New York Taxi King Puts Some Companies Into Bankruptcy

The move by Gene Freidman is aimed at stopping Citibank from seizing valuable taxi medallions.

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New York taxi mogul Evgeny “Gene” Freidman put several of his cab companies into bankruptcy protection on Wednesday in a move to stop its ex-lender, Citibank, N.A., from seizing the licenses to operate 46 taxis in the city.

The bankruptcy filing blocks the bank’s efforts to collect some $34 million in unpaid loans from Mr. Freidman’s companies, escalating a dispute that came after Citibank said it would cut off some of his companies in December 2014.

In documents filed in U.S. Bankruptcy Court in Brooklyn, Mr. Freidman said that Citibank officials betrayed him for Uber Technologies Inc. Last month, The Wall Street Journal reported that Uber Technologies Inc. is completing a $2 billion credit line—a deal that involves Citibank’s parent and may signal that Uber is preparing to become publicly traded.

A Citibank spokesman said its seizure efforts followed Mr. Freidman’s “failure to agree to terms to settle his outstanding obligations.”

The taxi companies in bankruptcy own 46 vehicles. Each one possesses a medallion issued by the New York City Taxi and Limousine Commission that gives drivers of each vehicle the power to pick up street hails, including in Manhattan’s central business district, and carry fare-paying passengers.

Each medallion is worth roughly $950,000, according to transportation lawyer Matthew W. Daus whose expertise was cited a state court lawsuit filed by Citibank against Mr. Freidman in March.

A judge recently decided that Citibank may seize the company’s medallions unless Mr. Freidman posts a $50 million bond. In court papers, Mr. Freidman said that if Citibank sold the medallions at depressed prices, it “would likely cause a massive devaluation of all [New York City] medallions, resulting in more defaults by other taxi operators and perhaps cause a collapse of the entire industry.”

“The only beneficiary of such a devastating result would be Uber and the institutions it does business with,” Mr. Freidman said in court papers.

The bankruptcy filing bars Citibank from taking the medallions, giving Mr. Freidman time to meet with two potential lenders. Lending money to taxi cab companies that possess medallions has historically been a safe investment, though that market has recently tightened as major lenders worry how new competitors will affect the taxi business model, he said in Wednesday’s court filing.

Aside from his dispute with Citibank, Mr. Freidman’s companies have come under scrutiny for its labor practices. In April, New York state Attorney General Eric Schneiderman sued Mr. Freidman and four companies with accusations that they broke the terms of a December 2013 settlement involving driver pay and health-care benefits.

Mr. Freidman’s lawyers denied wrongdoing and characterized the lawsuit as “an attempt to collect impermissible penalties,” according to court papers.

A judge recently decided that Citibank may seize the company’s medallions unless Mr. Freidman posts a $50 million bond. In court papers, Mr. Freidman said that if Citibank sold the medallions at depressed prices, it “would likely cause a massive devaluation of all [New York City] medallions, resulting in more defaults by other taxi operators and perhaps cause a collapse of the entire industry.”

“The only beneficiary of such a devastating result would be Uber and the institutions it does business with,” Mr. Freidman said in court papers.

The bankruptcy filing bars Citibank from taking the medallions, giving Mr. Freidman time to meet with two potential lenders. Lending money to taxi cab companies that possess medallions has historically been a safe investment, though that market has recently tightened as major lenders worry how new competitors will affect the taxi business model, he said in Wednesday’s court filing.

Aside from his dispute with Citibank, Mr. Freidman’s companies have come under scrutiny for its labor practices. In April, New York state Attorney General Eric Schneiderman sued Mr. Freidman and four companies with accusations that they broke the terms of a December 2013 settlement involving driver pay and health-care benefits.

Mr. Freidman’s lawyers denied wrongdoing and characterized the lawsuit as “an attempt to collect impermissible penalties,” according to court papers.

By Katy Stech of The Wall Street Journal

http://www.wsj.com/articles/new-york-taxi-king-puts-some-companies-into-bankruptcy-1437600484

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