Pomerantz Appointed Lead Counsel in MoneyGram Securities Litigation
On June 2, 2021, U.S. District Judge Karen Gren Scholer of the Northern District of Texas – Dallas Division appointed Pomerantz LLP as Lead Counsel on behalf of Lead Plaintiff Mohsen Javaherneshan in Javaherneshan v. MoneyGram International, Inc., 21-cv-815 (N.D. Tex.), a securities action brought on behalf of a class of defrauded investors concerning allegations that MoneyGram International, Inc. (“MoneyGram” or the “Company”) failed to disclose risks associated with its utilization of the XRP cryptocurrency.
MoneyGram is a provider of peer-to-peer payments and money transfer services in the United States and internationally, including money orders, digital money transfers, bill payment services and official check outsourcing services for banks and credit unions.
Allegations against MoneyGram include that: (i) XRP, the cryptocurrency that MoneyGram was utilizing as part of its Ripple Labs, Inc. (“Ripple”) partnership, was viewed as an unregistered and therefore unlawful security by the U.S. Securities and Exchange Commission (“SEC”); and (ii) in the event that the SEC decided to enforce the securities laws against Ripple, MoneyGram would be likely to lose the lucrative stream of market development fees that was critical to its financial results throughout the class period.
On December 22, 2020, the SEC filed a lawsuit against Ripple, alleging that Ripple’s cryptocurrency XRP is an unregistered security in violation of the securities laws. The SEC alleged a brazen scheme in which Ripple received legal advice as early as 2012 that XRP could be considered an investment contract and therefore a security that needs to be registered under the securities laws. Nevertheless, Ripple decided to ignore this advice and assume the risk of initiating a large-scale distribution of XRP without registration. Relying on Ripple’s own statements, the SEC points out that Ripple’s stated business plan has been to sell XRP to as many speculative investors as possible, and any non-speculative or non-investment use of the cryptocurrency represents a very small and inconsequential piece of the enterprise.
In fact, the SEC alleged specifically that the major non-investment use of the XRP cryptocurrency—transferring money on Ripple’s On Demand Liquidity (“ODL”) platform—is not market-driven but subsidized by Ripple itself. In order to convince anyone to use ODL to transfer money, the SEC alleged, Ripple had to make a $50 million equity investment and pay significant financial compensation to an entity that the SEC’s Complaint refers to only as the “Money Transmitter.” Of course, the “Money Transmitter” is MoneyGram. In addition, the SEC’s complaint describes how MoneyGram itself took part in the sale of unregistered XRP securities on the open market.
On December 23, 2020, MoneyGram announced that it had “not currently been notified or been made aware of any negative impact to its commercial agreement with Ripple but will continue to monitor for any potential impact as developments in the lawsuit evolve. MoneyGram has had a commercial agreement with Ripple since June 2019; this agreement represents the use of Ripple’s foreign exchange (FX) blockchain trading platform (ODL) for the purchase or sale of four currencies. MoneyGram has continued to utilize its other traditional FX trading counterparties throughout the term of the agreement with Ripple, and is not dependent on the Ripple platform to accomplish its FX trading needs… As a reminder, MoneyGram does not utilize the ODL platform or RippleNet for direct transfers of consumer funds – digital or otherwise. Furthermore, MoneyGram is not a party to the SEC action.”
On February 22, 2021, MoneyGram filed its 2020 annual report in which it stated that it had “ceased transacting with Ripple under the commercial agreement in early December 2020 and has not since resumed trading.” And that “It is possible that MoneyGram will not resume transacting with Ripple under the commercial agreement and will be unable to receive the related market development fees in 2021 and beyond.” Also, on February 22, 2021, MoneyGram announced its 2020 financial results, stating that “the Company is not planning for any benefit from Ripple market development fees in the first quarter. Due to the uncertainty concerning their ongoing litigation with the SEC, the Company has suspended trading on Ripple’s platform. In the first quarter of 2020, the Company realized a net expense benefit of $12.1 million from Ripple market development fee.”
On this news, MoneyGram’s share price fell $3.61 per share, or 33.2%, to close at $7.26 per shareon February 23, 2021.