MINNEAPOLIS (CN) – MoneyGram directors dumped their own stock at inflated prices and paid themselves millions of dollars while driving the share price down from $30 to $6 and losing $1 billion, shareholders say in Federal Court. The derivative complaint claims MoneyGram held accountable for inside trading and book juggling that, when it was revealed, whacked 50 percent off the stock price in a single day.
Plaintiff Frank Cornish says MoneyGram executives issued false and misleading statements after placing more than 29 percent of the company’s investments into shaky asset-backed securities tied to subprime and Alt-A mortgages, without disclosing the high-risk investments to shareholders. The misrepresentations caused MoneyGram stock to trade at a high of $30.11 per share, according to the complaint.
Cornish claims MoneyGram executives also drove the price up by repurchasing shares to the tune of $114 million.
When the housing market crashed, MoneyGram executives repeatedly claimed that the investments were “temporarily impaired,” when in fact the company has suffered a loss of around $860 million, Cornish claims.
Before announcing the actual loss, MoneyGram executives hired JP Morgan to find an investor to bail out the company, and lied to the public, claiming that JP was hired for “strategic overview” of MoneyGram’s payment systems division, according to the complaint.
MoneyGram executives sold their shares just days before the loss was announced, “generating proceeds of over $1 million,” according to the complaint.
“MoneyGram’s stock price plummeted to as low as $5.66 per share, before closing at $6.15 per share on January 15, 2008 … a one-day decline of 50 percent,” the complaint states.
Cornish claims Thomas H. Lee Partners and Goldman Sachs Group converted 79 percent of MoneyGram stock at $2.50 per share as a “bailout,” causing an even greater loss to shareholders.
MoneyGram had turned down a better offer from Euronet, at $20 per share, telling one angry shareholder in a letter that it was “less than what [MoneyGram] shareholders deserve.” Cornish says MoneyGram feared exposing its financial information to the public at that time.
Cornish says that in March of 2008, MoneyGram executives rewarded themselves with “discretionary restructuring bonuses” doling out an undeserved $1.26 million to four officers who drove MoneyGram “to the brink of financial ruin.”
MoneyGram kept its general ledger open to alter financial documents in violation of its internal controls, the suit adds. Cornish says that seven board members agreed to resign in early 2008, and that president Philip Milne left the company with a $9.71 million severance payment.
Cornish says he sent a letter to the company in June 2009 demanding “action against certain directors and executive officers” who were responsible for the company’s financial downfall. He says the board refused his demand.
Cornish says the SEC is investigating MoneyGram, and the company has been named in several other class actions.
Cornish seeks company restructuring and restitution from the executives, alleging inside trading, breach of fiduciary duties, unjust enrichment, abuse of control and gross mismanagement.
Named defendants include former directors Monte Ford, Judith Hofer, Donald Kiernan, Robert Krueger, Linda Johnson Rice, Douglas Rock, Orthon Ruiz-Montemayor, Timothy Wallace, former president and CEO Philip Milne, former vice president and CFO David Parrin, vice president and COO Anthony Ryan, directors Jess Hay, Albert Teplin, Thomas Hagerty, Scott Jaeckel, Seth Lawry, Ganesh Rao, former senior vice president and Controller Jean Benson, former executive vice president and CIO William Putney, and executive chairman and CEO Pamela Patsley. Lead counsel is Vernon J. Vander Weide.