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Minn. Firm Hid Subprime Investment Losses, Shareholder Says

A money order processing firm fraudulently hid more than half a billion dollars in subprime investment losses while selling overpriced stock in 2007, an investor alleges in Minnesota federal court.

In a class-action complaint filed in the U.S. District Court for the District of Minnesota, Michigan-based Ann Arbor City Employees Retirement System says it and other investors unwittingly paid too much for shares of MoneyGram International, a Minneapolis-based payment services company.

The suit says MoneyGram shares were trading at about $30 for most of 2007.

The price fell to about $19 in October when the company announced third-quarter losses of $230 million tied to its subprime mortgage investments, the suit says.

In January MoneyGram revised its third-quarter loss to $560 million and announced a total subprime-related loss of $860 million for 2007.

The company's stock tumbled to $6 per share on that news, according to the complaint.

The suit says MoneyGram "lacked requisite internal controls ... and concealed the extent of its potential losses due to its exposure to asset-backed securities containing uncollectible debt," meaning mortgage loans in default.

The suit also names as defendants MoneyGram CEO Philip Milne, CFO David Parrin and COO Anthony Ryan.

The complaint says the executives knew MoneyGram's public statements created a false picture of the company's financial health.

The defendants allegedly violated the antifraud provisions of the Securities Exchange Act of 1934.

In its January announcement the company said Thomas H. Lee Partners, a private equity firm, offered an $800 million bailout in exchange for MoneyGram preferred stock. MoneyGram said it expects to stay afloat with an additional $600 million from third-party lenders.

The plaintiff is seeking to represent a class of "thousands" of investors who bought MoneyGram shares between January 2007 and January 2008.

"The class would not have purchased MoneyGram common stock at the prices they paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated by defendants' misleading statements," the complaint says.

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