Shares of wire-transfer provider MoneyGram International Inc. tumbled 29% Friday morning after the company reported declining revenues and a $125 million settlement with the federal government over lax fraud controls at some agent locations.
The settlement involves “allegations that the company failed to take steps required under a 2009 Federal Trade Commission order to crack down on fraudulent money transfers that cost U.S. consumers millions of dollars,” the FTC said in a Thursday news release. The payment also resolves allegations that MoneyGram violated terms of a separate 2012 deferred prosecution with the U.S. Department of Justice.
The FTC claimed Dallas-based MoneyGram was aware for years of fraud involving some of its agents, including chain agents. “The FTC alleges, for example, that MoneyGram did not place any restrictions on one large chain agent until approximately mid-2013, even though the chain was the subject of more fraud complaints than any other MoneyGram agent worldwide,” the FTC said. “Some of the chain’s locations had fraud rates as high as 50% of the money-transfer activity. When it did take disciplinary action, MoneyGram focused on lower-volume, ‘mom-and-pop’ agents with high levels of fraud, while treating large chain agents differently.”
MoneyGram said in a statement that since 2012 it has invested more than $100 million in compliance technology and agent oversight and training programs, and developed consumer-verification standards. Those efforts have prevented more than $1.5 billion in fraud, the company said, adding that it continues to cooperate with the FTC and DoJ.
“Over the past several years, we have taken significant steps to improve our compliance program and have remediated many of the issues noted in the agreements,” MoneyGram chairman and chief executive Alex Holmes said in the statement. “Currently, our consumer fraud reports are at a seven-year low, and less than 0.05%, or 5 basis points, of all transactions conducted through MoneyGram systems are reported as fraudulent.”
Later Thursday, MoneyGram reported third-quarter financial results that include money-transfer revenues of $304.2 million, down 15% from $356.8 million a year earlier on an as-reported basis and 14% on a constant-currency basis. Higher compliance standards and new controls in certain money-transfer corridors affected revenues, MoneyGram said.
Bill-payment revenue slipped 14% to $17.4 million. Total revenues fell 13% as reported and 12% on a constant-currency basis to $347.2 million from $397.8 million in 2017’s third quarter.
MoneyGram reported a net loss of $20.9 million for the quarter versus net income of $7.7 million a year ago. Contributing to the loss were expenses from the deferred-prosecution agreement and restructuring costs.
On the brighter side, MoneyGram.com revenue grew 3%, with compliance costs and introductory pricing reducing top-line growth, the company said. Digital services, including MoneyGram.com, accounted for 16% of money-transfer revenue, the company said.
As of late morning Friday, MoneyGram shares were trading at $3.17, down $1.30, or 29%, from Thursday’s $4.47 close, according to Yahoo! Finance.