Class Action Alleging Securities Fraud Will Proceed Against MoneyGram

Minneapolis, MNA securities fraud class action will proceed against MoneyGram International alleging stock fraud, even though the plaintiffs failed to assert a primary violation. A US District Court Judge ruled that even though the complaint did not adequately claim violations against MoneyGram, there was sufficient cause to pursue allegations of irregularities in stocks and securities.

The plaintiffs in the class action are the members of Oklahoma Teacher's Retirement System. In its complaint, according to a report, the plaintiffs allege that on two separate occasions MoneyGram's officers falsified financial statements in an effort to vend stock at an inflated price in the midst of a market collapse due to the subprime mortgage meltdown.

The dates in question are January 24th, 2007 and January 14th, 2008.

MoneyGram attempted to have the class-action set aside and to have the allegations of securities fraud dismissed based on a failure on behalf of the plaintiffs so assert a primary violation.

In his ruling US District Court Judge David Doty noted that the plaintiffs did not, indeed adequately claim violations of Generally Accepted Accounting Principles with regard to MoneyGram's alleged failure to reveal omissions, impairments or risks inherent with its securities.

However, Judge Doty went on to rule that "a reasonable investor may have been misled by the concealment of specific information related to the Portfolio's subprime exposure and contents, the fair value determination method, MoneyGram's use of credit ratings ... and a change in the Portfolio's investment strategy," as well as the company's interest in bankruptcy.

The plaintiffs claim in their stock fraud class action that MoneyGram CFO David Parrin misled investors with a statement indicating mortgage-back securities had little effect on the company's portfolio.

However, subsequent to those remarks MoneyGram did eventually recognize—according to the plaintiffs—$1.2 billion in unrealized losses for 2007.

When the amended filing was brought forward, the stock price of MoneyGram International had fallen to $1.41 per share, a drop of $22 per share from the previous year.

It should be notes that MoneyGram's former chief investment officer was dismissed as a defendant. Judge David Doty based his ruling on the fact William Putney did not sign the Securities and Exchange Commission documents related to the action, nor does the complaint accuse him of "any specific misrepresentations or omissions."

However, the class action will proceed against MoneyGram International by the Oklahoma Teacher's Retirement System. The plaintiffs filed their amended complaint in Minneapolis in October of last year.

Securities fraud is a serious allegation. That said, corporations have been known to participate in stock fraud in an attempt to maintain optimum return for their shareholders and to foster a sense of robust performance for a corporation that may not be doing as well as it should be, or may be overexposed to an under-performing sector. Regardless of whether the alleged misrepresentation of stocks and securities is attempted as a stop-gap measure or maintained over the long term, the practice is both illegal and morally unfair to investors expecting little more than a reasonable return based on what they believe to be reasonable and truthful information. While a corporation may allegedly misbehave in this fashion, an investor will quite naturally take a dim view if their own bottom line and investment performance is affected in kind.