MoneyGram Accused of Violating Anti-Fraud Agreements

MoneyGram executives deceptively told investors that the company prevented hundreds of millions in fraud losses until the Federal Trade Commission slapped the company with $125 million in penalties for failing to prevent the very same losses, shareholders claim in a class action.

Lead plaintiff Khong Meng Chew filed the complaint in the U.S. District Court for Northern Illinois on behalf of MoneyGram shareholders who owned or bought the company's securities from Feb. 11, 2014 to Nov. 8, 2018. The lawsuit names the money transfer provider along with CEO W. Alexander Holmes and other top executives as defendants.

According to the lawsuit, MoneyGram executives assured investors since Feb. 11, 2014 in press releases announcing financial results that anti-fraud programs would continue to be implemented in compliance with legal and regulatory requirements.

The class claims MoneyGram executives knew for years of “high levels” of fraud connected to its money transfer system and that they failed to put anti-fraud measures in place “because doing so would adversely impact its revenue.” Company executives allegedly knew the misconduct would draw the attention of the FTC and the Department of Justice. MoneyGram has an agreement since 2009 with the FTC to adopt anti-fraud measures and entered into a deferred prosecution agreement with the DOJ in 2012.

On Nov. 8, 2018, the FTC surprised investors by issuing a press release announcing that MoneyGram violated its 2009 order to implement anti-fraud measures, ordering the company to pay $125 million in settlement. The press release also stated that MoneyGram violated its separate 2012 agreement with the DOJ.

“The FTC’s 2009 order required MoneyGram to protect consumers from fraud through its money transfer system, and today we are holding MoneyGram accountable for its failure to do so,” said FTC Chairman Joe Simons. "MoneyGram’s alleged failure to implement key provisions of the order allowed scammers to continue to use its money transfer system to rip off consumers,” the press release stated.

MoneyGram shares fell $2.20 per share to close at $2.27 per share on November 9 after the news broke, the suit says.

The class is represented by Carl V. Malmstron of Wolf  Haldenstein Adler Freeman & Herz LLC in Chicago and Phillip Kim with Laurence M. Rosen of The Rosen Law Firm in New York.

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