not just for their own benefit, but also for the good of native workers and future generations.

As in Burke’s view, human rights and civil society do not come from anything abstract, but from tradition. For Bannon, this tradition is God; nation-states that establish people as the arbiters of truth and justice will ultimately give way to tyranny. The “ultimate check on the power of the state is God’s teaching,” says Duck Dynasty’s Phil Robertson in Torchbearer, the 2016 documentary that Bannon co-wrote, directed and produced. The film is full of Robertson offering similar aphorisms about how society falls apart without a religious foundation.

It’s important to note that “Judeo-Christian values” does not necessarily seem to require that all citizens believe in Christianity. Bannon doesn’t appear to want to undo the separation of church and state or freedom of religion enshrined in America’s constitution. After all, both of these are traditions that have led America to success in the past. What he believes is that the founding fathers built the nation based on a set of values that come from the Judeo-Christian tradition.

In order to make sure the whole country is on board with these values, it must limit or halt the influx of people who do not share them by rallying around nationalism. And it is through this final ingredient—the primacy of the nation-state’s values and traditions—that America can drive a stake through the heart of the global, secular “establishment.”

Nationalism

In addition to enriching themselves and encouraging dependency among the poor, global elites also encourage immigrants to flood the US and drag down wages. Immigrant labor boosts the corporate profits of globalists and their cronies, who leave it to middle-class natives to educate, feed, and care for these foreigners. The atheistic, pluralist social order that has been allowed to flourish recoils at nationalism and patriotism, viewing them as intolerant and bigoted. Without the moral compass of our forefathers, the system is so adrift in relativism that it champions the “rights” of police-hating deadbeats, criminal aliens, and potential terrorists over ordinary Americans, turning cities into hotbeds of violence and undermining national security. As one interviewee declares in Border War: The Battle over Illegal Immigration, another of Bannon’s documentaries, “The right sees [undocumented immigrants] as cheap labor, the left sees this as cheap votes.”

Bannon, Republican presidential candidate Donald Trump's campaign chairman, attends Trump's Hispanic advisory roundtable meeting in New York, Saturday, Aug. 20, 2016.
The ideologist. (AP/Gerald Herbert)

Mired in near-zero growth and financial chaos, the European Union epitomizes the catastrophic fate of a globalist system governed by elites who are not accountable to the citizens that elected them.

“[P]eople, particularly in certain countries, want to see the sovereignty for their country, they want to see nationalism for their country,” Bannon says in the Vatican speech. “They don’t believe in this kind of pan-European Union or they don’t believe in the centralized government in the United States.”

Nationalism, then, is the mechanism through which Judeo-Christian traditions and values become part of society. That’s because nationalism is fully inclusive, in the sense that it invites people of different backgrounds to unite under a common “American” sense of self. It dissolves minority identities—leading to the emphasis on “colorblindness” of “all lives matter” and opposition to affirmative action. This shared set of Judeo-Christian, nationalist values prevents minorities from claiming special rights. For instance, Generation Zero blames the 2007 housing collapse on “black victimization” that undermined capitalism and encouraged dependency on the government. At the same time, Torchbearer celebrates Dr. Martin Luther King Jr. as a paragon of traditional American morality because his view of human rights was based in Christianity.

The liberal elite’s pervasive emphasis on pluralism and minority rights—and its financial and political support of these groups—constrains shared American-ness. This erosion of Judeo-Christian nationalism weakens the country. Again, this applies not just to America, but also to other Western countries. As Bannon declares at a 2016 South Carolina Tea Party convention, the “swells, the investment bankers, the guys from the EU” are the “same guys who have allowed the complete collapse of the Judeo-Christian West in Europe.”

People who do not sign off on this set of shared values should not be welcome in the US. This logic forms the basis of Bannon’s opposition to immigrants, whose lack of democratic “DNA,” he believes, will harm society.

“These are not Jeffersonian democrats,” Bannon said last year, referring to immigrants heading from Muslim majority countries to Europe, USA Today reported. “These are not people with thousands of years of democracy in their DNA coming up here.” That rationale might justify closing the borders to immigrants from Latin America, even though they are usually devout Catholics.

A theory of generations

The crisis of capitalism and the undermining of the Judeo-Christian West that Bannon proclaims in his Vatican lecture is not an isolated event. It is, in his view, one of a repeated cycle of crises that occurs periodically, each of which inevitably culminates in war and conflict on a grand scale.

“This is the fourth great crisis in American history,” he says in the speech to the LRF. “We had the revolution, we had the Civil War, we had the Great Depression and World War II. This is the great Fourth Turning in American history.”

What he is getting at here is based on the work of Neil Howe and William Strauss, two amateur historians who in the 1990s presented a “generational theory” of American history. The theory views American history through the lens of repeated cycles lasting roughly 80 years, about the length of a single lifetime. Within each 80-year cycle, say Howe and Strauss, are four “turnings”—periods of around 20 years that are characterized by a particular mood. These four moods are the “high,” “awakening,” “unraveling,” and, finally, “crisis.”

The theory is too vague to be proven wrong, and has not been taken seriously by most professional historians. But it is superficially compelling, and plots out to some degree how America’s history has unfolded since its founding.

It’s also clear how the generational theory fits with Bannon’s view that the slow erosion of Judeo-Christian values has been bad for the country. The most recent cycle, according to Howe and Strauss, went from the “high” of the postwar era—a time of which Bannon is particularly fond—to an “awakening” of activism in the ’60s, followed by an “unraveling” of institutions and shared values thanks to the individualism brought on by the preceding “awakening.” That brings us to the current crisis, the great “Fourth Turning,” following the American Revolution, Civil War, and the Great Depression/World War II.

How to solve the crisis: Large-scale conflict

“Turnings” feature very heavily in Generation Zero. “Turnings are like the seasons—every turning is necessary,” says historian David Kaiser in the documentary, over stock footage of clocks ticking, suns rising, and butterflies emerging. “Cities are founded, cities collapse. States rise, states fall,” he continues.

What exactly is the current crisis? Bannon’s view on it has evolved. In 2010, he appears to have regarded it as the result of the debt racked up in the 2000s and the 2008 financial crisis.

“This accumulated debt at all levels of our society poses an immediate existential threat to America,” he says in a 2010 speech in New York City. “Now unlike the manufactured crises of global warming and healthcare, this is a true crisis. This crisis threatens the very sovereignty of our country.”

And in the 2011 LRF lecture, when Bannon declares the US faces the “fourth great crisis in American history,” he still seems to suggest that it consists largely of the global financial crisis that began in 2008.

But there’s more to it than that. Comparing the current crisis to events like the Revolutionary War and World War II, Bannon appears to believe that the US is heading inevitably toward violent conflict. This interpretation is backed up by other statements from and about Bannon.

David Kaiser, the historian interviewed in Generation Zero and also a proponent of the Strauss-Howe theory, recently recounted his conversation with Bannon, including Bannon’s militaristic interpretation of the theory, in Time:

A second, more alarming interaction didn’t show up in the film. Bannon had clearly thought a long time both about the domestic potential and the foreign policy implications of Strauss and Howe. More than once during our interview, he pointed out that each of the three preceding crises had involved a great war, and those conflicts had increased in scope from the American Revolution through the Civil War to the Second World War. He expected a new and even bigger war as part of the current crisis, and he did not seem at all fazed by the prospect.

Let’s follow the logic of this generational theory for a second: If a “high” only comes after a “crisis,” and if a “crisis” must necessarily be an increasingly large-scale war, Bannon is left searching for a major, existence-level enemy. Does the “Party of Davos” alone qualify? Who else could this war be fought against?

In the 2014 Vatican lecture, Bannon goes further. “I think we are in a crisis of the underpinnings of capitalism, and on top of that we’re now, I believe, at the beginning stages of a global war against Islamic fascism,” he says. Bannon adds:

“This may be a little more militant than others…I believe you should take a very, very, very aggressive stance against radical Islam…. See what’s happening, and you will see we’re in a war of immense proportions.”

Bannon’s “global war against Islamic fascism”

The fourth great civilizational showdown—a “global existential war,” as Bannon describes it in July 2016—pits the “Judeo-Christian West” against “Islamic fascism”—especially ISIL. But the threat isn’t necessarily limited to ISIL.

Bannon’s remarks and his affiliations with anti-Muslim activists like Pamela Geller and Robert Spencer leave the impression that the enemy might well be Islam in general. As Breitbart notes in 2014, the “erudite Bannon” entertains the argument that Islam’s “war” against Christianity “originated almost from [Islam’s] inception.” He endorses the view that, in the lead-up to World War II, Islam was a “much darker” force facing Europe than fascism. Other ideas he has supported include: a US nonprofit focused on promoting a favorable image of Muslims is a terrorist front; the Islamic Society of Boston mosque was behind the 2013 Boston Marathon bombing; and Muslim-Americans are trying to supplant the US constitution with Shariah law.

Because Islam is rooted in anti-Christian violence, goes the logic, the only way to ensure that Muslims in America don’t pose a terrorist threat is to make sure they honor the US constitution as the rule of law and accept Judeo-Christian values.

“Darkness, Darth Vader, and Dick Cheney”

There are a few loose ends in Bannon’s thinking—comments that seem consequential, but are vague or don’t fit clearly into any bigger vision.

Consider, for example, his statement that “darkness is good,” which he told Michael Wolff of Hollywood Reporter. “Dick Cheney. Darth Vader. Satan. That’s power,” he continued. Or the statement, reported by the Daily Beast, that Bannon views himself as a “Leninist” who wants to “bring everything crashing down, and destroy all of today’s establishment.”

The constant repetition of the phrase “Judeo-Christian values” should convince us that Bannon does not worship Satan. “Darkness is good” appears to suggest that the perception of being dark is good. The quote continues, “It only helps us when [liberals and the media] get it wrong. When they’re blind to who we are and what we’re doing.” Thus if the perception of him as a Darth Vader-like figure makes it easier for him to create his enlightened capitalist utopia, so be it.

As for the Leninist remark, it seems pretty consistent with what we know of Bannon thus far: The conservative Burke himself thought that throwing out leaders was justified when “necessary” to restore the old values.

Then again, this delight in being a “dark” oppositional force pairs nicely with his ferocious hatred of the “establishment.” In particular, Bannon’s diatribes against the media brim with spite toward journalists’ arrogance, superiority, and naivety.

On Breitbart radio in early November, he praised the “insight and savvy” of its callers and website commenters, while ranting about a “smug, smirking” New York Times reporter who suggested that Trump rally attendees in Mississippi didn’t know who Nigel Farage, a right-wing populist leader in the UK, was. “120% of the people” at the rally knew of Farage, who is “kind of a cult hero in this global populist movement,” said Bannon. More recently, he told the New York Times (paywall) that the media “should be embarrassed and humiliated and keep its mouth shut and just listen for a while.” He added: “I want you to quote this. The media here is the opposition party. They don’t understand this country. They still do not understand why Donald Trump is the president of the United States.”

Some of his hatred of the elite seems rooted in his experiences living and working among the elite. He frequently references his Harvard and Goldman Sachs pedigrees. However, when he describes his time as an elite, it’s as an “outsider”—a term he used in the early days to describe the populist movement he represented—passing among the privileged and deciphering their nefariousness for ordinary middle-class Americans. For example, in his 2014 Vatican speech, he says:

I could see this when I worked at Goldman Sachs — there are people in New York that feel closer to people in London and in Berlin than they do to people in Kansas and in Colorado, and they have more of this elite mentality that they’re going to dictate to everybody how the world’s going to be run. I will tell you that the working men and women of Europe and Asia and the United States and Latin America don’t believe that. They believe they know what’s best for how they will comport their lives.

But this cosmic avenger role Bannon seems to claim as voice-giver to the “forgotten” middle-classes hints at a deeper relish of conflict. A fascination with warfare and violence emerges in, for instance, his frequent allusion to the glory of the amphibious invasion at Normandy, or his taking the time out of his duties as Breitbart’s CEO to pen an obituary for Vo Nguyen Giap, a Vietnamese general who led a war for independence that Bannon described as “one of the bloodiest and hardest fought by all combatants.” In particular, the aesthetic of his documentaries can be nauseatingly violent. Torchbearer is a tour de force of gore. (There are at least six separate shots of falling guillotines, as well as lingering footage of nuclear radiation victims, mass burials from Nazi gas chambers, and various ISIL atrocities.)

What all this means for the Trump presidency

Even before he took charge of Trump’s campaign, in Aug. 2016, Bannon’s philosophies pervaded its rhetoric. If there was any question about the role his views would play in the Trump administration, the last two weeks have made it clear: The president’s leadership hangs from the scaffolding of Bannon’s worldview.

Trump’s inaugural address was basically a telepromptered Bannon rant. Where inaugural speeches typically crackle with forward-looking optimism, Trump’s was freighted with anti-elite resentment. He described a Bannonistic vision in which the “wealth of our middle class has been ripped from their homes and then redistributed all across the world.” The “forgotten men and women of our country”—a meme that Trump claimed, but that appears in Generation Zero—had a cameo too.

White House Chief Strategist Steve Bannon listens at right as President Donald Trump speaks during a meeting on cyber security in the Roosevelt Room of the White House in Washington, Tuesday, Jan. 31, 2017.
Commander-in-chief and Chief Strategist. (AP Photo/Evan Vucci)

Trump heaped blame on the “establishment,” which “protected itself” but not American citizens from financial ruin. “And while they celebrated in our nation’s capital, there was little to celebrate for struggling families all across our land,” Trump continued. “We’ve made other countries rich, while the wealth, strength and confidence of our country has dissipated over the horizon.”

“America first” is Bannon’s economic nationalism in slogan form. Trump’s vow to “unite the civilized world against radical Islamic terrorism, which we will eradicate from the face of the Earth” was a mellowed-out version of the West’s battle against “Islamic fascists.”

There’s more. Trump’s remarks that the “Bible tells us how good and pleasant it is when God’s people live together in unity,” that “most importantly, we will be protected by God,” and that children from both Detroit and Nebraska are “infused with the breath of life by the same almighty creator” seemed kind of bizarre coming from a not-very-religious man. They don’t, however, in the context of Bannon’s insistence in Torchbearer that a society without God disintegrates.

Within days of the inauguration came the dizzying spurt of executive actions—written by Bannon and Stephen Miller, a White House policy advisor—many of which contained “press release-friendly ‘purpose’ sections making extravagant claims not usually found in executive orders,” says Andrew Rudalevige, government professor at Bowdoin College.

Bannon’s philosophy toward Islam seems likely to have influenced the order, “Protecting the Nation from Foreign Terrorist Entry into the United States.” Recalling that line about how immigrants are not “Jeffersonian democrats,” the document prescribes ensuring the allegiance to America’s “founding principles” and the US constitution of anyone admitted to the country, including tourists. Trump also implied in a TV interview with the Christian Broadcast Network that he wanted to prioritize Christians refugees over Muslims, accusing the US government of favoring Muslim refugees over Christians in the past (a claim for which there’s no evidence). Some argue (fairly convincingly) that Trump’s ban risks lending credence to ISIL recruitment propaganda claiming that the US is leading the West in a war on all of Islam.

Another of the new administration’s focuses—the danger posed by Mexicans flooding over the border—is also a central theme of Bannon’s vision of America under seige. Trump’s executive action declares that “many” unauthorized immigrants “present a significant threat to national security and public safety,” though criminology and immigration experts say most evidence suggests immigrants in general commit crimes at a lower rate than native-born citizens. “Sanctuary” cities—those that voluntarily cooperate with immigration enforcement only on deporting unauthorized immigrants convicted of violent or serious crimes—are also critiqued in Bannonist terms: They have “caused immeasurable harm to the American people and to the very fabric of our Republic.” In other words, they do not share America’s values.

Finally, Trump’s withdrawal of the US from the Trans-Pacific Partnership, a multilateral trade deal supported by what would count as the “elite,” includes a special shout-out to “the American worker,” the classic Bannon theme.

Bannonism begins?

Bannon savors the power of symbolism. That symbolic power infused Trump’s campaign, and now, apparently, his administration’s rhetoric. After all, as Andrew Breitbart made clear when he famously dubbed him the “Leni Riefenstahl of the Tea Party,” Bannon is a master propagandist. He’s also a master opportunist, going by his fitful shifts in career. So it’s possible that the narrative flowing through Trump’s inaugural address and executive actions is simply what Bannon has calibrated over time to rouse maximum populist fervor—and that it doesn’t reflect plans to upend America.

There’s also, however, the possibility that Bannon is steering Trump toward the “enlightened capitalist,” Judeo-Christian, nationalistic vision that he has come to believe America needs.

Which it is, we can’t know, of course: Only Bannon knows what Bannon really wants. What we do know for sure, though, is that a man who has staked out a deep desire for a violent resurgence of “Western civilization” now has the power to fulfill it.

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Medallion Financial: Fashion Model Investor Relations Fiasco

Seeking Alpha
Feb. 6, 2017 4:19 PM ET

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Permabear

Long/short equity, deep value, contrarian, debt

Summary

Fashion model Sarah Frigo was hired at Medallion Financial Investor Relations.

While at the company, Frigo posted numerous bullish MFIN articles and comments under a pseudonym.

Potential securities fraud violation, management credibility in serious question.

Medallion loan book continues to deteriorate, Medallion Bank has breached its FDIC 15% leverage ratio.

If you are new to Medallion Financial (NASDAQ:MFIN), please take a look at my first two articles:

This is the full story of MFIN’s Investor Relations fiasco, involving a young, beautiful New York City fashion model with no finance experience, who quickly ascended to “head of Investor Relations” and spread highly promotional misinformation about MFIN, its stock price and future prospects, all while operating in the shadows – under a pseudonym.

The story was covered by Debtwire on January 27, 2017 in a piece entitled Fashion model turned cab finance company promoter takes Medallion Financial investors for a ride (which I suggest you read before continuing).

In this article, I will provide all the supporting material I obtained since November 2016, consisting of screenshots sourced from LinkedIn, Instagram, Twitter, Facebook, Huffington Post, and Medallion Financial’s official website. None of the images were altered, but I did highlight, underline and provide commentary on several of the images for ease of reference. To the extent possible, I have archived webpages from which I have taken screenshots, these links are included below. Strap in! It’s going to be a bumpy ride.

Let’s start at the beginning.

February 2016

Sarah Rabby Frigo is hired at Medallion Financial Investor Relations. According to Frigo’s LinkedIn she was, “appointed to the head of Investor Relations.

LinkedIn also says she is a “freelance contributor to the Huffington Post” after appealing directly to Arianna Huffington.

Frigo appears to have had no relevant experience in finance, investor relations or journalism. The bulk of her previous working experience (2008 – February 2016) was as a fashion model.

Source: Sarah Frigo

Source: Sarah Frigo

Source: Sarah Frigo

Source: Sarah Frigo on Twitter

Source: Sarah Frigo Instagram

Introducing: Jayme Stanley

Below is an image from Sarah Frigo’s Instagram of her and her brother Craig.

According to Facebook, Craig is in a relationship with Jayme Stanley. (Stay with me here… it will all make sense very soon.)

Below is an image of both Jayme Stanley (left) and Sarah Frigo (right) at a nightclub in 2015.

Okay, a quick recap – as of February 2016:

  1. Sarah Frigo, a fashion model with no relevant finance experience, has been appointed the head of Investor Relations at MFIN
  2. Sarah Frigo has a direct familial connection to a woman named Jayme Stanley

May 2016

Huffington Post

During the week of May 1, 2016, Sarah Frigo posted on her Instagram a screenshot of her email conversation with Arianna Huffington.

The email subject line reads, “(Article)Safety In Subsidiaries: Untangling the web of perception surrounding the taxi medallion industry, Uber, TAXI stock and Medallion Financial Corporation.Note: MFIN’s ticker was TAXI prior to May 11, 2016.

Note Sarah Frigo’s reference to using her “pen-name email” below.

Enlarging the screenshot of the email from Arianna Huffington (below), the pen-name email address that Sarah Frigo appears to be using is stanleyjayme@yahoo.com.

The Huffington Post article was also bylined by the “pen-name,” Jayme Stanley. Certainly a bizarre choice for a pseudonym!

Enlarging the photo displayed with Jayme Stanley‘s profile on Huffington Post reveals it is not the actual Jayme Stanley, but Sarah Frigo.

The first Huffington Post article published under the pen-name Jayme Stanley was issued on May 3, 2016. A second article was published just two days later on May 5th. Both articles are highly promotional of MFIN and contain statements such as claiming Medallion Bank (banking subsidiary of Medallion Financial) is “worth double the market capital [of the parent] today.

A full three months later on August 2, 2016, Andrew Murstein, President of Medallion Financial, presenting at the Keefe, Bruyette & Woods Community Bank Investor Conference in New York City said, “we think the bank alone could be worth double our total market cap today.” This statement by Andrew Murstein is essentially word-for-word what Sarah Frigo, head of MFIN Investor Relations, wrote in the Huffington Post three months earlier under a fake name!

MFIN stock closed at $7.34 on May 3, 2016, when “Jayme Stanley” published her first pro-MFIN article. MFIN stock recently closed at $2.29 on February 3, 2017 (a 69% decline from May 3rd).

Note: In January 2017, after this story was broken by Debtwire, the author’s name on the Huffington Post articles was changed from Jayme Stanley to Sarah Frigo. The articles were subsequently deleted. That said, the articles have been permanently archived online:

Note in the image below, the site link refers to author Jayme Stanley, whereas the author’s name on the page is now Sarah Frigo.

Frigo tweeted the two articles back to back on May 6th, referring to the Safety in a Subsidiary article (authored by “Jayme Stanley) as “my first article for The Huffington Post…”

Medallion Financial’s official website has an “In the News” section in which the company provides links to various articles and interviews concerning the company (positive stories only, of course!).

Links to the two Jayme Stanley Huffington Post articles were provided on this page. Note that the Huffington Post author’s name is not provided (as seems customary with the other articles). They simply refer to this author as “Contributor.

MFIN’s website was archived online on November 5, 2016 here. To access the relevant page, click the link, then click “November 5, 2016,” scroll down and click “Articles & Interviews” and you will be able to see the two Huffington Post articles submitted “By Contributor” with links provided.

Seeking Alpha and Yahoo Finance

Also in May 2016, a user named stanleyjayme began posting bullish/promotional comments on various MFIN articles on Seeking Alpha. Another user, Jayme, started posting similar (sometimes identical) comments on the MFIN page at Yahoo Finance sometime in July or August 2016.

Every single comment posted by stanleyjayme and Jayme concerns Medallion Financial, the company that hired Sarah Frigo.

Some excerpts of questionable/promotional comments from stanleyjayme and Jayme include:

From Seeking Alpha:

  • The stock price is so low this is a great buy
  • This company is a gem and its [sic] only a matter of time until the stock pops
  • The stock will be back up again within a few months, and will be performing great
  • I think it’s a great idea to buy right now…
  • When short-sellers are telling you not to buy, it’s an obvious signal” – this comment in particular reads like the time Andrew Murstein, President of MFIN, “urged [investors] to ignore short-sellers and other critics forecasting the company’s doom

From Yahoo Finance:

  • I don’t forsee MFIN having any problems with raising debt capital nor do I see the debt market as necessarily being closed
  • I believe MFIN is as profitable and safe of an investment as it has ever been.

Okay, time for another recap:

  1. Sarah Frigo, a fashion model with no relevant finance experience, has been appointed the head of Investor Relations at MFIN
  2. Sarah Frigo has a direct familial connection to a woman named Jayme Stanley
  3. Sarah Frigo posted highly promotional MFIN articles and comments under the pseudonyms Jayme Stanley (Huffington Post), stanleyjayme (Seeking Alpha) and Jayme (Yahoo Finance)
  4. Medallion Financial’s official website linked to Jayme Stanley’s Huffington Post articles, but curiously did not include the author’s name, as was customary with the other articles on the site

November 2016

On Friday, November 25, 2016, a reporter at a major US newspaper contacted MFIN management for comment on Sarah Frigo’s posts and links to her Huffington Post story listed on the “In the News” section of the company’s official website.

Over the following days, MFIN attempted to cover its tracks and hide the connection between its Investor Relations department and the articles/comments touting MFIN stock.

MFIN covering its tracks

1. MFIN “In the News” webpage scrubbed – MFIN removed reference to the two Huffington Post articles from its website. An image of MFIN’s website was archived on November 5, 2016 and can be accessed here.

2. Sarah Frigo’s LinkedIn scrubbed and hidden – Frigo removed all reference to working at Medallion Financial or contributing to Huffington Post. Frigo also removed her LinkedIn page from Google search (which can be done in the LinkedIn settings). As of this writing, her page is still active and can be accessed here. (Since the Debtwire story, Frigo has reaffirmed her connection to both Medallion Financial and Huffington Post on her LinkedIn page).

3. Sarah Frigo’s Twitter account is set to private

4. Seeking Alpha and Yahoo Finance commenters go dark – There have not been any comments by stanleyjayme (on Seeking Alpha) or Jayme (on Yahoo Finance) since November 16, 2016.

Surprisingly, Frigo’s Instagram has not been set to private and, as of this writing, the picture of the Arianna Huffington email is still online.

January 2017

The Debtwire story published January 27, 2017 included a statement from the company:

Ms. Frigo is not currently, nor was she ever, a Medallion employee. She is no longer associated in any way with the Company. We are not aware of anything she said publicly that was not accurate or otherwise reflected in already publicly available information, and any comments she is alleged to have posted under a pseudonym she would have posted unbeknownst to Medallion.”

The Company’s assertion that it was unaware of Frigo’s posting under a pseudonym strains credibility. According to her LinkedIn profile, the majority of Frigo’s career prior to her association with Medallion was as a fashion model and evinces no familiarity with either finance or the investor relations function. Nor does she have any post-secondary education or vocational training in finance or securities analysis.

Despite this, in her articles and comments under the Jayme Stanley pseudonym, she fluently navigates the subtleties of unconsolidated bank subsidiaries and how their accounting treatment obscures their profitability to public investors, the ability of bank subsidiaries to “dividend up” capital to the parent entity as a way of maintaining a stable dividend to investors, mezzanine debt investments with equity kickers, the difficulty of completing baby bond offerings in the BDC sector, the impact of stock liquidity on the cost of capital, the manner in which low cost bank deposits and the inherent leverage in bank balance sheets can offset the cost of more expensive unsecured debt issued at the parent level, appropriate earnings multiples for bank equities, the value of an A- credit rating, and finally, and remarkably, the tradeoffs of electing to forego RIC (regulated investment company) status in terms of tax efficiency vs. operation flexibility.

Amassing this depth and range of finance, accounting and investment knowledge would require an MBA and several years of hands-on experience for virtually anyone. Yet, Sarah Frigo, armed only with a high school education and no finance background, seems to have mastered these topics and become fluent with them in 3 months on the job. She is either the world’s quickest study, or she had help from others inside the company in composing this story.

Sarah Frigo’s LinkedIn page was recently updated, yet again. This time it includes reference to her time spent working at Medallion (“[managing] social media accounts“) and writing for the Huffington Post under a contributor account. According to her page, it appears as if she left the company in October 2016; however, based on the comments under the Jayme Stanley pseudonym, it is likely that she worked at Medallion at least through mid-November 2016.

Given that Medallion faces a possible violation of SEC Rule 10b-5, it is likely that her current LinkedIn page was written, or at least reviewed by, an MFIN attorney.

Conclusion

MFIN’s recent campaign of misinformation and positive spin is nothing new, but this Investor Relations fiasco now opens the company up to a potential securities fraud violation of SEC Rule 10b-5. Given her inexperience in the field, it is hard to believe that senior management was unaware of and uninvolved in Sarah Frigo’s promotional activities online.

Management has consistently presented an overly optimistic view of the company’s prospects and has failed to disclose important negative facts in press releases and SEC filings. Just a few, of many, examples follow.

In September 2014, in a New York Times article entitled A Taxi Financing Firm Isn’t Switching Lanes, Andrew Murstein, President of Medallion Financial, said the threat that Uber posed to the New York City taxi industry was “overblown.” MFIN stock has dropped approximately 82% since this statement, while the bank’s nonaccrual medallion loans spiked from zero in Q3 2014 to $47MM in Q3 2016, representing 15% of its medallion loan portfolio.

In September 2015, Murstein was quoted in a Barron’s article insisting that the chances of cutting the company’s dividend are “slim to none.” Less than 12 months later, the dividend was cut by 80%.

In August 2016, speaking at the Keefe, Bruyette & Woods Community Bank Investor Conference, Murstein said MFIN’s subsidiary Medallion Bank could be “worth double [MFIN’s] total market cap.” This pegs the value of the bank (according to Murstein) at approximately $300MM. MFIN’s market cap is now under $60MM. According to Medallion Bank’s FFIEC Call Reports, in H2 2016, it wrote off $28MM worth of commercial and industrial loans (the bulk of which are medallion loans), representing approximately 9% of total loans. Loss provisions at the bank also skyrocketed from $17MM in 2015 to $69MM for 2016. Does Mr. Murstein still stand by his statement?

In November 2016, Murstein was quoted in a Crain’s article saying “the company is doing extremely well.” At the time of that statement, the company was in default on a series of loans secured by its Chicago medallions, its bank subsidiary had violated its capital requirement with the FDIC, its Freshstart Ventures subsidiary likely also had a capital deficiency which would later lead to it agreeing to a forced liquidation at the behest of its regulator, the U.S. Small Business Administration, and it was the subject of a lawsuit for nonpayment by the bank that lent against its Chicago medallions. If that is the company doing “extremely well,” I would be interested to see what happens when it is performing poorly.

According to Medallion Bank’s Q4 2016 FFIEC Call Report released on January 30, 2017 (and Q3 2016 report restated on January 24, 2017), the bank has been in violation of its mandatory 15% leverage ratio (required to maintain FDIC deposit insurance on over $900MM of deposits) for the entire second half of fiscal 2016. The company provided a long-term strategic update on January 31, 2017 stating that their focus will now shift to operating Medallion Bank, but stunningly failed to mention this very important negative fact. Does management think capital deficiency, increasing loss provisions, medallion loan charge-offs and restatement of financials at Medallion Bank is not material enough to disclose to its investors?

The company claims its “strategic shift” reduces its exposure to medallions. This is simply false. The company’s exposure to medallion loans has not dropped by a penny as a result of these actions, nor has the company reduced any of the debt incurred to fund the medallion loans. They are now being forced to liquidate the assets of Freshstart Ventures to meet an accelerated debt amortization on its SBA debentures, requiring them to find a buyer in an illiquid market in which not a single lender is increasing exposure to medallions, and for which the best hope is that a vulture investor might make a bid at pennies on the dollar.

Now Murstein says that they are “well positioned in 2017 and confident in [their] future.

It’s time for investors to stop taking management’s word at face value and start asking some tough questions.

Disclosure: I am/we are short MFIN.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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Medallion Finance Earnings Release Yahoo Exchange to 9 March 8:30 pm

  • I would like to believe, but it is difficult. The ado espoused by management inre the share buyback was rediculous
    when you consider they only bought 200,000 shares at less thn a half mil. I think they will make it, but I am old and if it takes five years I probably won’t be here. Stupidly, rode it all the way down and that decrease took two years of profits out of my portfolio. My mistake!!!! Hoped for a faster turn around, but the medallions still weighing them down. The fact that the cities
    didn’t live up the agreements and let Uber and Lyft operate in the city was a kicker.
    Morale -If you depend on any form of government (fed, state, county, or city) you will end up getting screwed
    if they were serious about a buyback, they should just do a $4M tender at $2/sh and retire 1/12 of the shares.
  • For anyone believing in a successful sale of a minority investment in the bank think about this. MFIN has a market cap of $45 million. $45 million would only purchase 15% of the current value of Medallion Bank, based on MFIN’s insane write-ups. If there was any interest in the bank someone would have acquired MFIN, but nobody has because Medallion Bank and MFIN are worth nothing

    Gordon
    yesterday

    PumpNDump once again by well-connected traders in the Caribbean and Cyprus. DO NOT fall for this tactic used over and over and over again with TAXI/MFIN stock trading. Those on the inside ALWAYS win

  • Does anyone understand why the stock is up? Results are awful, company will be in bankruptcy anyday now. Taxi revenues dropping everyday as well as medallion values.
  • Without the Medallion Bank write-up this quarter their asset coverage ratio would have been ~195%, below the 200% requirement. This would put them in default as a BDC and would be a default on most of their debt. This is where you can start throwing out the “5-letter F word”
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Suit Says ‘Taxi King’ Reneged On Series Of Business Deals

Edward J. Tutunjian (right) and his wife, Nancy, left the Boston federal courthouse earlier this week.

CRAIG F. WALKER/GLOBE STAFF

Edward J. Tutunjian (right) and his wife, Nancy, left the Boston federal courthouse earlier this week.

Edward J. Tutunjian, the embattled “taxi king” of Boston who was recently sentenced to 18 monthsin a halfway house for tax evasion and other crimes, desperately maneuvered to sell his business and properties for $145 million amid mounting legal and financial pressures, according to a lawsuit filed this week by a Boston developer.

Jay Doherty, chief executive of real estate firm Cabot, Cabot & Forbes, contends in the complaint that Tutunjian approached him last summer about buying 362 taxi medallions, his Boston Cab company, and several properties in the Fenway neighborhood. Tutunjian allegedly explained that competition from Uber and other ride-hailing services was decimating the value of Boston Cab’s business and medallions, and that he had decided “it was time to get out,” Doherty said in his lawsuit, filed in Suffolk Superior Court.

But the developer alleges that Tutunjian ultimately reneged on a series of deals with him, and secretly negotiated with other potential buyers in violation of an exclusivity agreement. Doherty now wants a state judge to force Tutunjian, 67, to sell the Fenway properties to CC&F, plus pay damages for breaching the contract and reimburse CC&F for the money it spent vetting the deal.

Andrew Good, an attorney for Tutunjian and several of his relatives who help run Boston Cab, derided the lawsuit as opportunistic, noting that it was filed on the day Tutunjian was sentenced in federal court in Boston.

“The lawsuit is meritless and improperly motivated,” Good said in a statement. “The Tutunjian family will vigorously defend the lawsuit, and will not succumb to improper pressure tactics. Mr. Doherty’s supposed offer to buy the taxi business was withdrawn not long after it was made, several months ago.”

Good said the family has not agreed to sell the properties, which include the complex where Boston Cab has operated for four decades and a parking garage near Fenway Park. Good did acknowledge that “several parties . . . have offered to purchase certain real estate” the family owns.

Doherty, who provided a copy of his lawsuit but did not respond to further questions, wrote in his complaint that Tutunjian first approached him about buying the cab business and properties in May. That was several months before US prosecutors charged the longtime Boston Cab owner with payroll tax evasion, employing illegal immigrants, and failing to pay overtime wages. Tutunjian pleaded guilty in August and agreed to pay $2 million in fines.

The federal charges stemmed from a 2013 Boston Globe Spotlight Team series that found Boston Cab, part of a business empire then worth about a quarter-billion dollars, routinely exploited its drivers. The reports prompted a raid by IRS agents.

At an initial meeting last summer, Doherty recounted, Tutunjian asked for $150 million for the business, medallions, and Fenway properties.

According to the complaint, Tutunjian said he was “not happy with the way Boston city government was giving favorable treatment to Uber.”

In July, Doherty said, the sides signed a deal that set the sale price at $145 million and pledged to execute a purchase and sale within 30 days.

But then, the complaint said, Tutunjian began changing the terms of the agreement. First, he allegedly told Doherty that he had mortgaged the Fenway properties to secure a $35 million loan from Santander Bank but was worried he could not repay it before the June 2017 due date.

Doherty, whose firm by this time had performed extensive diligence and was in conversations with potential financiers for the purchase, said he agreed to loan Tutunjian the $35 million if he was unable to refinance it.

Soon after, Doherty said, he learned from a Globe report that Tutunjian had transferred the 362 medallions he had supposedly promised to sell Cabot, Cabot & Forbes to his wife, Nancy Tutunjian.

When Doherty confronted the Boston Cab owner, Tutunjian allegedly said there was “nothing to worry about, and that the transfer of the medallions to Nancy Tutunjian was merely a formality [that] did not impact his control over the medallions or his legal right to sell them.”

That transfer to Nancy Tutunjian was initially approved by the Boston Police Department’s Hackney Carriage Unit, but after Tutunjian pleaded guilty in August, officials said they would reassess the transfer.

Asked Friday about Doherty’s allegation that Tutunjian would maintain control of the medallions even after the transfer, a spokeswoman for Boston Mayor Martin J. Walsh said only that city police officials would “look at all relevant information in determining the suitability of potential medallion owners.”

By fall, the sale had begun to disintegrate, according to the lawsuit.

Doherty, whose firm managed development of the Atmark residential complex in Cambridge among many other projects, said he was in discussions with several foreign companies interested in operating the taxicab business when Tutunjian’s representatives suddenly suggested the mogul wanted to lease the garage back and continue running Boston Cab himself.

Tutunjian also questioned CC&F’s financial wherewithal, refused to let Doherty speak directly with Santander Bank about the $35 million loan, and demanded CC&F pay his broker’s fee, according to the lawsuit.

The tycoon even allegedly admitted that he had been shopping the real estate to other firms, identified by Doherty as the Lincoln Property Co. and Equity Residential Co., while offering the taxi business to a “Pennsylvania transportation company.”

Now, Doherty said in his complaint, Tutunjian won’t return his calls after walking away from a refashioned deal in which CC&F would buy only the Fenway properties for $47 million to $50 million.

Saying there is “serious concern that a sale to others will occur before year end,” the developer successfully petitioned the Suffolk Superior Court on Tuesday to tag Tutunjian’s properties on Kilmarnock and Queensberry streets with a so-called memorandum of lis pendens, which will alert any potential buyers and their lenders that the land is the subject of a dispute.

A hearing on the case has not been scheduled.

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‘Taxi king’ Ed Tutunjian To Abdicate His Throne

Edward J. Tutunjian, shown with his wife, Nancy, in December, will sell his taxi medallions and several properties in the Fenway to developer Jay Doherty.

CRAIG F. WALKER/GLOBE STAFF/FILE 2016

Edward J. Tutunjian, shown with his wife, Nancy, in December, will sell his taxi medallions and several properties in the Fenway to developer Jay Doherty.

The decades-long reign of Boston’s “taxi king” is coming to an end.

Edward J. Tutunjian — whose Boston Cab empire crumbled amid competition from Uber and allegations of worker exploitation that triggered a federal investigation — has agreed to sell his company, 362 taxi medallions, and several properties in the Fenway to developer Jay Doherty for approximately $145 million.

“We have an airtight contract,” Doherty said in an interview. “They agreed to honor it, and we’re very happy.”

Tutunjian did not respond to requests for comment.

Doherty said his primary interest is in Tutunjian’s property, 2.1 acres across four parcels in the red-hot Fenway area. He plans to build a large residential development on the property, while finding a transportation company to operate the taxi business.

In 2016, a federal judge fined Tutunjian $2 million and sentenced him to 18 months in a halfway houseafter he pleaded guilty to payroll tax evasion, failing to pay overtime to employees, hiring illegal immigrants, and helping workers win federal housing subsidies for which they didn’t qualify.

Those charges stemmed from a 2013 Boston Globe Spotlight Team investigation, which reported that Tutunjian’s managers exploited Boston Cab’s largely immigrant workforce by demanding petty bribes in exchange for shifts and garnishing drivers’ pay to make up for supposed fare shortfalls. IRS agents raided Boston Cab’s Fenway headquarters two months after the series was published and hauled away boxes of financial records.

But the emergence of Lyft, Uber, and other ride-hailing services has arguably done the most damage to Boston Cab. In his lawsuit, Doherty said Tutunjian told him that the decision by public officials to allow ride-hailing firms to operate under less regulation than taxis, and the resulting depreciation of Boston Cab and its medallions, were the primary reasons why he decided to sell.

Some cab drivers are furious that Tutunjian, despite his conviction, is poised to walk away with a $145 million payday.

“He’s not a businessman — he’s a liar,” fumed Ahmed Ali Farah, a Somali immigrant who drove for Boston Cab in the early 2000s. “Those cabs he’s selling, they’re not his. All the money came from the drivers. If there’s justice in this state, the drivers, they own it. But as always, Eddie is the winner and we are the losers.”

Farah, who sued Tutunjian in 2004 for disability discrimination, said there was one silver lining: “I am happy he’s not going to be anyone’s boss anymore.”

The purchase has yet to close, as Doherty said he is still conducting due diligence on Tutunjian’s holdings. Among the complications: arranging the transfer of Tutunjian’s properties and medallions, which are held by dozens of paper corporations.

Doherty will also need approval from the Boston Police Department’s Hackney Carriage Unit to take possession of the medallions. Last summer, with the federal case looming, Tutunjian received police permission to transfer his medallions to his children and his wife, Nancy Tutunjian. But police officials froze that transfer after Tutunjian pleaded guilty.

A police spokesman told the Globe this week the hackney unit ultimately concluded Nancy Tutunjian was “suitable to hold the medallions,” but that the unit “has since learned that the transfer to Nancy has not occurred and other options are being considered by the medallion owner.”

Doherty already has an idea for what he wants to build on the real estate, located near the intersection of Queensberry and Kilmarnock streets: a multifamily residential complex. Zoning rules for the Fenway, he said, would allow a project as large as 400,000 square feet. However, he promised to meet with nearby residents before pushing ahead with redevelopment.

Neighbors, Doherty said, “could be really happy that some operations are departing, but may have reservations about other things, like height.”

But if Doherty’s path to redeveloping the Fenway land is long, the challenge of taking over Boston Cab is even more daunting.

The taxi business is in free fall, mostly thanks to competition from Uber and Lyft. Ridership in Boston is down in recent years, and the value of medallions has plummeted — from nearly $700,000 earlier this decade to below $100,000 by the end of 2016. Several owners who had tried to sell their medallions recently received no offers.

Moreover, some medallion owners say they are having trouble finding drivers willing to pay them for a shift behind the wheel. Advocates for drivers have blasted public officials for not moving to restructure the failing system.

Doherty declined to assign a value to the 362 medallions he is purchasing. But the developer insisted he would not have paid $145 million for the land alone. Cabot, Cabot, & Forbes is in talks with transportation companies, including one that operates a taxi fleet in Canada, and another in Israel.

“We are working on business models we hope and expect will be viable in today’s climate, notwithstanding Uber,” Doherty said, noting recent criticism of ride-hailing services and how they treat their drivers. “We’re inheriting a company in an industry that’s in tremendous flux, so we’re talking to people around the globe that are looking at what to do with these shells that still have some kind of franchise.”

Doherty said he may employ a “Whole Foods/fair trade” model, pitching Boston Cab to progressive consumers as an upscale, higher-priced service that pays its drivers well.

“Uber may well kill everything, but clearly there’s blowback happening,” he said.

Doherty even left the door open for Tutunjian to participate, saying, “these kind of deals are usually more of a collaboration in the end, whether people come to it reluctantly or not.”

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