Nov. 9, 2012, 9:27 a.m. EST
MoneyGram to pay $100 mln in Consumer Fraud Case
–Three years ago MoneyGram agreed to pay $18 million to settle charges involving telemarketing scammers
–DOJ says MoneyGram knew of the fraud, but “rarely accepted” recommendations to terminate complicit agents
Prepayment services firm MoneyGram International Inc. MGI +1.09% agreed to pay $100 million to settle charges that certain of its U.S. and Canadian agents defrauded tens of thousands of customers and also that it failed to maintain an effective anti-money laundering program.
The justice department alleges MoneyGram knew some of its agents were “involved in a scheme to defraud,” and the victims were “fraudulently induced to send money” through MoneyGram. The schemes included promising victims they would receive large cash prizes and lottery winnings, falsely offering expensive items for sale online at deep discounts and falsely posing as a relative asking for money.
The victims were directed to send advance payments to fictitious payees using MoneyGram’s money transfer system. These payees then brought the victims’ MoneyGram reference numbers to MoneyGram agents to withdraw money. The DOJ alleges that the “MoneyGram agents knowingly entered false addresses, telephone numbers and personal identification document information for these transactions into the MoneyGram database” and that the agents “gave the perpetrators the victims’ money after subtracting their own fees for completing the fraudulent transaction.”
The DOJ said MoneyGram knew its agents were involved in the scheme to defraud customers, pointing out that between 2004 to 2009, MoneyGram customers filed about 63,8144 consumer fraud reports involving transfers paid out totaling about $128.4 million in losses because of the scheme.
While the company’s fraud department recommended that certain agents and outlets be terminated for fraud, the DOJ says “the fraud department’s termination recommendations were rarely accepted.” As a result, agents complicit in the scheme stayed on and fraud “skyrocketed.”
The settlement comes about three years after MoneyGram agreed to pay $18 million to settle similar charges with the U.S. Federal Trade Commission.
Chief Executive Pamela H. Patsley said Friday that since 2009, MoneyGram has “created a new culture at the company and have taken numerous steps to enhance our global compliance and anti-fraud programs.” The company said in its statement that it has terminated its relationship with agents involved in the fraud.
Ms. Patsley called the scheme “unacceptable to MoneyGram and counter to everything we strive to stand for. She added it takes “compliance very seriously at MoneyGram, and nothing angers us more than when our services are used to perpetrate illegal activity.”
Under the latest deal–a deferred prosecution agreement with the U.S. Attorney’s Office for the Middle District of Pennsylvania and the Department of Justice–MoneyGram has agreed to the appointment of an independent compliance monitor and a forfeiture of $100 million that will be available to victims of the consumer fraud scams perpetrated through MoneyGram agents. No further action will be taken against MoneyGram if it meets the agreement’s conditions.
The company had disclosed it was in discussion with authorities about the investigation in previous filings. During the second quarter, it made an accrual for $30 million. On Friday, it said it had made an additional accrual of $70 million in the third quarter related to the matter.
MoneyGram also reported Friday that it had swung to a third-quarter loss, as a rise in total operating expenses outweighed higher revenue.
Shares rose 1.1% to $13.94 in recent trading. The stock has dropped 32% in the past year.
- MoneyGram to Forfeit $100 Million Over Fraud Allegations (bloomberg.com)
- MoneyGram Reaches Agreement with U.S. Authorities (virtual-strategy.com)
- MoneyGram Settles Fraud Investigation (fool.com)
- MoneyGram agrees to settle scam charges (cbsnews.com)
- MoneyGram agrees to settle scam charges (trib.com)
- MoneyGram agrees to settle scam charges (cnsnews.com)
- MoneyGram agrees to settle scam charges (miamiherald.com)