Chew v. MoneyGram International, Inc.
1:18-cv-07537
| N.D. Ill. | Sep 30, 2024Background
- Plaintiffs (Norfolk County Retirement System and Ozgur Karakurt) brought a putative class action under § 10(b)/Rule 10b-5 and § 20(a) on behalf of purchasers of MoneyGram securities from Feb 11, 2014 to Nov 8, 2018, alleging misleading statements about MoneyGram’s fraud-prevention and DPA/FTC compliance.
- MoneyGram had earlier enforcement resolutions: a 2009 FTC order and a 2012 five‑year DOJ deferred‑prosecution agreement (DPA) that required substantial remedial compliance work, a Board Compliance Committee, and an external Monitor.
- Plaintiffs allege defendants made numerous optimistic or affirmative statements (earnings calls, SEC filings, press releases) about compliance, expenditures, and program progress while allegedly knowing the programs were ineffective; plaintiffs claim revenue was partly driven by fees on undetected fraud.
- DOJ and FTC extended the DPA multiple times (2017–2018) and on Nov 8, 2018 announced MoneyGram breached the agreements; MoneyGram agreed to pay $125 million and further extend the DPA—disclosures followed by sharp stock declines.
- Defendants moved to dismiss the amended complaint under Rule 12(b)(6) and PSLRA pleading rules; the district court dismissed the amended complaint without prejudice for failure to plead actionable falsity and a strong inference of scienter, and denied the Item 303/§20(a) claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Were defendants’ public statements (affirmative and opinion) materially false or misleading under §10(b)/Rule 10b‑5? | Statements about compliance progress, prevented fraud losses, and system upgrades misled investors because programs were deficient and revenue was inflated by fraudulent transfers. | Statements were truthful, generic, or non‑actionable puffery or forward‑looking optimism; many statements were contextually accompanied by cautionary language and did not promise ultimate regulatory compliance. | Court: Most statements inactionable (puffery, opinions, truthful metrics). Only one statement (Holmes: new system was “freeing up more transactions”) was assumed false for pleading purposes, but overall falsity was not adequately alleged. |
| Did plaintiffs plead scienter with particularity under the PSLRA? | Defendants’ senior roles, rising fraud complaints, confidential witnesses/whistleblower reports, insider stock sales, and sale‑offer context show defendants knew or recklessly disregarded falsity. | Allegations are conclusory, hindsight‑driven, and lack particularized internal reports or communications tied to specific speakers; stock sales were routine; confidential witness allegations are vague and not tied to defendants. | Court: Plaintiffs failed to plead a cogent, strong inference of scienter for any individual defendant or a valid «collective» corporate scienter theory—PSLRA particularity not met. |
| Does Item 303/Regulation S‑K support liability (independent or as omission)? | Failure to disclose a known trend or uncertainty about compliance in SEC filings violated Item 303 and made statements misleading. | Item 303 does not create a private cause of action; pure omissions under Item 303 are not actionable under §10(b)/Rule 10b‑5 unless they render particular affirmative statements misleading. | Court: Plaintiffs waived any independent Item 303 claim; Macquarie/precedent bars pure‑omissions §10(b) liability—Item 303 allegations do not save the §10(b) claims and plaintiffs failed to allege defendants actually knew the trends. |
| Is there control‑person liability under §20(a)? | MoneyGram officers and Compliance Committee members are controlling persons and should be liable because a primary violation exists. | §20(a) requires an underlying primary violation; plaintiffs failed to plead a primary §10(b) violation or scienter. | Court: Because plaintiffs did not adequately plead a primary §10(b) violation, the §20(a) claim fails. |
Key Cases Cited
- Tamayo v. Blagojevich, 526 F.3d 1074 (7th Cir. 2008) (pleading: accept well‑pleaded factual allegations and draw inferences for Rule 12(b)(6)).
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (Iqbal/Twombly plausibility standard for complaints).
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state a plausible claim to relief).
- Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308 (2007) (PSLRA/ scienter: inference must be cogent and at least as compelling as any opposing inference).
- Omnicare, Inc. v. Laborers Dist. Council, 575 U.S. 175 (2015) (standards for opinion statements and when omission makes an opinion misleading).
- Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) (materiality standard for misstatements/omissions).
- Macquarie Infrastructure Corp. v. Moab Partners, L.P., 601 U.S. 257 (2024) (pure omissions not actionable under Rule 10b‑5(b); Item 303 does not create independent §10(b) liability absent misleading affirmative statements).
- Stoneridge Inv. Partners, LLC v. Sci‑Atlanta, 552 U.S. 148 (2008) (scope of §10(b)/Rule 10b‑5 liability).
- Smykla v. Molinaroli, 85 F.4th 1228 (7th Cir. 2023) (opinion‑statement pleading: must identify particular facts about the basis for the issuer’s belief to show omission rendered opinion misleading).