New Yorkers preyed on taxi medallion market in Chicago

In the fall of 2006, Chicago held an auction to sell taxi medallions, the permits that let people own and operate cabs. Hundreds of bids poured in, including some offering to pay much more than expected. The city raised millions of dollars. Officials declared the sale a success.

But there was something strange about the auction: None of the winning bidders lived in Chicago.

Almost all of them lived hundreds of miles away, in New York.

Over the next decade, New York taxi industry leaders — fleet owners, brokers and financiers — steadily seized control of Chicago’s medallion market and squeezed it for huge profits. Using tactics honed in New York, they made millions of dollars, but they ultimately helped to leave the industry in tatters and the lives of immigrant drivers on the edge of ruin.

New Yorkers used a similar playbook in several cities across the United States: They inflated medallion prices, provided high-risk loans to buyers and collected interest and fees before the bubbles burst and the markets collapsed. Medallion prices rose sevenfold in some places, soaring to $700,000 in Boston, $550,000 in Philadelphia, $400,000 in Miami and $250,000 in San Francisco.

But the most ambitious expansion targeted Chicago, home of the nation’s second-largest cab industry, a New York Times investigation found. New Yorkers eventually bought almost half the city’s medallions, records show.

Some adopted an especially aggressive approach, according to documents and interviews. First, they purchased medallions at bargain rates and established big fleets of cabs. Then, they pumped up medallion prices. Finally, they sold their medallions to their drivers and to rival fleet operators just before the collapse.

The incursion created extraordinary wealth for a small number of New Yorkers. One New Yorker’s network of companies bought $30 million worth of Chicago medallions and later sold them for $185 million. He purchased eight homes, including a house in one of the most elite neighborhoods in the Hamptons, records show. Another who made millions in both cities opened a polo club near his 10-acre estate in New Jersey.

“They used us to get rich,” said Demetrios Manolitsis, 52, a Chicago cabdriver from Greece.

Manolitsis, who started driving in 1992 and owned an extra medallion as an investment, said New Yorkers in Chicago convinced him to borrow money to buy 15 more medallions at the height of the bubble, when prices were skyrocketing and the asset seemed invincible. He is now buried in debt and on the brink of losing everything.

“They came in, they juiced up the medallion, a superficial value. We took out their loans, and we were wiped out,” Manolitsis said.

The average price of a Chicago medallion rose to nearly $400,000 before prices began plummeting in 2013. They had been selling for less than $50,000 in 2006, records show.

Today, a Chicago taxi medallion is worth $30,000, or less, and many owners have given up. Forty percent of the city’s cabs are currently not in operation.