Payments firm MoneyGram faces lawsuit for allegedly making false claims about XRP

Payments company MoneyGram International has been sued for allegedly making false statements about its partnership with Ripple Labs and the cryptocurrency XRP.

The class-action lawsuit was filed on March 1 in California on behalf of investors who purchased securities from MoneyGram between June 17, 2019 and February 22, 2021.

Rosen, a global investor rights counsel, claims that MoneyGram made fraudulent statements about its partnership with Ripple Labs and XRP as a security.

MoneyGram uses Ripple’s xRapid product (leveraging XRP for settlement in foreign exchange transactions) as part of its cross-border payment processes, according to a “strategic partnership” announced by the two companies in June 2019.

However, on December 23, 2020, MoneyGram announced that it would not rely on Ripple’s xRapid service — which was rebranded as On-Demand-Liquidity (ODL) in 2019 — for its foreign exchange trading needs:

“MoneyGram does not utilize the ODL platform or RippleNet to directly transfer consumer funds — digitally or otherwise. Furthermore, MoneyGram is not a party to the SEC’s action.”

MoneyGram suspended its partnership with Ripple in late February after the U.S. Securities and Exchange Commission (SEC) sued Ripple Labs for securities violations in December 2020.

Rosen claims that MoneyGram failed to disclose that the SEC considered XRP to be an unregistered and “illegal” security.

Furthermore, Rosen added that if the SEC decides to enforce securities laws against Ripple, MoneyGram could lose out on lucrative market development fees that are critical to its financial performance:

"As a result, Defendants' public statements were materially false and/or misleading at all relevant times. When the market learned the true information, the lawsuit alleges that investors suffered losses."

Ripple pays MoneyGram for use of its platform while providing financial incentives to help the startup expand into new markets.

According to the Wall Street Journal, MoneyGram received $38 million in net market development fees from Ripple in 2020, accounting for about 15% of the company's adjusted profit.

The agreement between the two companies was originally scheduled to expire in 2023, and the San Francisco fintech company also agreed to invest up to $50 million in MoneyGram.