The right to drive an iconic yellow taxicab was for generations held up as a "pathway to the American Dream" for thousands of New Yorkers -- but the city's Taxi and Limousine Commission "fraudulently inflated" the price of entry for years, according to an $810 million legal action against the city brought by the state Attorney General on behalf of thousands of taxi drivers who paid hundreds of millions of dollars for taxi medallions at auctions conducted by the TLC.

In the notice of claim filed by state Attorney General Letitia James on Thursday, she alleged the TLC jacked up the prices in "a scheme that defrauded medallion owners, but continued to further market these medallions at overvalued rates even after internal reports raised warnings about the inflated values."

The TLC has controlled all sales of new medallions through auctions since 1937 and regulates all transfers of medallions between third parties. In the period of 2004 to 2014, medallion prices soared 240 percent before the market collapsed as ride-sharing companies changed the landscape.

"In the past, the City of New York and the TLC have promoted ownership of taxi medallions as “a solid investment with steady growth,” claiming that its “return” was “better than the stock market," James said in a statement announcing her intention to sue the city. A former TLC Commissioner even once noted that medallions have “outperformed practically every other type of investment that exists," and according to James, the TLC "has also previously lured purchasers by claiming the high value of taxi medallions could be used as collateral for a loan, to pay for a home or a college education, or to fund one’s retirement."

James detailed the TLC's actions in the period between 2004 through 2017: "first, the TLC set up an artificial floor below which bids are never accepted. The city also permitted taxicab brokers and other large owners to not only 'bid up' the price of medallions, but also collude on pricing," James alleges. "Further, on at least 10 occasions in 2013 and 2014, the TLC published false and misleading medallion prices despite having exclusive oversight and approval over the sale of these medallions."

The industry's fraud came to light in a 2019 New York Times investigation that uncovered evidence that some investors manipulated the price of medallions and drivers often did not understand the terms of predatory loans they accepted.

"Between 2002 and 2014, the price of a medallion rose to more than $1 million from $200,000, even though city records showed that driver incomes barely changed," according to the Times. Desperate drivers were left with enormous six-figure debt after taking out exorbitant loans to afford the medallions. Several committed suicide.

A spokesperson for Mayor Bill de Blasio said the for-hire startup companies are the real culprit here:

“We have spent the last six years putting money back into the pockets of drivers and attempting to curb the harm from Uber years before anyone else wanted to recognize the threat," said spokesperson Freddi Goldstein in a statement. "This crisis has been ours to solve – working tirelessly to clean up the carelessness and greed of others. If the Attorney General wants to launch a frivolous investigation into the very Administration that has done nothing but work to improve the situation, this is what she’ll find.”

The mayor's office added that the last auction was planned by the Bloomberg administration and happened mere weeks into de Blasio's tenure.

A task force created to address the medallion crisis recommended the creation of a public-private fund that could pay as much as $600 million to bail out debt-ridden taxi drivers. The report, which came out in late January, included ideas ranging from working with banks to restructure the loans, to considering surge pricing.

“Government should be a source of justice, not a vehicle for fraudulent practices,” James said in the release. “These taxi medallions were marketed as a pathway to the American Dream, but instead became a trapdoor of despair for medallion owners harmed by the TLC's unlawful practices. The very government that was supposed to ensure fair practices in the marketplace engaged in a scheme that defrauded hundreds of medallion owners, leaving many with no choice but to work day and night to pay off their overpriced medallions. What’s worse is that the TLC knew their actions were affecting some of the city’s most financially exposed immigrant families. We are taking action to ensure New York’s hard-working taxi drivers can be made whole again and are repaid the hundreds of millions the city unlawfully pocketed.”

The $810 million is being sought for restitution for medallion owners and damages. If the city does not pay in 30 days, James will proceed with a lawsuit. Anyone with information related to the case can contact the AG at Investor.Complaints@ag.ny.gov.