Payment services provider MoneyGram International Inc. has agreed to settle a federal lawsuit filed by investors for $80 million. The class-action case, filed in Minneapolis, stems from subprime real estate investment losses in 2007 and 2008. The Plaintiffs contended their losses were hidden from investors by company executives. The agreement requires MoneyGram to pay $80 million in cash to the Plaintiffs with all but $20 million to be paid by the company’s insurer.
The lead Plaintiff in the case is the Oklahoma Teachers’ Retirement System, which through the teachers’ pension fund owned stock in the company. Shares had traded as high as $37 in mid-2006, but fell to below $1 a share by mid-2008. It was alleged in the lawsuit that the company eventually realized a $1.6 billion loss in its investment portfolio. The company’s executives hid from investors the losses it was incurring in its investment portfolio “because they knew investors would panic if they learned the truth,” according to the Plaintiffs.
The losses led the company to seek a financial bailout and in early 2008, private equity company Thomas H. Lee Partners invested more than $750 million in preferred shares in exchange for nearly 80% equity in the company. As part of the court settlement, the company agreed to change its business, corporate governance and internal controls. The company claims some changes have already been implemented as part of the recapitalization. The settlement agreement is subject to notification of shareholders and final approval of the court.
Source: Los Angeles Times
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