- Defendants’, Medallion and Andrew Murstein, motion to dismiss was almost completely denied.
- Medallion stockholders continue to be exposed to substantial potential financial penalties and have funded millions in legal bills for Murstein’s defense.
- Facing an increasingly perilous situation, defendants have agreed to a “settlement in principle”.
- ZimCal demands that Medallion’s board make important governance changes to protect stakeholders.
- ZimCal demands Medallion’s board exercise clawback authority to boost capital levels.
- ZimCal has strongly urged Medallion to address and resolve the SEC lawsuit for the past 15 months.
MINNEAPOLIS, Jan. 06, 2025 (GLOBE NEWSWIRE) -- The SEC lawsuit may finally be close to resolution as the screws are being tightened on defendants Medallion Financial Corp. (the “Company” or “MFIN”) and Andrew Murstein, MFIN’s COO & President. The defendants find themselves completely isolated with shrinking options. To prevent Murstein’s value-destroying behavior from ever being repeated we demand that MFIN’s board of directors (the “Board”) make the following stockholder-friendly changes to restore investor confidence:
- Declassify the Board which would allow stockholders to vote in (or out) ALL 8 directors annually, instead of just the 2 or 3 directors per year currently.
- Separate the Board chairperson and CEO roles, which are both currently held by Andrew Murstein’s father.
- Appoint an independent director to Board chairperson.
- Establish a mandatory board retirement age limit of 75 years old to promote board refreshment.
- Decrease effective family control of the board by reducing Murstein family directors or increasing the number of independent directors. Murstein family members make up 3 of 8 board members.
- Initiate an independent 3rd party investigation into Andrew Murstein’s behavior related to the SEC lawsuit.
- Reduce MFIN’s bylaw change requirements to a simple majority of eligible voting stock from the current 75% of eligible voting stock, shifting greater power to independent stockholders.
On September 18th, 2024, Judge Lewis Kaplan, a senior judge with 30 years of service on the US District Court Southern District of New York, denied the majority of the defendants’ (namely MFIN and Andrew Murstein) motion to dismiss the SEC lawsuit against them. The lawsuit alleges Murstein inflated asset values, committed fraud, lied to auditors, and directed stock touting amongst other violations. The next phase in the lawsuit would have allowed the SEC to probe in far more detail all MFIN’s relevant communications and potentially question under oath Company management, Board members and key individuals. On December 5th, the SEC announced that Larry Meyers, a co-defendant, had reached a settlement in principle, which if approved will leave the Company and Murstein facing the charges alone with Meyers potentially cooperating with the SEC. Unsurprisingly, the SEC then added that “SEC counsel has been engaged in settlement discussions with counsel for the Medallion Defendants [MFIN and Murstein], and the parties have made progress in their discussions.” On December 20th, 2024 the SEC announced that “settlement agreements in principle… have been reached [with MFIN and Murstein]” with an effective deadline of February 25, 2025 for the agreement to be finalized.
ZimCal Asset Management, LLC, and its affiliates (collectively “ZimCal”, “We”, “Our”) are one of the largest investors in MFIN and have been invested for almost 4 years. We believe that MFIN has tremendous upside but only with the right board and leadership. We believe that MFIN and Murstein’s sudden desire to enter settlement discussions was due to the combination of: a co-defendant that settled with the SEC (who may be required to cooperate with the SEC as part of that settlement); MFIN facing increasingly skeptical institutional investors and a volatile share price; and the denial in large part of defendants’ motion to dismiss which significantly increased Murstein and MFIN’s probability of facing massive financial penalties, particularly if MFIN’s Directors and Officers insurance coverage has exclusions if Murstein were found guilty. This decision by MFIN was reached after a 3-year fight with the SEC, spending what we estimate to be $8 million of stockholder money to defend Mursteini and causing tremendous damage to MFIN’s credibility, valuation and risk profile. When ZimCal strongly pushed for MFIN to resolve the lawsuit, the Company told ZimCal and shareholders that “No Change [was] Needed [to MFIN’s approach], and [ZimCal] Would Not Bring Positive Change. The Company believes the allegations in the SEC complaint are meritless.” In its 2023 10K, MFIN stated, “[t]he Company and its President and Chief Operating Officer intend to defend themselves vigorously and believe that the SEC will not prevail on its claims.”
For the last 15 months, we have urged MFIN to take common-sense steps to unlock its tremendous potential. The Company has ignored and attacked us for our position. Along with our recommendation to address and resolve the SEC lawsuit immediately, we also urged the Company to hold Murstein accountable by enforcing its own policies that Murstein clearly violated (regardless of the outcome of the SEC complaint). As quoted in MFIN’s 2023 proxy filing, the Company’s March 21, 2019 Compensation Recoupment (Clawback) policy stated:
“The Company’s Compensation Recoupment Policy seeks to promote a culture of risk mitigation, integrity and accountability. The Compensation Recoupment Policy authorizes the Compensation Committee to seek recoupment or clawback of cash and equity incentive compensation received by an executive officer in the event of a financial restatement or the executive officer’s detrimental conduct.”
Further, the Company’s Code of Ethical Training and Insider Trading Policy (as amended February 15, 2021) stated:
“Each Company employee must:
Conduct the Company’s business with honesty and integrity and in a professional manner that protects the Company’s good public image and reputation… Avoid any activities that could involve or lead to involvement in any unlawful practice or any harm to the Company’s reputation or image.”
On October 15, 2023, we sent the Board our first letter outlining these (and other) concerns and highlighted its clawback authority for detrimental conduct. Less than 10 days after we sent the letter, MFIN updated their Compensation Recoupment Policy and removed references to detrimental conduct and explicitly made it retroactive to include 2018 compensation. We find this behavior extremely unsettling and apparently designed to protect Andrew Murstein. Given the extensively documented behavior by Murstein in the SEC lawsuit, we demand that the Board act in the best interests of MFIN’s stockholders by holding Murstein to the same standards as any employee or executive of any public company who committed the same egregious acts.
Our singular focus is on making MFIN better and more valuable, which will make our investment more valuable. See www.restoretheshine.com for details on the recently ended proxy contest to replace 2 incumbent directors. Resolving the SEC lawsuit resolution is a critical first step, as we pointed out repeatedly. However, MFIN’s Board and governance remain seriously flawed and must be improved or stockholders will remain vulnerable to abuse. We are calling upon the Board to immediately implement the stockholder-friendly changes we recommended to restore investor credibility and ensure Murstein’s behavior will never be repeated.
Visit www.restoretheshine.com for more information or read our 5 Steps to Improvement which provides a straightforward path to creating shareholder value for MFIN.
About ZimCal Asset Management, LLC
ZimCal Asset Management is an alternative investment firm focused primarily on niche, illiquid and complex credit investment opportunities.
ZimCal Asset Management partners with both healthy and distressed borrowers or issuers and provides customized solutions that meet their unique needs and circumstances. Over the last 15 years, the founder of ZimCal Asset Management has developed a specialization investing in FDIC-insured institutions and has partnered with over 120 bank lenders through investments on both sides of the balance sheet.
ZimCal usually works in collaboration with bank leadership teams and if required, but on very rare occasions, will insert itself more forcefully if it believes that leadership is underwhelming and threatens to undermine stakeholder investments. ZimCal prides itself on performing extensive, rigorous financial analysis and research to fully understand the risks of any investment.
Important Information and Disclaimer
ZimCal Asset Management, LLC, and its affiliates BIMIZCI Fund, LLC, and Warnke Investments LLC (collectively, “ZimCal” or “we”), are, directly or indirectly, owners of securities of Medallion Financial Corp. (the “Company”). ZimCal currently beneficially owns shares of common stock and Trust Preferred securities. You should assume that ZimCal may from time to time sell all or a portion of their holdings of the Company in open market transactions or otherwise, buy additional shares (in open market or privately negotiated transactions or otherwise), or trade in options, puts, calls, swaps or other derivative instruments relating to such shares. We are not currently engaged in any solicitation of proxies from stockholders of the Company. ZimCal intends to monitor the performance and corporate governance of the Company, as well as the actions of the Company’s management and Board. As ZimCal deems necessary, ZimCal will assert its stockholder rights.
Except as otherwise set forth herein, the views expressed reflect ZimCal’s opinions and are based on publicly available information with respect to the Company. We recognize that there may be confidential information in the possession of the Company that could lead it or others to disagree with our conclusions. ZimCal reserves the right to change any of its opinions expressed herein at any time as it deems appropriate and disclaims any obligation to notify the market or any other party of any such change, except as required by law. We disclaim any obligation to update the information or opinions contained herein.
The information herein is being provided merely as information and is not intended to be, nor should it be construed as, an offer to sell or a solicitation of an offer to buy any security.
Some of the information herein may contain forward-looking statements. All statements contained herein that are not clearly historical in nature or that depend on future events are forward-looking. The words “anticipate,” “believe,” “expect,” “potential,” “could,” “opportunity,” “estimate,” “plan,” and similar expressions are generally intended to identify forward-looking statements. There can be no assurance that any forward-looking statements will prove to be accurate and therefore actual results could differ materially from those set forth in, contemplated by, or underlying these forward-looking statements. In light of the significant uncertainties inherent in forward-looking statements, the inclusion of such information should not be regarded as a representation as to future results or that the objectives and strategic initiatives expressed or implied by such forward-looking statements will be achieved.
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i “Professional fees” on MFIN’s income statement contain the SEC-related legal fees. These totaled $18.9 million in 2022 and 2023. These are significantly above historical averages, and we attributed $7 million of the excess to the SEC affair and an additional $1 million through FYE24. ZimCal has asked MFIN repeatedly for a breakdown of legal fees as well as the terms, amount, exclusions and use of Directors and Officers insurance coverage but has been denied.
Media contact: nicole@nh-consult.com
