Delaware court dismisses AML-related derivative suit against MoneyGram

On December 31, 2020, Delaware’s Court of Chancery granted MoneyGram International’s motion to dismiss a shareholder derivative suit that accused the company of failing to comply, in bad faith, with anti-money laundering requirements.  The judge dismissed the case reasoning that the facts presented were, at most, indicative of bad oversight, but did not rise to the level of "bad-faith oversight" required to sustain the matter.

The derivative suit was filed in 2019 by plaintiff Tim Richardson, a trustee shareholder of MoneyGram stock, after MoneyGram was forced in 2017 to extend a deferred prosecution agreement with the U.S. Department of Justice through 2021, and pay an additional $125 million in restitution for failing to comply with its duties under a 2012 DPA—bringing MoneyGram’s forfeiture total up to nearly $250 million.  According to the opinion, MoneyGram entered the 2012 DPA to settle criminal allegations by federal prosecutors that the company had failed to maintain effective AML procedures and aided and abetted wire fraud.  

The Plaintiff alleged that MoneyGram’s Board of Directors breached a duty to shareholders when they failed to ensure that the company fully complied with the 2012 DPA.  While Chancery Court Rule 23.1 requires stockholders to make a demand on the Board before filing a derivative claim, the Plaintiff argued that such a demand would be futile, as the directors’ inadequate actions related to the 2012 DPA sufficiently implied that they acted in bad faith.  The Plaintiff also alleged that the Board lacked the ability to use independent judgment because the directors collectively faced liability in the derivative action, and additionally alleged that one of the directors had a questionable executive compensation arrangement.  MoneyGram moved to dismiss the Complaint pursuant to both Chancery Court Rule 23.1 for failure to make a demand on the Board and Rule 12(b)(6) for failure to state a claim.

The court determined that the facts did not support the Plaintiff’s allegations, but found that MoneyGram took steps to comply with the DPA, and while the directors may have struggled to implement adequate long-term reforms, the Board took several affirmative steps to close the gaps in its compliance program and stay apprised of the progress, or lack of progress, taken by management.  Based on the facts presented by the Plaintiff, the court noted that while the Board might be accused of “feckless oversight and lack of vigor,” this did not implicate bad faith.  The court, therefore, granted MoneyGram’s motion to dismiss since the plaintiff failed to demonstrate that a majority of MoneyGram’s eleven directors and two officers acted in bad faith and ultimately failed to show that the pre-suit Board demand was excused under Chancery Court Rule 23.1.

Memorandum Opinion

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