How several small-time investors got hosed when Uber crashed the taxi market
Unhappy about their losses the green cab owners have sued their broker and his partners for allegedly cheating them out of $8 million
When Dr. Amarpreet Singh received a tip from a patient back in 2013, he was all ears. The city was expanding its taxi fleet, the patient explained. Would he be interested in investing in cabs? “I said I’d certainly like to talk to someone about that,” recalled Singh, chief of oculo-facial plastic surgery at Harlem Hospital Center.
Singh’s patient introduced him to a taxi broker, who said the city was issuing thousands of permits for a new line of cabs, called green taxis, that would pick up passengers in the outer boroughs and upper Manhattan. Some green-taxi owners were already reaping profits of as much as $550 every week, the broker said, and it wasn’t expensive to get in on the action, because the city was offering incentives for cabs retrofitted to accommodate passengers in wheelchairs.
Singh liked the idea of helping disabled New Yorkers get around town, so he paid the broker $75,000 for five green-cab permits, plus another $325,000 for vehicles. Then he waited for drivers to rent his taxis. And waited some more. After nearly two years he got in touch with his patient to see what was up with the investment. Singh learned his cabs were lying fallow in Mill Basin, Brooklyn. He dashed over and found a parking lot filled with 600 cars, none with license plates and some not even outfitted as taxis.
“It was just a sea of green,” said Singh. “I walked out telling myself, Oh my God, what have I done?”
The collapse of the taxi business has dramatically altered New York’s streetscape. Spurred by the advent of Uber and other apps, the number of drivers looking for passengers has grown by 40%, but the surge has meant less business for cabbies, who are making 30% fewer trips than only three years ago. Those who invested in yellow or green cabs are seeing their investments wiped out as drivers flock to rivals or pursue other work and cars sit idle. Since 2013 5,000 taxi drivers have thrown in the towel, and last month Queens-based Melrose Credit Union was seized by state regulators after delinquent cab loans soared tenfold in just 18 months. The stock price of the city’s preeminent taxi lender, Medallion Financial Corp., has fallen so far that one share now costs less than a subway ride.
Among those sucked into the vortex are scores of novice investors who saw the same potential in green cabs as what yellow-taxi medallions offered decades ago: cheap investments (the first medallions sold for $10 in 1937 before peaking at more than $1 million) with yearly returns that far outpaced the stock market. But these small-time players bought green cabs just before the taxi business began its free fall. Singh is in this group along with a dozen other investors, including a home health care company president, a purchasing manager at a software firm, a vice president of sales at a printing company and a commercial real estate broker in Baltimore.
Jake Zamansky, a prominent plaintiff lawyer on Wall Street, said people need to be wary about buying into taxis and other investments that don’t have the same disclosure requirements as publicly traded stocks and bonds. “It’s imperative investors do their own due diligence or stay away,” he said.
The taxi investors are not happy about their losses and have sued in Brooklyn state court, alleging their green-cab broker and his partners cheated them out of $8 million by selling taxi permits “in the manner of a Ponzi scheme.” They also allege the defendants funneled millions of dollars’ worth of taxi money into Platinum Partners, a large hedge fund that federal prosecutors likened to a Ponzi scheme after it collapsed last year.
Billed as a slam dunk
The broker, 33-year-old serial entrepreneur Alan J. “A.J.” Ginsburg, denies any wrongdoing and said investors are blaming him for the taxi industry’s woes. “The accusations being made about me are absolute lies,” he said. “This lawsuit against me is nothing but a shakedown.”
It might seem like long ago, but as recently as 2013, taxis were a red-hot investment. The price for a medallion granting the right to drive a yellow cab and pick up street hails quadrupled after 2004, peaking at $1.1 million.
Yet cabs were often hard to find outside Manhattan, and lots of would-be drivers were priced out by the soaring value of medallions. To tackle both problems, in 2013 the city created green cabs, also known as Boro Taxis, and sold 6,000 permits, mostly for $1,500 apiece. Demand was so strong that by December of that year, a permit was resold for $7,000, according to Bloomberg News. The city sold a few thousand more permits the following year for $3,000 each, and still there was a waiting list of 6,300, according to the New York Post.
“People were looking at this as the next big taxi-medallion market,” said Matthew Daus, a former chairman of the Taxi & Limousine Commission.
It all sounded like opportunity knocking to Ginsburg, who, since graduating from Brooklyn College at age 19 in 2003, had invested in an ambulette service; several apps; the biotech, home health care and real estate fields; and FR Conversions, a company that makes vehicles wheelchair-accessible. It was through a person at FR that he learned about New York’s fledgling green-taxi program and bought a few permits. After having trouble getting his cabs on the road, in late 2013 he teamed up with Judah Langer, the brother of a friend, to manage his fleet. Ginsburg focused on buying permits and reselling them to investors who wanted to get in on the action.
Ginsburg’s pitch went like this: The cost of a permit, a vehicle, retrofitting, insurance and so forth added up to $53,200. But factoring in loans and a grant from the city intended to put more wheelchair-accessible taxis on the road, the actual cash outlay was only $8,450, according to a sales document provided by an investor. It seemed like a slam dunk because, according to the document, green cabs could generate $2,000 in monthly income for their owners. In the lawsuit some investors allege they were told they could make up to $3,600 a month. Many of Ginsburg’s investors bought numerous permits.
But a closer look might have revealed some worrisome signs. For instance, Ginsburg charged some people $10,000 for a green-cab permit, according to the suit, and the sales document shows the price for at least one person was $17,000, well above the city’s offering price of $3,000 per permit. Ginsburg said all fees were disclosed and he bought permits from brokers who charged markups.
He added that his green-cab enterprise was thriving until it was undone by Uber and bad management by Langer, who is also a defendant in the suit and disputes Ginsburg’s account. “The legal documentation and court case will likely tell a different story,” Langer said. A third defendant, Yitzchok Mattis Swerdloff, declined to comment. Companies controlled by either Ginsburg or his associates are also named in the suit.
Not long after Ginsburg started selling permits, Uber and other e-hail apps that had been nipping at taxis for a few years abruptly overwhelmed the business. Traffic for yellow cabs fell by a third, and medallion prices dropped in half. A green-cab permit can be had on Craigslist for just $999 today, and the city has declined to offer the last 6,000 permits it’s authorized to sell. Nancy Soria, the first person to buy a green-cab permit from the city, said she started driving at 8:30 one recent morning and didn’t pick up a customer until 11.
“I’m suffering,” the mother of three said. “Business is really bad.”
Investors contend that Ginsburg compounded the damage done by Uber by failing to sufficiently invest in a fleet that grew to hundreds of cabs and continuing to peddle permits long after it was apparent green taxis were a sucker’s bet. In an interview, Ginsburg countered that he stopped selling in summer 2015, when it became impossible to find drivers. The lack of cabbies cost his companies Green Apple Cab and GLS Trans a contract with a medical services provider that could have produced up to $26 million in annual revenue and provided a buffer against e-hail apps.
Ginsburg’s investors further allege that, in an effort to hide money made from selling permits, he and Langer lent $7.2 million to Platinum Partners in June 2015 through their real estate company, White Rock Properties.
Manhattan-based Platinum was a $1.7 billion hedge fund that collapsed last year, and seven executives were charged with crimes, including the fund’s founder and chief investment officer, two co-chief investment officers and its president.
Ginsburg said he had nothing do with the Platinum loan, because he’d sold his entire White Rock stake in 2013. Another person close to the matter confirmed Ginsburg’s account and said no taxi money went to Platinum.
About the only thing that isn’t in dispute is that the angry investors and aggrieved broker are now locked in the mother of all taxi battles. Photos of Ginsburg and his family have been circulated online by one plaintiff.
“I want my money back, and if it doesn’t come back very soon, I will turn your world over,” the plaintiff, who lost more than $250,000, told Ginsburg in an online chat. The man said in an interview that “turn your world over” meant he would hire a top-of-the-line lawyer and bring legal action.
Ginsburg said he wouldn’t yield to such harassment and observed that 12 of the initial 25 plaintiffs had withdrawn claims. A remaining plaintiff countered that some investors can’t afford to fight in court because they lost so much money. Singh, the surgeon, said he can withstand his $400,000 loss. “I’ll be working a little longer than I planned,” he said, “but I’m in better shape than most.”
Daus, the former TLC chairman, who is a partner at law firm Windels Marx Lane & Mittendorf, said it could be difficult for the investors to prevail unless they can show Ginsburg made serious factual misrepresentations or engaged in an organized scheme to defraud. “The defendants are likely to argue that the plaintiffs didn’t do their homework and they got burned,” he said. “Now, there’s buyer’s remorse.”
A version of this article appears in the March 13, 2017, print issue of Crain’s New York Business as “Taken for a ride”.
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