Medley Management Bankruptcy Affected 700K+ Investors and Borrowers

Brook Taube and Seth Taube, Harvard-educated twin brothers, built a billion-dollar alternative asset management empire, Medley Management, that collapsed amid SEC charges, bankruptcy, and multiple lawsuits. The brothers settled with the SEC for $10 million in civil penalties in April 2022 after systematically overstating assets under management by over $1 billion and pushing a self-dealing merger.

No criminal charges were filed, but the civil enforcement action, combined with a Delaware court finding of fiduciary duty breaches and bankruptcy with $140.8 million in liabilities, represents one of the most significant failures in the Business Development Company (BDC) sector.

The Brothers and Their Empire

Brook and Seth Taube are identical twins born in 1971 who graduated from Harvard in 1992. Brook earned his CFA and worked at Bankers Trust Corporation before partnering at Griphon Capital Management. Seth earned his Wharton MBA in 2003 and worked at Morgan Stanley and Tiger Management before joining his brother. They co-founded Medley Management in 2006, serving as co-CEOs and co-chairmen until resigning as co-CEOs in May 2021.

Their business focused on direct origination of senior secured loans to middle-market companies with $50-$1 billion in revenue. At peak in 2015-2016, the Medley empire managed over $5 billion across multiple entities.

Medley Management Inc. (NYSE: MDLY) went public September 24, 2014, raising $108 million at $18 per share—below the expected $20-$22 range. The Taubes retained 97.5% voting control through dual-class shares, owning 97.7% of voting interests despite the public listing. This concentrated control proved central to later governance failures.

Medley LLC, formed October 27, 2010, operated as the wholly-owned core business entity. It issued publicly-traded bonds raising $122.6 million from retail investors. When it filed Chapter 11 bankruptcy March 7, 2021, it had $5.4 million in assets against $140.8 million in liabilities.

Medley Capital Corporation (NYSE: MCC) went public January 20, 2011, raising $129.6 million. Brook served as CEO and Chairman; Seth as director. The BDC deployed over $5.7 billion to 300+ companies. In 2021, it changed its name to PhenixFIN Corporation and internalized management, severing ties with the Taubes.

Sierra Income Corporation, launched April 2012, operated as a non-traded BDC. Seth served as CEO and Chairman until April 2021. The fund raised nearly $1 billion from retail investors before closing in July 2018. By March 2021, NAV had declined to $5.28 per share from $10—a 47% loss. Sierra merged with Barings BDC Inc. in March 2022.

Systematic AUM Inflation

From August 2016 until April 2021, Medley systematically misrepresented assets under management in public filings, bond offerings, quarterly reports, and merger documents. The company included over $1 billion in “committed capital” from non-discretionary clients with no obligation to invest—approximately 20% of reported $5 billion AUM.

Two separate managed accounts claimed commitments of $800 million and $250 million respectively. Yet the first invested only $81 million over 2.5 years; the second just $49 million. These clients retained full discretion over deployment, could use other managers, and Medley had no enforceable right to require investments. Despite this, public disclosures emphasized “new institutional capital” and “dry powder” without revealing most would never be invested or generate fee income.

During four “baby bond” offerings between August 2016 and February 2017 that raised $122.6 million from retail investors, registration statements prominently featured inflated AUM. The Taubes signed certifications claiming they’d evaluated disclosure controls when Medley maintained no policies or procedures to ensure accurate risk factor disclosures under Exchange Act Rule 13a-15(a).

When Medley calculated management fees based on AUM, inflated figures suggested stronger performance than reality. When the company projected future revenues for the 2018 merger, it assumed non-discretionary clients would suddenly invest at five times historical rates—assumptions the SEC found lacked any reasonable basis.

The Failed 2018 Merger

In August 2018, the Taubes proposed a three-way merger: Sierra Income Corporation would acquire Medley Capital Corporation, then the combined entity would acquire Medley Management with Sierra as survivor. Medley Management would receive a 100% premium while Medley Capital shareholders received no premium to NAV. The transaction would give Brook a $600,000 salary plus up to $3.2 million in incentives; Seth $480,000 plus up to $1.75 million.

The merger relied on unrealistic June 2018 projections assuming non-discretionary SMA clients would quintuple investment rates and that interval funds dormant for over a year would begin raising significant capital. These projections were incorporated into proxy materials encouraging favorable shareholder votes.

FrontFour Capital Group LLC filed suit in Delaware Court of Chancery in February 2019 (Case No. 2019-0100-KSJM) to block the merger. After reviewing over 800 exhibits including damaging texts and emails between the Taubes and supposedly independent directors, Vice Chancellor Kathaleen McCormick issued a scathing March 11, 2019 decision.

The court found directors breached fiduciary duties to Medley Capital shareholders, concluding “half of the Medley Capital special committee is beholden to the Taube brothers, and thus the Taube brothers dominated and controlled the board.” Committee members “willfully deferred” to the Taubes. Directors approved the transaction without seriously considering alternative proposals from Marathon Asset Management, NexPoint, and others who expressed interest at potentially better terms.

Exposed text messages showed the true dynamics. When a shareholder criticized the merger, one independent director texted Brook: “Are we going to respond to every f**ksake on the planet?” The merger was driven by Medley Management’s financial distress—the company desperately needed a transaction to survive after failing twice to find buyers in 2017.

The court halted the shareholder vote and ordered corrective disclosures. FrontFour settled July 2019, obtaining two truly independent directors. Two directors whose texts were exposed resigned. The companies refiled merger documents in August 2019 with corrections, but by May 2020 the transaction was terminated.

SEC Enforcement and $10 Million Settlement

On April 28, 2022, the SEC announced charges and settlement with Medley Management Inc., Brook B. Taube, and Seth B. Taube in Administrative Proceeding File No. 3-20836. The parties agreed to pay $10 million collectively: $4 million from Medley Management, $4 million from Brook, $2 million from Seth. The settlement included cease-and-desist orders and censures without admission or denial of findings.

The SEC found violations of multiple antifraud provisions, reporting requirements, and books and records rules: Securities Act Sections 17(a)(2) and 17(a)(3), Investment Advisers Act Sections 206(2), 206(4) and Rule 206(4)-8, Exchange Act Section 14(a) and Rule 14a-9 (proxy violations), and Exchange Act Section 13(a) with related reporting rules.

Lara Shalov Mehraban, Acting Director of the SEC’s New York Regional Office, stated: “The Taubes, as CEOs of a publicly-traded asset manager, failed to ensure investors were given correct information about the company’s assets under management and adequate disclosures about its risks.” The misconduct spanned nearly five years, infecting periodic reports, bond offerings, and merger proxy materials.

The SEC investigation began December 2019 as an informal inquiry. On May 7, 2021, the SEC issued Wells Notices to Medley entities, the Taubes, and four other pre-IPO owners who were current or former officers, indicating staff’s preliminary determination to recommend enforcement action.

The final settlement did not include officer and director bars or industry suspensions. The Taubes were censured and subject to cease-and-desist orders but remained eligible to serve on public company boards—which they continued to do as co-chairmen of Medley Management. Penalty payments were structured to facilitate distribution to bondholders through bankruptcy, with amounts offset by payments distributed within 180 days. Under Bankruptcy Code Section 523(a)(19), penalties were deemed non-dischargeable.

Bankruptcy and Financial Collapse

Financial distress the Taubes tried concealing through inflated AUM and desperate merger attempts became undeniable in early 2021. On March 7, 2021, Medley LLC filed Chapter 11 bankruptcy in Delaware (Case No. 21-10526-KBO) under Judge Karen B. Owens, holding $5.4 million in assets against $140.8 million in liabilities.

The largest liabilities were outstanding publicly-traded notes—$125.5 million in 7.25% Notes due 2024 (NYSE: MDLQ) and similar amounts from 6.875% Notes due 2026 (NYSE: MDLX). By the April 30, 2021 creditor bar date, claims totaled $133.3 million.

The filing followed Medley missing February 2021 interest payments on both note series, triggering defaults. Fee-earning AUM had declined from over $5 billion to approximately $1.3 billion. Revenue in 2020 was just $31.7 million—insufficient to service $141 million in debt.

Medley retained B. Riley Securities in December 2020 to explore restructuring, but out-of-court options proved “largely unworkable” due to thousands of individual bondholders who’d purchased the “baby bonds” through brokerage accounts, making consensual workout nearly impossible.

The bankruptcy plan, approved October 7, 2021 with October 18, 2021 effective date, established a liquidating trust to distribute revenues from non-bankrupt affiliate Medley Capital LLC to creditors. Medley Management Inc., owning 98% of Medley LLC’s membership interests, received no recovery on its equity stake. Noteholders received pro rata distributions after administrative expenses, priority claims, and secured claims—resulting in significant losses but some recovery.

NYSE Delistings

On July 6, 2021, the NYSE notified Medley Management of intent to delist its Class A common stock (MDLY). Trading was suspended July 7, 2021, with delisting effective the same day. NYSE Regulation determined the company was “no longer suitable for listing” under Listed Company Manual Section 802.01D, citing “uncertainty as to the ultimate effect of the LLC’s bankruptcy reorganization process on securities value.”

This followed earlier compliance issues. On April 23, 2020, Medley received NYSE notices that average market capitalization fell below $50 million over 30 consecutive trading days while stockholders’ equity was simultaneously less than $50 million, and stock price traded below $1.00 for 30 consecutive trading days.

The immediate delisting trigger was inability to file timely quarterly reports. On June 1, 2021, NYSE notified Medley of non-compliance with Section 802.01E due to failure to timely file Form 10-Q for Q1 2021. The company cited complexity of accounting for Medley LLC deconsolidation following bankruptcy.

On July 7, 2021, both Medley LLC note series were also delisted, with trading suspended for MDLX and MDLQ. These securities entered default upon bankruptcy filing. On April 16, 2021, California’s Department of Financial Protection and Innovation issued Orders Summarily Revoking licenses against Medley Capital Corporation.

At last recorded NYSE price on December 8, 2021, MDLY closed at $5.88—down 24.42% over prior 12 months from a 52-week high of $17.00. This represented catastrophic decline from September 2014 IPO price of $18 per share.

Civil Lawsuits and Class Actions

Beyond SEC enforcement and Delaware Chancery Court, the Taubes faced multiple additional civil lawsuits.

American Web Loan RICO Class Action (Solomon v. American Web Loan, Inc., Case No. 4:17-cv-00145, E.D. Va.) filed December 2017 sued Medley Capital, Medley LLC, Medley Opportunity Fund II LP, Medley Management, Medley Group LLC, Brook Taube, and Seth Taube in an alleged “rent-a-tribe” scheme.

Plaintiffs alleged RICO, Electronic Funds Transfer Act, and Truth in Lending Act violations. They claimed defendants provided capital to American Web Loan to extend predatory loans with 500%+ APR interest rates, evading state usury laws through a tribal entity. Medley Opportunity Fund II provided a $23 million loan to American Web Loan Holdings in late 2011, with credit agreements requiring weekly reports on fees and defaults.

The class included 606,318 individuals who took out 1,055,376 loans between January 1, 2012 and June 26, 2020. The case settled in 2020 with final approval for $182 million ($86 million cash, $76 million loan cancellations, $21 million increased cash), with $32.4 million attorney fees.

DiCristino v. Taube (Index No. 650330/2019, N.Y. County Supreme Court) was a shareholder class action filed January 25, 2019 naming Brook, Seth, and other Medley directors for breach of fiduciary duties regarding the merger. This settled May 11, 2020 for $50,000 in attorneys’ fees with stipulation of discontinuance filed May 7, 2020.

Point.360 Bankruptcy Adversary Proceeding (Point.360 v. Medley Capital Corporation, Adversary No. 2:19-ap-01129, Bankr. C.D. Cal.) involved Medley as defendant in litigation related to Modern VideoFilm, which received a $50 million Medley loan in 2012. After Modern VideoFilm was sold to Point.360 in 2015 following Medley taking control, Point.360 brought adversary proceedings. Summary judgment was granted favoring Medley defendants July 2, 2021, with appeals continuing through Ninth Circuit.

Delaware Section 220 Book Inspection Actions preceded FrontFour litigation. FrontFour filed FrontFour Capital v. Medley Capital (Case No. 2019-0021-KSJM) on January 11, 2019, and another shareholder filed Altman v. Medley Capital (Case No. 2019-0031-KSJM) on January 16, 2019, seeking books and records inspection. These cases facilitated discovery uncovering damaging communications and conflicts.

No Criminal Charges

No criminal charges have ever been filed against Brook or Seth Taube. Extensive investigation of DOJ press releases, federal court criminal dockets, U.S. Attorney announcements, and FBI records from 2010 through October 2025 found no evidence of criminal prosecution, grand jury investigation, or criminal referral.

The SEC enforcement action was exclusively civil—an administrative proceeding resulting in civil penalties, cease-and-desist orders, and censure. The SEC did not refer the matter to DOJ Criminal Division. No evidence exists of FBI investigation, grand jury subpoenas, criminal search warrants, or asset seizure proceedings.

While the Taubes violated civil antifraud provisions, reporting requirements, and fiduciary duties—conduct subject to civil penalties and regulatory sanctions—prosecutors never pursued criminal charges under statutes such as Mail Fraud (18 U.S.C. § 1341), Wire Fraud (§ 1343), Securities Fraud (§ 1348), or Conspiracy (§ 371).

Industry Performance

Financial analysts consistently rated Medley among the worst performers in the BDC sector. Wells Fargo analysts described Medley as having “one of the worst records” in the industry. On October 30, 2019, Institutional Investor published “Two Harvard Twins (No, Not Those Twins) Run One of the World’s Worst BDCs. They’re About to Get Rich,” documenting Medley Capital’s bottom-quartile annual return on equity and consistent underperformance. The article highlighted how BDC regulatory structure—prohibiting serious investors from acquiring more than 3% ownership and making it nearly impossible for boards to fire managers—created a captive shareholder base with no recourse.

Medley Management shares priced at $18 in September 2014 (below expected range) declined 8.89% on first trading day to $16.40. By July 2021 delisting, stock traded below $6—a 66%+ decline from IPO price. Early Medley Capital investors in January 2011 IPO at $12 per share fared worse, with stock (now PhenixFIN) trading well below that level.

Performance issues stemmed from multiple factors. Medley’s investment strategy focused on directly originated senior secured loans to middle-market companies, but portfolio company distress rates exceeded industry norms. Non-accrual loans reached concerning levels, reducing distributable income.

Multiple potential acquirers reviewed Medley in 2017 when the Taubes attempted selling the business. Every major credit manager who examined Medley declined to make an offer—citing concerns about asset valuations, performance track record, and business model sustainability. This unanimous rejection by industry peers, documented in Delaware Chancery proceedings, provided the most damning assessment of Medley’s condition.

Current Status (October 2025)

Medley LLC’s Chapter 11 case (No. 21-10526-KBO) remains administratively open as of October 2025, though substantive proceedings concluded with plan confirmation in October 2021. The liquidating trust continues making final distributions to creditors from revenues received from non-bankrupt affiliate Medley Capital LLC. Last significant activity was September 27, 2024.

Medley Management Inc., delisted from NYSE in July 2021, has no active trading market and minimal disclosed operations. The company lost its primary asset (98% equity interest in Medley LLC) through bankruptcy with zero recovery. Brook and Seth Taube remain as co-chairmen of Medley Management’s board despite having resigned as co-CEOs in May 2021.

The SEC enforcement action settled in April 2022 is fully resolved. The $10 million in civil penalties was paid through Medley LLC bankruptcy to bondholders. Cease-and-desist orders remain in effect permanently. Censures are permanent marks but did not include officer and director bars or industry suspensions, allowing them to continue serving in corporate governance roles.

No new SEC enforcement actions or Wells Notices have been issued against the Taubes from 2022 through October 2025. All civil litigation has been resolved. Delaware Chancery cases settled in 2019-2020. The New York class action (DiCristino) was dismissed May 2020 following $50,000 settlement. American Web Loan RICO case settled in 2020 with $182 million resolution. Point.360 adversary proceedings resulted in summary judgment for Medley defendants in 2021, with appeals resolved by 2024.

PhenixFIN Corporation (formerly Medley Capital) continues operating independently as a publicly-traded BDC on NASDAQ under ticker PFX. Having internalized management January 2021 and severed all ties to the Taubes and Medley entities, PhenixFIN survived the collapse.

Sierra Income Corporation completed its merger with Barings BDC Inc. in March 2022, effectively dissolving. Former Sierra shareholders received shares in the combined Barings BDC entity, providing liquidity at valuations reflecting approximately 50% NAV loss since inception.

The Taubes’ current business activities remain opaque. Brook reportedly remains active in investment and advisory roles through new ventures. Seth continues operating the Seth B. Taube Foundation (founded 2001-2003), focusing on mental health, climate technology, and education reform with tens of millions in commitments. Both maintain public profiles emphasizing entrepreneurship and philanthropy, with promotional websites presenting sanitized career narratives that minimize or omit the SEC settlement, Delaware court ruling, and bankruptcy.

Neither brother faced criminal prosecution, and civil settlements allowed them to neither admit nor deny wrongdoing. They retain ability to serve as officers and directors of public companies—a privilege they exercise through continued board service at Medley Management despite its diminished state. The SEC’s decision not to seek officer and director bars, despite findings of multi-year antifraud violations, represents relatively lenient outcome compared to similar cases.

Key Financial Figures

SEC Settlement (April 2022):

• Total penalties: $10 million
• Medley Management Inc.: $4 million
• Brook B. Taube: $4 million
• Seth B. Taube: $2 million
• Administrative Proceeding File No. 3-20836

Medley LLC Bankruptcy:

• Filing date: March 7, 2021
• Case No. 21-10526 (KBO)
• Assets at filing: $5.4 million
• Liabilities at filing: $140.8 million
• Total creditor claims: $133.3 million
• Note claims: $125.5 million
• Plan confirmation: October 18, 2021

Delaware Chancery Court:

• FrontFour Capital v. Brook Taube
• Case No. 2019-0100-KSJM
• Filed: February 11, 2019
• Decision: March 11, 2019
• Settlement: July 29, 2019

American Web Loan Class Action:

• Solomon v. American Web Loan
• Case No. 4:17-cv-00145 (E.D. Va.)
• Filed: December 19, 2017
• Total settlement: $182 million ($86M cash + $76M loan cancellations + $21M additional)
• Attorney fees: $32.4 million
• Class size: 606,318 individuals, 1,055,376 loans

Bond Offerings (August 2016-February 2017):

• Total raised: $122.6 million
• 7.25% Notes due 2024 (MDLQ): ~$69 million
• 6.875% Notes due 2026 (MDLX): ~$53.6 million

Inflated AUM:

• Over $1 billion overstated (20% of $5 billion reported AUM)
• Two SMAs: $800 million and $250 million claimed commitments
• Actual investments: $81 million and $49 million over 2.5 years

Assets Under Management:

• Peak (2015-2016): Over $5 billion
• At bankruptcy (March 2021): $1.3 billion (fee-earning)

Investor Losses:

• Sierra Income NAV: $10/share (offering) → $5.28/share (March 2021) = 47.2% loss
• Nearly $1 billion raised from retail investors in Sierra Income
• Medley Management stock: $18/share (IPO) → $5.88 (delisting) = 67.3% loss

Chronology

The Taubes co-founded Medley Management in 2006, initially with Richard Medley who left within a year. Medley LLC was formed October 27, 2010 as the operating entity. Medley Capital Corporation went public January 20, 2011, raising $129.6 million at $12/share. Sierra Income Corporation launched in April 2012 as a non-traded BDC.

Medley Management Inc. went public September 24, 2014, raising $108 million at $18/share—below the expected $20-$22 range. At peak in 2015-2016, the empire managed over $5 billion in assets.

Beginning August 2016, systematic overstatement of AUM commenced by including non-discretionary “committed capital.” Between August 2016 and February 2017, four “baby bond” offerings raised $122.6 million from retail investors using inflated AUM figures.

In 2017, the Taubes attempted to sell Medley Management; every major credit manager who reviewed it declined to make an offer. In June 2018, the Taubes created unrealistic growth projections for the merger without reasonable basis. On August 9, 2018, they announced a proposed three-way merger with Sierra as survivor.

On January 11, 2019, FrontFour Capital filed a Section 220 books and records inspection action. On February 11, 2019, FrontFour filed its breach of fiduciary duty lawsuit (Case No. 2019-0100-KSJM). On March 11, 2019, Delaware Court of Chancery ruled directors breached fiduciary duties and halted the merger vote. FrontFour’s lawsuit settled July 29, 2019 with amended merger agreements containing corrective disclosures. On October 30, 2019, Institutional Investor published its exposé on Medley’s poor performance.

In December 2019, the SEC began formal investigation. In April 2020, Sierra Income suspended distributions to shareholders. On May 1/5, 2020, Sierra terminated the proposed merger citing COVID-19 and valuation changes. In November 2020, Medley Capital voted to internalize management.

On January 1, 2021, MCC changed its name to PhenixFIN Corporation with internalization effective, severing ties to Medley entities. In February 2021, Medley LLC missed quarterly interest payments on notes. On March 7, 2021, Medley LLC filed Chapter 11 bankruptcy (Case No. 21-10526-KBO). On April 16, 2021, California DFPI issued summary revocation orders against Medley Capital. On April 27, 2021, Seth resigned as CEO and director of Sierra Income. On April 30, 2021, general creditor bar date passed in bankruptcy with claims totaling $133.3 million.

On May 3, 2021, Brook and Seth resigned as co-CEOs of Medley Management but remained as co-chairmen. On May 7, 2021, the SEC issued Wells Notices to Medley entities and the Taubes. On May 17, 2021, Brook resigned from Sierra Income board. On July 6, 2021, NYSE announced intent to delist MDLY, MDLX, MDLQ. On July 7, 2021, NYSE trading was suspended and delisting became effective for all three securities. On October 7, 2021, bankruptcy court approved the reorganization plan. On October 18, 2021, the bankruptcy plan became effective and the liquidating trust was established.

On March 25, 2022, Sierra Income merged with Barings BDC Inc. On April 28, 2022, the SEC announced charges and $10 million settlement with Medley Management, Brook Taube, and Seth Taube.

From 2023-2025, no new major legal proceedings or regulatory actions occurred. The bankruptcy wind-down continued with last significant activity on September 27, 2024. As of October 2025, all major litigation is resolved, the bankruptcy case remains administratively open, and the Taubes continue as co-chairmen of the diminished Medley Management.

Conclusion

The collapse of Brook and Seth Taube’s asset management empire represents a case study in concentrated control, inflated metrics, conflicts of interest, and poor investment performance destroying billions in shareholder value. The brothers built Medley from inception in 2006 to over $5 billion in peak assets, taking multiple entities public. Yet by 2022, the empire had disintegrated—Medley LLC in bankruptcy with $140.8 million in debt against $5.4 million in assets, entities delisted from NYSE, $10 million in SEC civil penalties, and a Delaware court finding of fiduciary duty breaches.

The SEC found intentional misrepresentation of financial metrics spanning nearly five years in bond offerings, periodic reports, and merger documents, combined with failure to maintain adequate disclosure controls. The Delaware court found the Taubes dominated supposedly independent directors and pushed a self-dealing merger to benefit themselves while destroying shareholder value, revealing governance failures that regulatory structures failed to prevent.

Hundreds of millions in investor losses resulted. Sierra Income retail investors saw 47% NAV decline. Medley Capital shareholders experienced similar deterioration under years of bottom-quartile performance. Bondholders holding $125.5 million in notes faced bankruptcy with uncertain recovery. The $182 million American Web Loan settlement reflected massive liabilities from allegedly predatory lending practices.

Yet consequences for the Taubes remain limited. The $10 million SEC settlement, while significant, allowed them to neither admit nor deny wrongdoing. No criminal charges were filed. The civil settlement included no officer and director bars. All civil lawsuits settled without admission of liability. While reputational damage is substantial, both brothers retain their freedom, wealth, and ability to participate in corporate governance and business activities.

As of October 2025, the story largely concludes. The bankruptcy proceeds toward final closure with creditors receiving partial recovery. All major litigation is resolved. No new enforcement actions have emerged since 2022.

Both Brook and Seth Taube remain co-chairmen of the shell that is Medley Management. Brook Taube is reportedly active in new investment and advisory ventures. Seth operates the Seth B. Taube Foundation, which focuses on mental health, climate technology, and education with tens of millions in commitments. Both maintain public profiles emphasizing entrepreneurship and philanthropy. Their promotional websites present sanitized narratives that minimize or omit the SEC settlement, Delaware court ruling, and bankruptcy.