Tuesday, February 8, 2011

Cab Company Scams 2: Subleasing

Unless you're directly involved in a shady activity, you aren't likely to know much about it. I mean, the people running scams usually don't put up websites or hold conventions. Nonetheless, knowledge of illegal brokering and illegal subleasing in San Francisco is so widespread that I've been given names and details about these activities by people who aren't even directly involved with the taxi business.

Subleasing is a name that covers a lot of sins. One variation concerns Long Term Leases (LTL).

The way a LTL is supposed to work is that a driver leases a medallion and hires 2 or 3 other drivers to work the shifts that he or she doesn't work. She keeps what she makes himself plus the "gates" the other drivers pay her - which should not be more than an average of $104 per shift but, according to inside sources, are often far in excess of that legal limit.

Sometimes, however, the medallion holder "subleases" the medallion to a "broker" who hires the drivers and often takes huge deposits and charges higher than legal gates.
  • Sometimes the medallion holder doesn't want the trouble of running a small business and only works his or her shifts and lets the broker do the hiring and handle the money for the other shifts. 
  • Sometimes the medallion holders turns the entire operation over to the broker.
  • Sometimes the LDL driver subleases the cab himself and charges exorbitant gates.

Some Post-K medallion holders either don't want to or can't work and sell the use of the medallion to a broker. This, in fact, is probably how the illicit practice started. It might even have had the semi-benign motivation of helping infirm drivers keep an income stream.

Prior to the "Pilot Plan," Post-K medallion holders could not sell their medallions and were required to work 800 hours per year. Many of them couldn't work as they grew older and let cab companies create phony waybills and fill the medallion holder's shifts with non-medallion drivers - not incidentally allowing the companies to make more money off the additional gates and tips that these drivers paid.

However, this practice has evolved into something far larger. Many medallion holders, who can but don't want to work, turn the medallions over to illegal brokers who buy the cars, create the fake waybills, do the hiring, and, last but not least, collect the gates.

Using brokers benefits taxi companies because it removes them from the illegal activites. The brokers or medallion holders often copy the waybills of legitimate drivers and put the medallion holders names on the documents.

But, I've also been told of cases where the managers of certain cab companies sublease medallions themselves without the medallion holder's knowledge. The medallion holders in question work their shifts but the drivers of the other shits pay illegally high gates to the managers.

Obviously, this system wouldn't work if non-medallion drivers were only paying legal gates. The brokers need to pay off the cab companies or the medallion holders and make a profit for themselves. In order to do this, they have to charge way over the legal gate cap.

In addition, there are some taxi companies that are simply over-charging their drivers to go to work. We're in a recession and they are many desperate people willing to work for very little.

My sources tell me that illegal gates prices are going from $140 to $160 to as high as $170 per shift. There are at least a couple of hundred medallions and several hundred shifts involved. This, in effect, is a multimillion dollar pyramid scheme with all the money being extracted from low-income drivers at the bottom - who are doing all the work.


  1. I think I read about some guy in sf examiner about 2 years ago who was called to task before cab commission he was making like hundreds of thousands to million of year doing what was this brokering thing I think you are talking about, I didn't fully understand it until I read your article here. I actually I still don't fully understand it..but understand it a little more.

    H Mackinder

  2. Luxor has at least two brokers working directly with them.
    The "lease" is $5000 and the lessee gives broker $4000 and gets a receipt. The rest of the money goes in a slot or box or something at Luxor and no receipt is given. Obviously somebody is getting paid under the table.
    So Luxor has two kinds of medallion holders: 1. The suckers that get $1800 on a company check and 2.the ones paid $2500 or whatever by the broker?
    Hmmm I wonder if Lazar gets a check for $1800 or $2500 cash from broker.
    My source says one of Lazar’s brokers is offering $3100 to MH's.
    And of course the drivers working for the brokers pay what they are told to pay with no receipts.
    Lazar was taking $100 a shift from dispatchers a while back. I don't imagine he has had any change of heart. I hear there is an entity that buys cars for Luxor and marks them up $1,000 to Luxor.

  3. With respects to the drivers having to work for brokers, I recall former executive director of the Taxi Commission Jordanna Thigpen, referred to this as "human trafficking".

  4. The rule is: no more than 3 tiers. Medallion holder, color scheme, driver. At Arrow/Blackand WhiteChecker/Bay/Fogcity/ect. long term leases always involve a fourth tier: Broker. Call it what you want but it is still a fourth tier. If any driver is paying gates to anyone but the medallion holder or the color scheme then it involves a fourth tier. Perhaps when MTA is satisfied with ripping off drivers waiting on the list they will look into gates and gas jobs being eliminated.