Funds News

UPDATE 1-MoneyGram settles suit for $80 mln over subprime

* MoneyGram had lost $1.6 billion on risky debt

* Most of cash settlement covered by insurers

* MoneyGram shares fall

NEW YORK, Feb 25 (Reuters) - Payments services company MoneyGram International Inc MGI.N said it had agreed in principle to an $80 million settlement to resolve a securities fraud lawsuit stemming from $1.6 billion of losses it suffered on subprime and other risky asset-backed securities.

MoneyGram said it reached agreements on Wednesday to resolve a shareholder class-action lawsuit and a shareholder derivative lawsuit pending in the U.S. District Court in Minneapolis, where it is based.

These agreements require court approval once final documentation is signed.

MoneyGram said its insurers would cover all but $20 million of the $80 million cash payment due to resolve the class-action case. It said the settlement of the derivative lawsuit called for improved corporate governance and internal controls, some of which were already in place.

A lawyer for the lead plaintiff in the class-action case, the Oklahoma Teachers’ Retirement System, did not immediately return a call seeking comment.

MoneyGram Chief Executive Pamela Patsley said in a statement that the company was pleased to settle.

Shareholders bring derivative lawsuits on behalf of companies, rather than their own behalf, to enforce or defend rights that the companies fail to address on their own.

MoneyGram was among the first publicly traded U.S. companies to face serious financial trouble after the housing and credit markets began to weaken significantly in 2007.

Its losses led to a March 2008 recapitalization in which affiliates of private equity firm Thomas H. Lee Partners LP [THL.UL] and Goldman Sachs Group Inc GS.N bought $760 million of preferred stock that could be converted into a 79 percent equity stake in MoneyGram.

In the class-action case, shareholders complained that MoneyGram and its executives at the time hid the deterioration in its asset-backed investments, believing that investors would panic if they learned the truth.

MoneyGram shares traded above $37 as recently as 2006, only to fall below $1.00 in 2008 and early 2009. In Thursday morning trading, they were down 5 cents at $2.79.

Separately, MoneyGram said the three directors who were on its board prior to the recapitalization and remain in their seats had decided not to seek reelection.

The shareholder lawsuit is In re MoneyGram International Inc Securities Litigation, U.S. District Court, District of Minnesota, No. 08-00883. (Reporting by Jonathan Stempel; Editing by Ted Kerr)