in the united states district court for the...

Case 1:13-cv-03325-MSK-MJW Document 68 Filed 10/27/14 USDC Colorado of 92

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Chief Judge Marcia S. Krieger

Civil Action No. 13-cv-03325-MSK-MJW

CITY OF TAYLOR POLICE AND FIRE RETIREMENT SYSTEM, Individually and on behalf of all others similarly situated,

Plaintiff,

v.

THE WESTERN UNION COMPANY, HIKMET ERSEK, SCOTT T. SCHEIRMAN, and STEWART STOCKDALE,

Defendants.

CONSOLIDATED AMENDED CLASS ACTION COMPLAINT


TABLE OF CONTENTS

Page

I. SUMMARY AND NATURE OF THE ACTION .............................................................. 1

II. JURISDICTION AND VENUE ......................................................................................... 9

III. PARTIES AND RELEVANT NON-PARTIES ............................................................... 10

A. Lead Plaintiffs ....................................................................................................... 10

B. Defendants ............................................................................................................ 12

C. Relevant Non-Parties ............................................................................................ 14

IV. OVERVIEW OF DEFENDANTS’ FRAUD .................................................................... 16

A. Western Union’s Core C2C Business ................................................................... 16

B. Western Union’s Facilitation Of Drug Dealing And Human Smuggling

Results In The Southwest Border Agreement ....................................................... 18

C. Defendants Misrepresented and Concealed Facts Concerning Western

Union’s Compliance With the Southwest Border Agreement .............................. 21

D. Defendants Misrepresented and Concealed Facts Concerning Western

Union’s Consumer-to-Consumer Pricing Stability ............................................... 31

E. Post-Class Period Disclosures............................................................................... 37

V. CLASS PERIOD EVENTS AND MATERIALLY FALSE AND MISLEADING STATEMENTS AND OMISSIONS OF MATERIAL FACT ......................................... 41

A. February 7, 2012 - Press Release & Earnings Conference Call ........................... 41

B. March 13, 2012 - Credit Suisse Global Services Conference ............................... 44

C. April 24, 2012 – 1Q12 Press Release & Earnings Conference Call ..................... 46

D. May 9, 2012 - Western Union Investor Day ........................................................ 47

E. June 12, 2012 - William Blair & Co., LLC Growth Stock Conference ............... 52

F. July 24, 2012 – 2Q12 Press Release & Earnings Conference Call ....................... 53

G. October 16, 2012 - Voices of Experience: Stewart A. Stockdale from

Western Union at the University of Denver ......................................................... 59

VI. LOSS CAUSATION ......................................................................................................... 60

VII. ADDITIONAL SCIENTER ALLEGATIONS ................................................................. 68

VIII. A PRESUMPTION OF RELIANCE APPLIES ............................................................... 74

IX. THE STATUTORY SAFE HARBOR AND BESPEAKS CAUTION DOCTRINE

ARE INAPPLICABLE ..................................................................................................... 75

X. CLASS ACTION ALLEGATIONS ................................................................................. 77

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XI. CAUSES OF ACTION ..................................................................................................... 79

XII. PRAYER FOR RELIEF ................................................................................................... 85

ii


Lead Plaintiffs, SEB Asset Management S.A. and SEB Investment Management AB

(collectively, “Lead Plaintiffs” or “SEB”), assert the following allegations on their own behalf

and on behalf of the Class (as defined herein) against defendants The Western Union Company

(“Western Union” or the “Company”), Hikmet Ersek (“Ersek”), Scott T. Scheirman

(“Scheirman”), and Stewart Stockdale (“Stockdale”) (collectively, “Defendants”). The

allegations in this Complaint are based upon personal knowledge as to Lead Plaintiffs and their

own acts, and are based upon information and belief as to all other matters alleged herein. Lead

Plaintiffs’ information and belief is based upon a continuing investigation, conducted by Lead

Plaintiffs’ counsel under Lead Plaintiffs’ supervision, into the facts and circumstances alleged

herein including, without limitation, review and analysis of: (i) Western Union’s filings with the

United States Securities and Exchange Commission (“SEC”); (ii) securities analysts’ reports

concerning the Company; (iii) Western Union’s press conferences, investor and analyst

conference calls, and corresponding transcripts thereof; (iv) Western Union’s press releases and

other public statements; (v) media reports and other publications concerning Western Union

and/or the other Defendants named herein; (vi) interviews of former Western Union employees

and other persons who performed work on Western Union’s behalf; and (vii) Western Union’s

corporate website. Lead Plaintiffs believe that additional evidentiary support for the allegations

herein will likely emerge after a reasonable opportunity to conduct discovery.

I. SUMMARY AND NATURE OF THE ACTION

1. This is a federal securities class action seeking remedies under Sections 10(b) and

20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated

thereunder (17 C.F.R. § 240.10b-5), as amended by the Private Securities Litigation Reform Act

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of 1995 (“PSLRA”), on behalf of all persons and entities who purchased or otherwise acquired

Western Union common stock during the period from February 7, 2012 through October 30,

2012 (the “Class Period”), and were damaged thereby (the “Class”)

2. Western Union, headquartered in Englewood, Colorado, is a global money

movement and payment services provider. During the Class Period, the core component of the

Company’s business was its consumer-to-consumer (“C2C”) segment, through which Western

Union facilitated monetary transfers between senders and recipients. Western Union provided

C2C payment services through three separate brands: (i) Western Union; (ii) Vigo; and (iii)

Orlandi Valuta. Western Union’s Vigo and Orlandi Valuta brands provided extensive C2C

services in Mexico and Latin America during the Class Period.

3. The Company’s C2C business is its largest operating segment, and it generated

more than 80% of Western Union’s revenues during the Class Period. The revenues that

Western Union derives from C2C transactions typically include: (i) a transaction fee, which is a

percentage of the monetary amount transferred; and (ii) a foreign exchange fee, which is the

spread between the retail foreign exchange rate that Western Union charges and the lower

wholesale foreign exchange rate that Western Union pays for cross-currency payments.

4. Western Union conducts a substantial portion of its consumer cash remittance

business through “agents” on both the sending side and the receiving side of the transaction.

Western Union’s agents are typically independent business operations, such as gas stations,

banks, and other retailers, which operate in physical locations at which senders and recipients of

funds can conduct their transactions.

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5. Founded in 1851, Western Union is a long-standing player in the C2C cash

remittance business. Western Union’s once-dominant market share, along with its lax anti-

money laundering monitoring, enabled the Company to charge “premium” prices for its cash

remittance services—often as much as 50% more than competing companies charge for the same

services. In recent years, however, Western Union has lost substantial market share to such

lower-priced competitors.

6. The cash remittance business is highly susceptible to abuse by those engaged in

crime, including drug cartels, human smuggling operations, weapons dealers, and terrorists.

Consequently, companies that provide money transfer services must have comprehensive

measures in place to comply with anti-money laundering laws, including the Bank Secrecy Act

of 1970, as amended by the USA Patriot Act of 2001. Companies facilitating cash remittance

transactions in the southwestern United States, particularly Mexico’s borders with Arizona,

Texas, New Mexico, and California, face a heightened risk of illegal use and must be particularly

vigilant for signs of criminal activity.

7. In 2001, the State of Arizona commenced an investigation into Western Union’s

anti-money laundering compliance practices and reporting of suspicious activity. According to

written testimony that then Arizona Attorney General Terry Goddard (“Goddard”) provided on

March 17, 2009, to a joint session of the Senate Judiciary Committee’s Subcommittee on Crimes

and Drugs and the Senate Caucus on International Narcotics Control (the “Written Testimony”),

Western Union was “by far the largest provider of illicit money movement services ” but “still

refuses to comply with subpoenas for vital data ” relating to the Company’s “business with []

brutal criminals. ” On February 11, 2010, Western Union entered into an agreement and

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settlement with the State of Arizona (the “Southwest Border Agreement” or “Agreement”),

which resolved the outstanding investigation and legal claims and provided detailed measures

designed to detect and reduce the amount of criminal activity conducted through Western

Union’s C2C business segment.

8. As alleged in more detail below in Section IV.B, the Southwest Border

Agreement required Western Union to, among other things: (i) reimburse the State of Arizona

up to $21 million for costs incurred in pursuing its investigation of Western Union; (ii) pay up to

$50 million to fund a multi-state non-profit organization promoting safety and security along the

border between the United States and Mexico; (iii) make investments in the Company’s

compliance program along the border between the United States and Mexico; and (iv) engage an

independent monitor (the “Monitor”) to (a) assess the adequacy of Western Union’s compliance

program in light of anti-money laundering laws, (b) make recommendations to improve Western

Union’s compliance program, and (c) oversee Western Union’s implementation of and adherence

to these recommendations.

9. This action concerns Defendants’ public misrepresentations and omissions of

material fact during the Class Period regarding: (i) the putative competitive advantages that

Western Union derived from its anti-money laundering compliance efforts, which included

falsely portraying the impact that the requirements of the Southwest Border Agreement would

have on the Company’s C2C business in Mexico; and (ii) the Company’s competitive position in

the C2C market and the stability of its pricing in key business corridors, including the United

States to Mexico corridor—information that was critical to investors as it bore directly upon the

viability of Western Union’s core cash remittance business.

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10. During the Class Period, Defendants consistently represented that Western

Union’s compliance measures, including those relating to the Southwest Border Agreement, set

the Company apart from its competition, thus positioning Western Union to grow its market

share. For example, at the Company’s May 9, 2012 Investor Day, Defendant Ersek represented

that Western Union’s compliance and anti-money laundering measures established the

Company as “an industry leader, ” providing Western Union with a “huge competitive

advantage. ” In announcing the Company’s financial results for 2Q12 on July 24, 2012,

Defendant Ersek again focused investor attention specifically on compliance in the consumer

cash remittance market, when he stated: “ we are setting the tone here and I think we are very

focused here and I see that as definitely a competitive advantage. ”

11. The truth, however, was precisely the opposite. According to Confidential

Witness No. 1 (“CW-1”) (described below in ¶28), Western Union began losing agents in

Mexico in mid-2011 based, in part, upon the Company’s new compliance regime. Other internal

data painted a grim picture of the Company’s compliance measures that could not be accurately

characterized as a “competitive advantage” during the Class Period. In fact, by June 2012,

Western Union had engaged 30 to 35 analysts from an outside vendor to help review the

Company’s stockpile of approximately 50,000 – 60,000 agent applications for compliance with

the Southwest Border Agreement. Confidential Witness No. 2 (“CW-2”) (described below in

¶29), who worked as a Southwest Border Agreement compliance analyst stationed at the

Company’s headquarters, was informed that Western Union executives received weekly

“Pipeline Reports,” from which they could deduce among other things, that: (i) an

overwhelming majority, at least 80%, of Western Union’s approximately 50,000 – 60,000 agents

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operating in the Southwest Border area did not satisfy the compliance requirements that the

Company agreed to implement under the Southwest Border Agreement; (ii) Western Union was

unable to bring the vast majority of non-compliant agents in that region into compliance; and (iii)

the pace of the Southwest Border Agreement compliance review was, according to CW-2, akin

to “peddling in mud,” as compliance analysts were not able to review and process more than 3 or

4 agent applications per compliance analyst per day, and e-mail requests to agents for additional

compliance information often were unanswered. According to CW-2, information in these

Pipeline Reports was discussed with Western Union personnel, including its President of Global

Consumer Financial Services, Defendant Stockdale. As alleged below in Sections IV.C and V,

unbeknownst to investors, and in stark contrast to Defendants’ Class Period representations,

Western Union’s compliance review revealed that it risked losing thousands of agents to its

competitors based, in part, upon its compliance measures under the Southwest Border

Agreement.

12. Throughout the Class Period, Defendants also repeatedly misrepresented the

continued viability of the Company’s premium C2C pricing model, pursuant to which Western

Union charged substantially higher prices than its competitors—often 50% more—for the same

cash remittance services. Specifically, Defendants claimed that: (i) Western Union was

increasing, and was positioned to further increase, its market share without making material

changes to its pricing model; and (ii) the Company’s supposedly industry-leading compliance

measures would bolster Western Union’s competitive position. In this regard, Defendants

represented throughout the Class Period that Western Union’s 2012 “pricing investments” (a

term Western Union frequently used to describe price reductions) would be no more than 1% to

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2% of the Company’s revenues and that Western Union had “ very sophisticated” pricing

models affirming that guidance that would help “grow this business short term and long term. ”

13. Defendants’ representations concerning Western Union’s pricing stability, and the

positive impact that the Company’s compliance measures had upon Western Union’s market

share, were directly at odds with contemporaneous facts that Defendants knew and/or recklessly

disregarded. Among other things, many of Western Union’s agents, including those operating

under its Vigo brand in Mexico, had ceased doing business with Western Union based upon its

new compliance measures, and the Company’s compliance review revealed that Western Union

risked losing a significant number of its other Southwest Border agents who were failing

compliance requirements. As a result, and unknown to investors, the Company was losing

critical distribution points for its lower-priced C2C services along the Southwest Border, and

could not avoid losing market share without lowering its prices in these corridors.

14. On October 30, 2012, markets were closed as a result of Hurricane Sandy. That

day, Western Union issued a press release and conducted a conference call addressing the

Company’s financial results for the third quarter of 2012. In addition to announcing

disappointing results for the quarter, Defendants revealed material facts and risks that were

previously misrepresented and/or concealed concerning: (i) the putative competitive advantages

that the Company derived from its anti-money laundering compliance efforts, including those

related to the Southwest Border Agreement; and (ii) the Company’s results and prospects in

connection with its C2C remittance business.

15. Specifically, Western Union stunned investors by revealing that it had “ ended

relationships with over 7,000 Vigo agent locations that could not meet our new compliance

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requirements ”—approximately 40% of the Company’s agents in Mexico . The Company

further announced that as a result of the impact of compliance-related actions affecting the Vigo

and Orlandi Valuta brands serving the United States and Mexico, Mexico revenue declined by

22% year-over-year, North America revenue declined by 8% , and global C2C revenue declined

by 1%. Defendants further revealed that Western Union had been negatively impacted by

“market share challenges this year ,” pursuant to which the Company would be “accelerating

pricing investment in key corridors,” which included price reductions. In this regard, the

Company stated that its pricing investment would be dramatically increased to “the mid single-

digit range, ” or more than 5% of revenues —exceeding by five times the 1% pricing investment

undertaken in 2011 and more than doubling the 1% to 2% of revenues that Defendants

consistently represented during the Class Period would constitute the Company’s pricing

investments for the year. The Company also abruptly announced that Defendant Stockdale had

“left the organization,” and that Defendant Ersek would be absorbing many of Defendant

Stockdale’s prior responsibilities. Based upon these surprise measures that the Company

announced in an effort to shore up its waning competitive position in the market, Western Union

reduced its guidance for the remainder of 2012 and forecasted a steep 10% to 15% decline in

2013 revenues under Generally Accepted Accounting Principles (“GAAP”).

16. Analysts following the Company expressed shock, with JPMorgan noting that

“the magnitude of the impact [of compliance and pricing issues] surprised us in relation to what

we heard last quarter and at the May [9] Investor Day,” and Evercore Partners remarking that the

Company announced a “Seismic price shift.” As a direct result of the previously misrepresented

and concealed information revealed on October 30, 2012, the price of Western Union common

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stock declined by $5.20 from its prior closing price of $17.93 per share to close at $12.73 per

share on October 31, 2012, a single trading day decline of approximately 29% , on massive

trading volume of approximately 62.74 million shares. Indeed, October 31, 2012, represented

the Company’s highest single-day trading volume since it began trading as an independent

company in 2006, and exceeded its Class Period average daily trading volume of 5.82 million

shares by more than more than 10 times. Thus, Defendants’ actions alleged herein erased more

than $3.1 billion of shareholder wealth, causing Lead Plaintiffs and other Class members to

suffer damages.

II. JURISDICTION AND VENUE

17. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange

Act, 15 U.S.C. §§ 78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R.

§240.10b-5. This Court has jurisdiction over the subject matter of this action under 28 U.S.C.

§1331 and Section 27 of the Exchange Act, 15 U.S.C. § 78aa.

18. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28

U.S.C. § 1391(b), as the Company is headquartered in and conducts substantial business in this

District. Moreover, many of the acts and practices complained of herein, including the

misrepresentations and omissions of material fact alleged herein, occurred in substantial part in

this District.

19. In connection with the acts alleged herein, Defendants, directly or indirectly, used

the means and instrumentalities of interstate commerce, including, but not limited to, the United

States mail, interstate telephone communications, and the facilities of the NASDAQ, a national

securities market.

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III. PARTIES AND RELEVANT NON-PARTIES

A. LEAD PLAINTIFFS

20. Lead Plaintiff SEB Investment Management AB (“SEB IM”) is a Swedish limited

liability company that manages investment funds. The investment funds managed by SEB IM

are pools of assets owned by the funds’ unit holders. As a fund management company formed

and operating under Swedish law, SEB IM has exclusive responsibility for managing all aspects

of its funds’ business, including: (i) making all investment decisions on behalf of its funds

without input from the funds or their unit-holders (including purchasing and disposing of

securities); (ii) exercising voting rights in connection with securities held by the funds; (iii)

determining the net asset value of the funds; (iv) negotiating and terminating all agreements

related to the funds; and (v) initiating and pursuing litigation on behalf of the funds in any court

of law. The funds that SEB IM manages are not legal entities under Swedish law. In fact, these

funds have no Boards of Directors, management, or employees and, thus, have no independent

capacity to sue or take legal or other action in their own right, or in connection with the assets

within them. The funds’ unit holders cannot direct that investments be made on the funds’

behalf, exercise voting rights for the securities the funds hold, initiate legal action for the funds,

or assign claims in connection with investments made on the funds’ behalf. When SEB IM acts

on behalf of these funds, Swedish law requires SEB IM to act in its own name. As reflected on

SEB IM’s certification previously filed in this action (ECF No. 31-4, Feb. 10, 2014), a fund

under SEB IM’s management purchased shares of Western Union common stock on the

NASDAQ during the Class Period at prices that were artificially inflated by the materially false

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and misleading statements and omissions of material fact complained of herein and was damaged

thereby.

21. Lead Plaintiff SEB Asset Management S.A. (“SEB AM”) is a Luxembourg-

domiciled societé anonyme (a public limited liability company) that manages investment funds.

The investment funds that SEB AM manages are pools of assets owned by the funds’ unit

holders. As a fund management company under Luxembourgish law, SEB AM has exclusive

responsibility for managing all aspects of its funds’ operations, including: (i) making all

investment decisions on behalf of its funds without input from the funds or their unit-holders

(including purchasing and disposing of securities); (ii) exercising voting rights in connection

with securities held by the funds; (iii) determining the net asset value of the funds; (iv)

negotiating and terminating all agreements related to the funds; and (v) initiating and pursuing

litigation on behalf of the funds in any court of law. Each of the Luxembourg-domiciled funds

relevant to this action is formed as a “fonds commun de placement,” and, accordingly, the funds

are not legal entities under Luxembourgish law. In fact, these funds have no Board of Directors,

management, or employees and, thus, have no independent capacity to sue or take legal or other

action in their own right, or in connection with the assets within them. The funds’ unit holders

cannot direct that investments be made on the funds’ behalf, exercise voting rights for the

securities the funds hold, initiate legal action for the funds, or assign claims in connection with

investments made on the funds’ behalf. When SEB AM acts on behalf of its funds,

Luxembourgish law requires SEB AM to act in its own name. As reflected on SEB AM’s

certification previously filed in this action (ECF No. 31-4, Feb. 10, 2014), funds under SEB

AM’s management purchased shares of Western Union common stock on the NASDAQ during

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the Class Period at prices that were artificially inflated by the materially false and misleading

statements and omissions of material fact complained of herein and were damaged thereby.

B. DEFENDANTS

22. Defendant Western Union, a Delaware corporation headquartered in Englewood,

Colorado, describes itself as “a leader in global money movement and payment services,

providing people and business with fast, reliable and convenient ways to send money and make

payments around the world.” The Company operates through three business segments: (i) C2C,

wherein Western Union facilitates individual money transfers, known as “remittances,” from one

consumer to another, in exchange for fees; (ii) Consumer-to-Business, through which Western

Union provides consumers with options for making one-time or recurring payments to businesses

and other organizations, including utilities, auto finance companies, mortgage services, financial

service providers, government agencies and other businesses; and (iii) Business Solutions,

wherein Western Union facilitates payment and foreign exchange solutions, primarily cross-

border, cross-currency transactions, for small and medium size enterprises and other

organizations and individuals. According to Western Union, the Company’s C2C segment is the

“core of [its] business,” representing 81% of the Company’s total consolidated revenues for

2012. The Company’s common stock trades on the NASDAQ under the ticker symbol “WU.”

As of October 31, 2012, Western Union had approximately 596.6 million shares issued and

outstanding.

23. Defendant Ersek is, and at all relevant times was, the Company’s Chief Executive

Officer (“CEO”) and a member of its Board of Directors. Ersek has served as President and

CEO of the Company since September 2010. Ersek also was elected a Director of Western

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Union, effective April 26, 2010. As alleged below, during the Class Period, Ersek signed the

Company’s SEC filings and made public statements in the following contexts and/or documents

that were materially false or misleading and/or omitted material facts: (i) Western Union’s

February 7, 2012, earnings call (the “February 7 Earnings Call”); (ii) Western Union’s April 24,

2012, earnings call (the “April 24 Earnings Call”); (iii) Western Union’s May 9, 2012, Investor

Day; (iv) a June 12, 2012, William Blair & Co., LLC Growth Stock Conference (the “June 12

William Blair Conference”); and (v) Western Union’s July 24, 2012, earnings call (the “July 24

Earnings Call”).

24. Defendant Scheirman was, at all times relevant hereto, Western Union’s Chief

Financial Officer (“CFO”), Executive Vice President, and a member of its Board of Directors.

As alleged below, during the Class Period, Scheirman signed the Company’s SEC filings and

made public statements in the following contexts and/or documents that were materially false or

misleading and/or omitted material facts: (i) the March 13, 2012, Credit Suisse Global Services

Conference (the “March 13 Credit Suisse Conference”); (ii) Western Union’s May 9, 2012,

Investor Day; and (iii) the July 24 Earnings Call.

25. Defendant Stockdale was, at all times relevant hereto, President, Global

Consumer Financial Services, and he served in this role until October 30, 2012, when the

Company abruptly announced that he had “left the organization.” As alleged below, during the

Class Period Stockdale made public statements during an October 16, 2012, Voices of

Experience lecture at the University of Denver, which were materially false or misleading and/or

omitted material facts.

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26. Defendants Ersek, Scheirman, and Stockdale are referred to collectively herein as

the “Individual Defendants.”

C. RELEVANT NON-PARTIES

27. Lead Plaintiffs’ allegations are based, in part, upon information provided by

confidential witnesses.

28. CW-1 served as a Vice President at Western Union from early 2009 through the

end of the Class Period. While employed at Western Union, CW-1 was among the personnel

responsible for attempting to migrate the computer systems of Vigo and Orlandi Valuta agents

onto Norkom—an anti-money laundering software platform that Western Union utilized during

the Class Period. Among other things, Norkom contained a rule set for scoring and flagging

suspicious transactions across Western Union’s computer systems, which the Company used in

connection with its obligations under the Southwest Border Agreement. CW-1’s responsibilities

in this regard also included communicating to other individuals what would be necessary, on a

technical basis, to comply with the Monitor’s recommendations under the Southwest Border

Agreement. In addition, CW-1 served on a Steering Committee at Western Union, the main

purposes of which were to share information and strategies and to oversee compliance with the

Monitor’s recommendations for Western Union’s agents operating in the Southwest Border area.

CW-1 stated that the Steering Committee was comprised of department heads from all of the

different disciplines at Western Union, including Operations and IT, and was provided with

status reports from Western Union’s various divisions regarding their respective efforts to

comply with the Company’s obligations under the Southwest Border Agreement. CW-1 further

recalled that the Steering Committee began meeting at the end of 2011, met approximately every

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two weeks thereafter, and communicated with the Monitor at least once a month and, at times,

every two weeks.

29. CW-2 held the title of Global Due Diligence SWB Analyst from June 2012

through the end of the Class Period. CW-2 was retained by Experis, a professional resourcing

firm that Western Union hired to assist in the Company’s review of its Southwest Border area

agents’ application materials for compliance with the Southwest Border Agreement. Compliance

analysts, like CW-2, worked in the “green room,” housed in the basement of Western Union’s

headquarters, where they were responsible for performing compliance checks with respect to the

approximately 50,000 – 60,000 Western Union agents operating in the Southwest Border area

whose application materials required review for compliance with the Southwest Border

Agreement. CW-2’s responsibilities included: (i) reviewing license applications for Western

Union agents, some of which dated back five or more years; (ii) verifying agent identification

and other information; (iii) running background, Financial Crimes Enforcement Network

(“FINCEN”) and General Information Services (“GIS”) checks; (iv) processing applications

through Western Union Quality Assurance; (v) sending e-mails to non-compliant agents

requesting missing and/or incorrect application information; and (vi) recording information

concerning agent application and compliance status for Pipeline Reports, which were prepared

on at least a weekly basis. The Pipeline Reports depicted information regarding the status of

Western Union’s efforts to review and process these approximately 50,000 – 60,000 agent

applications in accordance with the terms of the Southwest Border Agreement. According to

CW-2, the pace of this review was extremely slow, with CW-2 able to complete a review of only

approximately 3 or 4 agent applications per day. CW-2 reported to Diane Brown (“Brown”), a

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Project Manager with Experis, and Bob Mauro (“Mauro”), a Senior Project Manager with

Experis, both of whom were stationed at Western Union and assigned to help the Company work

through the agent application stockpile to determine whether such applications complied with the

Southwest Border Agreement. CW-2 believed that Brown and Mauro reported to Western Union

Vice Presidents, who supervised Western Union AEs in their efforts to bring non-compliant

agents into compliance with the Southwest Border Agreement. Through conversations with

Brown and Mauro, CW-2 was informed that Western Union executives, including Defendants

Ersek and Scheirman, received the Pipeline Reports. CW-2 participated in weekly meetings with

Brown, Mauro and other compliance analysts, which followed shortly after weekly meetings that

Brown and Mauro had with Western Union Vice Presidents and AEs, to report on what was

discussed at those meetings.

IV. OVERVIEW OF DEFENDANTS’ FRAUD

A. WESTERN UNION’ S CORE C2C BUSINESS

30. Western Union is the largest money transfer company in the world. The

Company conducts its self-proclaimed “core” C2C business through a network of third-party

agents using multi-currency and real-time money transfer processing systems, and generates

revenues primarily by charging consumers transaction fees to transfer money (generally based on

the principal amount of the transaction and the send and receive locations). During the Class

Period, Western Union offered these services through its Western Union brand, which charged

higher “premium” prices, as well as through its lower-priced Vigo and Orlandi Valuta brands.

31. Western Union’s agents provide the physical infrastructure and staff required to

complete money transfers. For its part, Western Union provides central operating functions such

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as transaction processing, settlement, marketing support and customer relationship management,

as well as access to the Company’s multi-currency, real-time money transfer processing systems

used to originate and pay money transfers.

32. Western Union’s customer base consists largely of immigrants sending money

back to their countries of origin. The United States is one of the Company’s largest send-side

locations. The main recipients of United States outbound remittances, on the other hand, are

Mexico and the Philippines.

33. In a typical Western Union C2C transaction: (i) a consumer goes to one of

Western Union’s agent locations (the “send agent”), completes the necessary paperwork, and

delivers the principal amount of the money transfer to the send agent; (ii) the consumer also

tenders the fee, which Western Union typically determines based upon the principal amount of

the transaction and the send and receive locations; (iii) the send agent enters the transaction

information into Western Union’s money transfer system and the funds are made available for

payment, usually within minutes; (iv) the recipient enters a different agent location (the “receive

agent”) and is paid the transferred amount; and (v) Western Union pays both the send agent and

the receive agent a commission based on a percentage of the transaction fee. The recipient

typically does not pay a fee.

34. Western Union’s agents are organized under regional offices, and the Company

reports select financial data, such as growth rates, by region. In fiscal 2012, Western Union’s

C2C segment included the following five geographical regions, as well as the Company’s

website, www.westernunion.com: (i) North America (including Mexico); (ii) Europe and the

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Commonwealth of Independent States (“CIS”); (iii) Middle East and Africa; (iv) Asia and

Pacific (“APAC”); and (v) Latin American and the Caribbean (“LACA”).

B. WESTERN UNION’ S FACILITATION OF DRUG DEALING AND HUMAN SMUGGLING RESULTS IN THE SOUTHWEST BORDER AGREEMENT

35. As a result of its international presence, as well as its migrant customer base,

moving money across international borders was a substantial component of Western Union’s

business during the Class Period. Thus, the Company was required to adhere to compliance

regimes in the United States and abroad, including regulations aimed at preventing money

laundering by drug and human-trafficking cartels. These illicit organizations have traditionally

avoided the formal banking system, which is more strictly regulated. Over the years, largely as a

result of its lax anti-money laundering measures, Western Union had become a safe haven for

money-launderers.

36. According to Arizona Attorney General Goddard’s Written Testimony, Arizona

had become a gateway for drug and human smuggling into the United States. Profits from drug

sales in the United States range from $15 to $25 billion per year, and a substantial portion of

these illicit proceeds is smuggled back into Mexico, either in the form of cash or weapons. Like

drug dealing, human smuggling is largely facilitated by wire transfers to pay the “coyotes” who

transport trafficked humans cross-border and requires rapid movement of money among people

who have no ongoing relationship. Thus, the most effective method of combating human

smuggling, according to Goddard, is to block the flow of funds to organized criminal cartels.

37. Western Union was a major beneficiary of this massive black market for human

beings and illegal drugs. Indeed, Goddard testified that “Western Union is by far the largest

provider of illicit money-movement services” and “has been the focus of interdiction efforts

18


aimed at criminal proceeds in transit.” Thus, in 2001, in connection with efforts to secure its

border and protect its communities, the State of Arizona began investigating Western Union’s

compliance with anti-money laundering laws and the use of the Company’s money transfer

services by human traffickers and drug cartels.

38. As a result of its investigation, according to the Southwest Border Agreement, the

State of Arizona determined that it could institute a civil forfeiture action under Arizona law

against certain funds transferred by and through Western Union between January 1, 2003 and

December 31, 2007, and that it could pursue claims for the costs and expenses of its prosecution

and investigation, including the expenses of overseeing restrictions on Western Union’s future

conduct.

39. Rather than assist authorities in stopping the illegal flow of narcotics and human

beings across international borders, Western Union instead took affirmative action to protect the

massive profits that it was reaping from criminal activities. For example, in 2006, when the

State of Arizona filed papers to seize all transfers of more than $500 headed into the Mexican

state of Sonora, just south of Arizona, Western Union sued to prevent the state from seizing the

transfers and the information on who was sending and receiving the money. Indeed, as Goddard

testified, when the State of Arizona attempted to target wire transfer locations on the Mexican

side of the border that were being used by human traffickers, Western Union not only “went to

court to stop [Arizona’s] efforts,” but also “refuse[d] to comply with subpoenas for vital data.”

40. By 2010, Arizona acted to put the brakes on Western Union’s facilitation of

illegal activities. On February 11, 2010, after nearly nine years of investigation, Western Union

signed the Southwest Border Agreement, which resolved all outstanding legal issues and claims

19


related to Arizona’s investigation of Western Union’s wire transfer activity with Mexico. The

Agreement required the Company to fund a multi-state not-for-profit organization promoting

safety and security along the United States and Mexico border, as well as to reimburse the State

of Arizona for its costs associated with the investigation. Western Union paid $71 million under

the Agreement—$21 million to reimburse the State of Arizona, and $50 million to fund the non-

profit organization.

41. As part of the settlement, Western Union also agreed to make massive

investments in and enhancements to its regulatory compliance programs, and to engage the

Monitor to, among other things: (i) assess the adequacy of Western Union’s program to comply

with anti-money laundering laws; (ii) make recommendations to improve Western Union’s

compliance program; and (iii) oversee Western Union’s implementation of and compliance with

the Monitor’s recommendations. Western Union also agreed to commit up to another $23

million to engage the Monitor and to implement the Monitor’s recommendations for improving

the Company’s compliance program. The terms of the relationship between Western Union and

the Monitor are set forth in a “Monitor Engagement Letter” dated February 21, 2010.

42. As detailed in the Monitor Engagement Letter, the Monitor was required to

submit to both Western Union and the State of Arizona: (i) within one hundred eighty (180)

days after commencement of the engagement, an “Implementation Plan” outlining the Monitor’s

evaluation of Western Union’s compliance program, making recommendations reasonably

designed to implement or improve Western Union’s compliance program, and setting forth its

work plan for completing the engagement; (ii) progress reports for each six-month period

beginning after the Monitor submitted the Implementation Plan, and in each six-month period

20


thereafter until the end of the twenty-ninth to forty-first month after the Southwest Border

Agreement was fully executed, or the engagement otherwise was terminated, which were to

include a detailed financial accounting of all the Monitor’s activities and expenses and all of

Western Union’s expenses beginning as of August 1, 2009; and (iii) a Final Report, setting forth

the Monitor’s final evaluation of Western Union’s compliance with the terms of the Southwest

Border Agreement and its compliance program. As a result, the Company’s compliance efforts

required the constant attention of its top executives. According to CW-1, by the middle of 2011,

the Monitor had begun to issue recommendations. The extremely limited number of unsealed

court documents corroborate that the Monitor filed its Implementation Plan in June 2011, after

the initial Monitor had been replaced by a second Monitor.

43. Moreover, as alleged below in Section VII, Western Union’s compliance

obligations under the Agreement were such a dramatic change from the Company’s prior lax

compliance measures that Southwest Border Agreement compliance was a core component of

Western Union’s business during the Class Period.

C. DEFENDANTS MISREPRESENTED AND CONCEALED FACTS CONCERNING

WESTERN UNION’ S COMPLIANCE WITH THE SOUTHWEST BORDER AGREEMENT

44. As detailed above, before the beginning of the Class Period, Western Union

admitted that its agents, “ while acting within the scope of their employment and motivated at

least in part to benefit Western Union, were knowingly engaged in a pattern of money

laundering that facilitated human smuggling from Mexico into the United States through

Arizona. ” The revenues generated by these illicit transfers were a huge financial boon for

Western Union, and the Company was “by far the largest provider of illicit money-movement

services.” As government agencies cracked down, Western Union intensified its efforts to

21


protect these lucrative dealings, even going to Court in an attempt to prevent the Arizona

Attorney General from targeting suspicious wire transfer locations on the Mexican side of the

border. Ultimately, the Company resolved these issues by agreeing to adopt sweeping changes

to its regulatory compliance regime under the supervision of the Monitor as set forth in the

Southwest Border Agreement.

45. After paying more than $70 million in penalties and other fees, and agreeing to

pay up to an additional $23 million in expenses, Defendants abruptly changed tactics, and

claimed repeatedly during the Class Period that the Company’s thorough regulatory and

compliance initiatives actually set Western Union apart from its competition and served as a

competitive advantage. For example, during the February 7 Earnings Conference Call, held on

the first day of the Class Period, Defendant Ersek assured investors that the Company had “ a

strong foundation with . . . [its] regulatory and compliance capabilities ,” which were its

“focus” and “a very high priority .” As a result, Ersek represented that Western Union was

“really setting the industry standard ” for regulatory compliance, and that he was “ quite

confident that we have the right structure to meet the regulatory environment needs .”

Likewise, during the April 24 Earnings Call, Ersek told the market that “we have been working

with the appointed external monitor very close[ly] to determine and appreciate changes, which

we have outlined in our agreement and improvements about anti-money laundering oversight

along all the border.” Ersek continued, “[t]hese changes are happening and we are going to be,

as an industry leader, we’re implementing the changes and that will also impact all the

industry long-term .”

22


46. On May 9, 2012, at Western Union’s Investor Day, Defendants continued to

misrepresent that Western Union’s regulatory compliance and anti-money laundering capabilities

provided it with a “huge competitive advantage ” that “separate[d] [the Company] from the

competitors ,” thus allowing it to grow its business and capture additional market share.

According the Ersek, this was because, unlike its competitors, Western Union had “the

technology and resources available” to meet regulatory compliance needs. Specifically, Ersek

stated that the Company “dedicate[d] about 600 employees around the globe to [compliance]

efforts and [] spen[t] yearly about $60 million on anti-money laundering regulatory

environment.” During the Investor Day, Defendant Scheirman also proclaimed that: “ we believe

our compliance capabilities on a long-term basis are very much of a competitive advantage as

we move forward .” Likewise, on June 12, 2012, Ersek stated that, “ [o]ne of our very strong

competitive advantage [sic] is our regulatory environment, our regulatory and anti-money-

laundering competency capabilities .”

47. On July 24, 2012, Defendants continued to focus investors on compliance issues

and claimed that the Company’s compliance advantages would allow it to withstand competition:

“we view our ability to adapt to this environment as a long-term competitive advantage .”

Indeed, according to Ersek, “we’re very focused here and we are very serious. It’s a

competitive advantage, long-term. I think we are investing heavily here to be, really I think as

an industry leader, we are setting the tone here and I think we are very focused here and I see

that as definitely a competitive advantage .” Similarly, as late as October 16, 2012, during a

speech at the University of Denver, Defendant Stockdale continued to tout Western Union’s

compliance capabilities, calling the Company’s “ regulatory and [anti-money laundering]

23


capabilities . . .in almost every jurisdiction around the world ,” “what makes us unique ,” one

the its “core competencies ,” and a “pillar of our strategy .”

48. Meanwhile, behind the scenes, an entirely different story was playing out. Far

from strong and industry leading compliance competencies, Western Union’s compliance

obligations under the Southwest Border Agreement were driving agents away.

49. According to CW-1, things began “hitting the fan” when the Monitor began to

issue its recommendations, and it was “not a happy time” at Western Union in mid-to-late 2011.

CW-1 explained that at this time, Western Union realized that it would have to migrate the

systems of its Vigo and Orlandi Valuta agents onto the Company’s Norkom platform in order to

comply with the Monitor’s recommendations, it was clear that it was going to take a lot of time,

effort and expense to do so. CW-1 further recalled that agents began leaving the Company

around mid-summer 2011, essentially as soon as the Monitor handed down its recommendations.

CW-1 believed that these agent departures were based, in part, upon: (i) costly requirements to

upgrade their antiquated point-of-sale terminals and migrate the agents’ computer systems over

to Western Union’s Norkom platform; and (ii) compliance checks and oversight that impacted or

would adversely impact the agents’ day-to-day business, including the need to perform

previously neglected background checks on front-line associates.

50. Seeking to stem the tide of agent attrition, Western Union management began

strategizing ways to keep the Company’s business from defecting to its competitors. In

particular, CW-1 recalled that Victoria López-Negrete (“López-Negrete”), Western Union’s

Senior Vice President and General Manager – North America, responsible for managing all

consumer-related products and services for the United States, Canada and Mexico, was tasked

24


with devising strategies to retain the Company’s agents in Mexico. CW-1 further recalled

discussing Western Union’s loss of agents with López-Negrete in the late summer of 2011, and

that López-Negrete—who had a reputation for managing Western Union’s South American

business and reported directly to Defendant Stockdale—was “peeled off” her regular duties and

sent on a “rescue” mission to convince the agents in Mexico to stay with the Company.

51. CW-1 also recalled seeing strategy memos that noted the expectation of losing

agents in Mexico, and outlined a proposed revised pricing strategy for Western Union’s Mexico

business, including plans to “low-ball” the market, which involved offering lower fees and

increased commissions to entice agents to stay with Western Union. CW-1 believed that the

source of these strategy memos was likely Defendants Ersek, Scheirman and Stockdale, because

according to CW-1, these individuals were responsible for pricing determinations. Moreover,

corporate strategy was set by individuals at a higher level at Western Union than the Steering

Committee.

52. Meanwhile, in the basement of Western Union’s headquarters, the Company

brought in outside teams—including a team of approximately 30 – 35 Experis analysts in June

2012, including CW-2, and approximately 25 more individuals in September 2012—to review a

stockpile of applications pertaining to the approximately 50,000 – 60,000 agents operating in the

Southwest Border area, and to seek to bring into compliance the overwhelming majority of these

agents, who were not in compliance.

53. CW-2’s tasks included: (i) performing the requisite review of agent applications,

many of which were in Spanish, whereas few, if any Experis personnel working on the

compliance review spoke Spanish; (ii) running background, FINCEN and GIS reports; (iii)

25


processing the applications through Western Union Quality Assurance; (iv) e-mailing the agents

regarding matters that required attention/correction; and (v) recording information regarding

agent applications and their compliance status. CW-2 recalled an inability to review more than 3

or 4 agent applications per day. Further, CW-2 explained that no more than 20% of the

applications reviewed were deemed to be in compliance, and a that “backlog” of non-compliant

applications built-up while waiting for responses from the agents. CW-2 recalled that only

approximately 15% of the non-compliant agents were able to be brought into compliance.

54. According to CW-2, meetings were held at least once a week, usually on Fridays,

between Southwest Border Agreement Project Manager Brown, Senior Project Manager Mauro,

and Western Union Vice Presidents, during which those present discussed the status and

difficulties of Western Union’s efforts to ensure that its agents in the Southwest Border Area

were in compliance with the requirements of the Southwest Border Agreement, as reflected in

the Pipeline Reports.

55. According to CW-2, the Pipeline Reports were updated daily by compliance

analysts, as they reviewed and processed Western Union agent applications. Each row of a

Pipeline Report was dedicated to a Western Union agent, and there were approximately 12 major

columns of compliance-related data that the analysts were required to test and confirm. Analysts

were assigned initial batches of agents, to which more agents were added over time. CW-2 was

assigned agents located in Mexico. Pipeline Reports were also updated with, among other

things, data from the United States Global Report (a separate compliance-related report), as well

as information from the databases of Western Union AEs. Based on CW-2’s participation in

weekly meetings with Brown, Mauro, and other Experis personnel, which followed shortly after

26


weekly meetings that Brown and Mauro had with Western Union executives, CW-2 believed that

the Pipeline Reports were prepared, ultimately, for Defendants Ersek and Scheirman, and would

be seen by, or available to, Western Union executives, including the Vice President of Sales.

CW-2 also personally participated in at least one conference call during which the data recorded

on the Pipeline Report was discussed and Defendant Stockdale was on the line.

56. Earlier this year, the Company conceded that it still does not have an effective

anti-money laundering monitoring and compliance program. Specifically, in January 2014,

Western Union was forced to obtain additional time to implement the Monitor’s

recommendations for creating an effective anti-money laundering monitoring and compliance

program. In connection with the Company’s request, the Arizona Attorney General made clear

that Western Union had not adequately implemented all of the Monitor’s recommendations for

an effective anti-money laundering program in the Southwest Border area. Based upon

Defendants’ failure to bring Western Union into compliance with the law, including that the

Company “had not successfully implemented an [anti-money laundering] program for the

Southwest Border Area as of July 31, 2013, ” the State of Arizona stated that it was “entitled to

declare a willful and material breach of the [Southwest Border] Agreement .” Far from the

“strong” and “industry-leading” compliance capabilities that Defendants publicly touted during

the Class Period, Western Union’s compliance was in such disarray that the Company was

failing to meet its obligations under the Southwest Border Agreement even well after the end of

the Class Period.

57. Western Union’s undisclosed compliance struggles also painted a dismal internal

picture of the Company’s future business prospects. As alleged herein, CW-2 estimated that

27


during CW-2’s work on the compliance review project no more than 20% of the agent

applications reviewed were deemed to be in compliance upon initial review. Moreover, CW-2

stated that the success rate for getting non-compliant agent applications into compliance was

extremely low, at only approximately 15%.

58. Even before Western Union hired approximately 30 – 35 Experis analysts to assist

in the review of its 50,000 – 60,000 agents operating in the Southwest Border area for

compliance with the Southwest Border Agreement, Defendants affirmatively and falsely assured

investors on February 7, 2012, that the Company’s C2C business in Mexico was only “ a little bit

affected by ongoing compliance procedure, which we are changing, especially from southwest

[of] the border,” and “I believe we have the right approach there .” Likewise, on April 24, 2012,

Defendant Ersek downplayed the severe problems revealed during Western Union’s agent

compliance review in its “ very important [Mexico] corridor ,” telling investors that, “[a]lthough

we still expect to see some negative impact on the Vigo and Orlandi Valuta brands as we evolve

our business model and compliance-related practices throughout the year, our Western Union

brand is performing well.”

59. During the Company’s May 9, 2012, Investor Day, López-Negrete spoke on

behalf of the Company, and told investors that the situation in Mexico would be positive moving

forward because the Company’s “improving” “products and services for sustained growth”

would allow it to take advantage of a “ huge opportunity ” in Mexico and that, “ we’re investing

in Mexico to accelerate our growth .” At the same time, according to CW-1, Western Union’s

executives internally were aware that its agents had been abandoning the Company since mid-

2011 because, among other things, they were likely reluctant to switch to the more restrictive

28


anti-money laundering system that Western Union was struggling to implement. In fact, the

Company’s internal strategy memos explicitly stated that it anticipated losing agents due to the

new compliance requirements. Despite representing that Mexico was a “huge opportunity” for

Western Union, in reality, the situation was so severe that López-Negrete was redirected from

her regular duties in an attempt to “rescue” the fleeing Mexican agents.

60. Defendants also continued to assure investors on July 24, 2012, that, while the

Company’s compliance efforts were having some impact in Mexico, the impact was

“anticipated” and “really what we expected to have.” According to Defendants, the situation in

Mexico would merely be “a little bit challenging until we turn [it] around.” Indeed, Defendants

told the market that the negative impact in Mexico was so minimal that it would not even impact

guidance, reiterating the Company’s 2012 revenue growth projections and increasing its earnings

per share (“EPS”) projection (reportedly, based on a one-time tax benefit). For example,

Defendant Ersek represented that Western Union was “ on track for our full year financial

outlook ,” that “[t]he long-term opportunities are strong ,” and that “[o]ur core business is

sound, and our cash generation is strong .” Defendant Scheirman echoed, “ [o]verall, we’re on

track to deliver our financial outlook, despite the expected macro and other challenges and

higher compliance costs . . . . ”

61. Even when directly questioned by analysts regarding the Company’s decision to

keep “revenue guidance unchanged,” Scheirman falsely assured the market that: “ overall, the

core C2C business is strong, it’s solid ” and so “we feel good about where that business is at

and where we’re heading .” He similarly stated that “we’re confident with the guidance that

29


we’ve provided, the 2012 outlook we’ve provided today for revenue growth, margins, and EPS.

We’re confident in the guidance that we’ve provided .”

62. Just three months later, on October 30, 2012—a day the markets were closed as a

result of Hurricane Sandy—Defendants were forced to admit that Western Union had “ ended

relationships with over 7,000 Vigo agent locations that could not meet [its] new compliance

requirements ” and that Western Union “experienced operational challenges from related system

implementations for our Vigo brand in Latin America as we moved this onto our Western Union

platform.” Specifically, Defendant Ersek stated:

In the third quarter, we implement[ed] a series of new system requirements that impacted our Vigo and our Orlandi Valuta agent networks. As many of our agents could not meet the new requirements to increase our realtime transaction visibility, we had to end those relationships. Which resulted in a reduction of approximately 7,000 locations, or 40% of our network in Mexico. New requirements and system conversions for Vigo also caused disruption to our business in several Latin American countries.

63. According to Defendant Ersek, these declines in Western Union’s Vigo and

Orlandi Valuta brands resulted in a more than 20% decline in overall revenue, and Western

Union was “likely to see similar revenue trends from Mexico over the next few quarters.”

64. As a result, just three months after raising its EPS outlook due to a one-time tax

benefit, and reiterating its 2012 guidance without factoring in the effects that losing thousands of

agents would have on its earnings, Western Union revised its outlook for full year 2012,

significantly reducing its revenue, operating margin and its recently increased EPS outlook, to

reflect these “softer revenue trends in the second half of the year.”

65. In direct response to this news, on October 31, 2012, Western Union’s common

stock price plummeted by 29%, or $5.20 per share, on trading volume of approximately 62.74

30


million shares—an amount exceeding its Class Period average daily trading volume of 5.82

million shares by more than 10 times.

D. DEFENDANTS MISREPRESENTED AND CONCEALED FACTS CONCERNING WESTERN UNION’ S CONSUMER-TO-CONSUMER PRICING STABILITY

66. Western Union traditionally charged much higher prices than its competitors—in

some cases, up to a 50% premium. The Company’s ability to do so resulted, in part, from the

fact that its customers were willing to pay a premium in exchange for Western Union’s lax anti-

money laundering oversight. For example, Western Union had a higher dollar threshold for

requiring ID, allowing many of its customers to remain anonymous. According to a 2012

Seeking Alpha article, Dissecting The Sources of Western Union’s Moat, Western Union

collected more than 60% of the entire C2C cash remittance market profit in 2011 with only an

18% market share.

67. Over the years, as alleged herein, Western Union failed to report patterns of

suspicious activity reflected in money wire transfers through its agents, while continuing to reap

the substantial revenues generated by criminal practices. As a result, while its business

flourished, Western Union became “by far the largest provider of illicit money-movement

services.” The Company has admitted that it was the beneficiary of these illegal activities, even

stipulating that its agents’ actions were “ motivated at least in part to benefit Western Union .”

Moreover, Western Union was aware of the value of this competitive advantage, and was willing

to go to great lengths to protect it, even going so far as to refuse to comply with subpoenas for its

transaction data.

68. After years of attempting to resist investigation by the State of Arizona, however,

Western Union was finally forced to alter its business strategy and to implement comprehensive

31


compliance reforms. These reforms, which included lowering dollar reporting thresholds, and

reporting suspicious activity patterns, were a direct threat to the Company’s ability to charge

premium prices for its services. Indeed, according to CW-1, the Company’s agents in Mexico

likely began jumping ship in mid-2011, in part, to avoid a more restrictive anti-money laundering

system.

69. At the same time, competition in the money-movement sphere was heating up,

putting further pressure on Western Union’s pricing and market share. While the Company has

struggled to maintain its market dominance, its competitors have touted more rapid revenue and

transaction growth. For example, in its April 24, 2012, press release, Western Union reported a

“revenue increase of 4%, or 5% constant currency” for the first quarter of 2012, while

MoneyGram reported revenue increases of “13 percent on a constant currency basis” for the

same quarter. Moreover, MoneyGram was rapidly increasing its “transaction volume” (which is

typically a proxy for market share) in Mexico, reporting 15% growth in its United States-to-

Mexico transactions for 4Q11, 19% for 1Q12, and a staggering 21% for 2Q12. On March 6,

2012, MoneyGram boasted that “its U.S.-to-Mexico transaction volume continues to grow, with

nine consecutive quarters of transaction volume growth, including 15 percent year-over-year

growth in the fourth quarter of 2011.”

70. Despite these circumstances, throughout the Class Period, Defendants assured the

market that the Company would continue to grow its market share without jeopardizing its

pricing model, leaving it in line with 2011 pricing investments. For example, when the Class

Period began on February 7, 2012, Defendant Ersek stated, “ as you recall our pricing

investment was around 1% 2011. And we assume that it will be 1% to 2% in 2012 .” Similarly,

32


Defendant Scheirman claimed on March 13, 2012, that “if you look at 2011 our prices were

down about 1%. If you fast forward that to the outlook we gave in February, about a month ago

as part of our earnings conference, we see pricing as being down 1% to 2%, so similar to what

we saw in 2011. ” On May 9, 2012, the Company again assured investors that, based on its “very

sophisticated” “sensitivity models,” it anticipated a “1%” pricing investment. Even as late as

July 24, 2012, Defendants insisted that “ in 2012, we are going to be around 1%. And 1% to

2%, that will be the next forecast .”

71. Further, Defendants represented that the Company would grow its market share

without cutting prices. For example, on February 7, 2012, a William Blair & Co. analyst, noting

the Company’s compliance troubles, questioned Defendants point blank, “are you currently

losing market share . . . ?” In response, Defendant Ersek assured investors “ our belief is [that

Western Union is] gaining market share .” On March 13, 2012, Defendants upped the ante,

representing that not only would the Company continue to grow market share, but that it could

do so at an accelerated pace: “[w]e clearly feel like there’s opportunities to continue to gain

share at an increased pace as we move forward . So, again, no long-term objectives as far as

growth rates, but we feel like very much the growth story is intact in the core business .”

72. One reason for the Company’s ability to withstand competitive pressures,

according to the Defendants, was its new competitive advantage: its industry-leading regulatory

and compliance capabilities. For example, on March 13, 2012, a Credit Suisse analyst inquired

whether Western Union expected a price war with its competitors. In response, Defendant

Scheirman explained that although the Company had seen “a lot of competition, many

competitors in the marketplace,” “[w]e do believe our brand, our agent network of 485,000

33


locations are really competitive strengths for us, along with our compliance programs .”

Scheirman acknowledged that reducing prices was a way to gain market share, stating that

“anytime [Western Union] adjust[s] pricing it’s really an eye to gain market share and to do the

things that, if you will, drive the strongest revenue and profit growth on a long-term basis.” He

assured investors, however, that Western Union would not need to further lower its prices,

stating “if you look at 2011 our prices were down about 1%. If you fast forward that to the

outlook we gave in February, about a month ago as part of our earnings conference, we see

pricing being down 1% to 2%, so similar to what we saw in 2011 .” According to Scheirman,

even without deviating from this minimal pricing reduction, “ we can continue to gain share as

we move forward .”

73. Again, on May 9, 2012, Defendants explicitly tied Western Union’s compliance

capabilities to its ability to gain market share, stating, “many investors always ask me . . . why

you at Western Union think that you can grow this business, and why you’re going to be

successful rather than any technology company ? Let me spend a few minutes in explaining

this one . . . . We have the regulatory and anti-money laundering capabilities to operate in all

countries . . . .” Ersek likewise represented, “[w]e have the regulatory environment . It scares

to death the competitors to enter this market, I’ll openly say it. But this is good. It’s good that

this business is complex because we have the competencies . We are very focused as a team

with our agents to take this company to the next level . . . . The regulatory environment

challenges are here . . . . However, I believe that we have the right business plan, right model

to grow this business short term and long term .”

34


74. Similarly, Defendant Scheirman assured investors that the Company’s compliance

capabilities would allow it to grow revenue, thereby capturing market share, stating, “we’re

keenly focused on three key growth areas. And those growth areas very much leverage our

strength, our brand, our distribution network, our compliance and regulatory capabilities and

our organization and our infrastructure. And we believe by leveraging these strengths and

focusing on our strategies and our strategic roadmaps and being very focused on execution,

we can deliver strong returns in each of these areas over the years to come . . . . It first starts

with revenue growth. And as Hikmet mentioned, we believe we’ve got opportunities over the

next several years to accelerate the pace of revenue growth as we move forward. Every day we

think about how do we grow the top line, how do we gain market share .”

75. Further, on June 12, 2012, a William Blair & Co. analyst questioned how Western

Union would avoid losing market share to companies that eliminate the need for middle-men. In

response, Defendant Ersek falsely assured investors that Western Union would withstand

competitive pressures, and retain market share, in part, because of its regulatory compliance

capabilities: “I think first of all you have to build the fundamentals we have done for many,

many years . . . . You have to get the regulatory environment—somebody has to do that. It’s

not easy to do that. You have to [go down to] money laundering—somebody has to do that .”

Indeed, according to Ersek, “ the regulatory and anti-money-laundering capabilities of Western

Union” were one of the Company’s “ core strengths ” and one of the reasons “ why the Company

has th[e] strength to be so successful on the market .”

76. Yet, as Defendants knew, or recklessly disregarded, Western Union’s compliance

practices could not insulate the Company from its competition. In fact, unbeknownst to

35


investors, the compliance review that the Company had managed to complete made clear that the

majority of its agents in the Southwest Border area were not in compliance with Western

Union’s obligations under the Southwest Border Agreement, and that the Company had a very

low success rate for converting non-compliant agents. As a result, Defendants knew or had

access to information indicating that Western Union would likely lose agents, leaving the

Company vulnerable to competitors gaining market share in the region and, thus forcing the

Company to cut prices and offer increased commissions to retain and recruit agents. As a result,

Defendants knew or had access to information indicating that Western Union’s pricing

investments would likely be materially greater than the 1% to 2% that they misled investors into

believing, and that its compliance efforts would result in a near-term loss of revenues and market

share—not the gains that Defendants publicly claimed.

77. Just three months later, on October 30, 2012, Defendants announced revenue

growth of just 2%—well short of the growth reported by its competitors. It further announced

that it would be forced to drastically reduce prices—by 5% or more, rather than the 1% to 2%

that Defendants had expressed confidence in throughout the Class Period—in order to stem its

market share losses. Indeed, as Western Union lost 7,000 Vigo agents, which tended to carry

lower price margins, it not only encountered increased competition for the Vigo agents’ business,

but it was also forced to take price cuts on its higher-premium Western Union branded services

to remain competitive in the region. Thus, contrary to Defendants’ representations of a stable

pricing investment during the Class Period, the Company had to implement “an aggressive price-

cutting strategy” in its United States and Mexico corridor in an effort to shore up its waning

market share.

36


78. Defendant Ersek further reported on October 30, 2012, that Western Union was

“executing action plans to address [its] challenges in this region,” including “actively signing

new agents for Mexico . . . and implementing consumer and agent marketing initiatives to

recapture customers.” In addition, Defendants disclosed that the Company “had implemented

changes to its management structure,” such that that it would no longer have a President of

Global Consumer Financial Services, all global business leaders would report directly to

Defendant Ersek, and that Defendant Stockdale had “left the organization.”

79. On October 31, 2012, in response to this news, Western Union’s common stock

price plummeted by 29%, or $5.20 per share, on its highest trading volume since the Company

began trading as an independent company in 2006.

E. POST-CLASS PERIOD DISCLOSURES

80. After the end of the Class Period, Defendants shed additional light on how the

Company’s Southwest Border Agreement compliance efforts impacted Western Union’s core

C2C business. For example, on November 7, 2012, during a Citi Financial Technology

Conference, Defendant Ersek related that “ our core business has been impacted, especially with

our compliance issues with upgrade about compliance, . . .especially in Mexico and Latin

America corridors with our Vigo brand .” Additionally, contrary to Defendants’ reassurances

that the Company’s compliance regime would allow it to escape further pricing investments,

Ersek reiterated that the Company would need to lower its prices in an attempt to remain

competitive: “as we lose the advantages of the Vigo brand in this Latin America and Mexico

corridor we had to react immediately, and we are going to do some pricing investments . . . . ”

The Company’s purported “strength” and “competitive advantage” in compliance also did not

37


allow it to grow its market share. To the contrary, Western Union admitted that, “we are losing

customers in certain corridors and we can’t take that” and that “ we are losing market share in

the certain corridors to the traditional money transfer companies .”

81. In fact, as Defendants were well aware during the Class Period, far from rescuing

the Company, its compliance efforts were causing massive losses due to agents’ inability (or

unwillingness) to comply with the Southwest Border Agreement. As Ersek relayed, “ [t]he Vigo

impact had a huge impact to [Western Union’s] business as [the Company] reset Vigo for

compliance reasons .” He explained that the agents simply, “ couldn’t apply our compliance

standards .”

82. By the end of 2012, “[r]evenue for the Vigo and Orlandi Valuta brands [had]

declined over 50% primarily due to the Mexico location reductions in the third quarter which

resulted from the Southwest Border Compliance changes,” contributing to a 25% decline in

“Mexico revenue” and a 9% overall decline in revenue for the North America region. As

Defendant Scheirman explained, Mexico revenues were “impacted by a full quarter of the

compliance related reduction in Vigo locations and by the pricing investments that were

implemented in the quarter for the Western Union brand.” Defendant Ersek later added that

“[t]he loss of Vigo and Orlandi Valuta is . . . the majority of why the corridor is losing on the

performance.”

83. When an analyst asked whether Western Union was able to recapture any of the

lost Vigo and Orlandi Valuta business with its pricing initiatives, Defendant Scheirman

responded in the negative, stating, “we are basically growing under the Western Union Brand

business [and] did not capture that on Vigo and Orlandi Valuta.” As Defendant Scheirman

38


explained, Western Union “still ha[d] location lost last quarter . . . 7,000 locations in Mexico.”

Defendant Ersek also stated during the call that Western Union’s pricing actions would impact

25% of its entire C2C business.

84. Shortly thereafter, on February 22, 2013, Defendants stated, in the Company’s

Form 10-K for 2012, that Western Union’s “Mexico business declined primarily due to changes

to our compliance related practices as a result of our agreement and settlement with the State of

Arizona and changes to our business model and price reductions. These compliance changes,

primarily related to our Vigo and Orlandi Valuta brands, have resulted in the loss of over 7,000

agent locations in Mexico.” The 2012 Form 10-K further reported that Western Union’s “United

States outbound business experienced revenue and transaction declines, in part due to changes in

our compliance related practices as a result of our agreement and settlement with the State of

Arizona and changes to our business model, primarily for our Vigo brand to Latin America, and

price reductions.”

85. Defendants’ post-Class Period disclosures add further support to the conclusion

that they had no reasonable basis for believing their Class Period statements that the Company’s

regulatory compliance capabilities provided a competitive advantage, let alone allowed the

Company to maintain its market share. In fact, by February 2013, far from “industry leading”

compliance, Western Union was not even on track to satisfy its obligations under the Southwest

Border Agreement. As a result, the State of Arizona concluded that it was entitled to declare

Western Union in material breach of the Southwest Border Agreement because, among other

things, the Company had failed to implement an adequate anti-money laundering compliance

program.

39


86. Further highlighting the severity of the compliance-related impact, on October 29,

2013, the Company announced its third quarter 2013 financial results and reduced its financial

outlook for 2014, stating that it “no longer expects growth in operating profit due to both []

incremental costs [associated with compliance-related expenses] as well as potential business

impact from new compliance procedures.” On November 14, 2013, just two weeks after the

Company warned that it would have zero earnings growth in 2014 due to higher compliance

costs, Western Union announced the resignation of Defendant Scheirman.

87. On November 18, 2013, Moody’s downgraded Western Union’s senior unsecured

rating to Baa2 from Baa1 and affirmed the Prime-2 short term rating. As rationale for its

decision, Moody’s explained, “Western Union’s revenue and profit will likely face ongoing

competitive pricing pressures and high compliance costs over the next several years. . . . With

this challenging environment, delays in achieving profit expansion, or even slower than expected

revenue growth, will increase the risk of Western Union needing to return cash to shareholders,”

such that “[s]hare buybacks would likely be funded through incremental debt.”

88. The Company’s business in its critical United States-Mexico corridor has not

recovered. In fact, as recently as April 9, 2014, analyst Morningstar reported: “A bigger near-

term issue has been company-specific problems in certain corridors. The U.S.-to-Mexico

corridor is the company’s largest, and Western Union’s position here has permanently been

weakened. The company was forced to drop 7,000 agents because of compliance issues and had

one superagent move to nonexclusive status (meaning that it will offer competitor services as

well). As a result, the network advantage Western Union traditionally enjoyed in this corridor,

which allowed it to enjoy relatively high premiums on pricing, has eroded.”

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V. CLASS PERIOD EVENTS AND MATERIALLY FALSE AND MISLEADING STATEMENTS AND OMISSIONS OF MATERIAL FACT

A. FEBRUARY 7, 2012 - PRESS RELEASE & EARNINGS CONFERENCE CALL

89. The Class Period begins on February 7, 2012, when Western Union issued a press

release announcing the Company’s 2011 financial results and its 2012 financial outlook,

including revenue growth, margin, and EPS guidance.

90. During the Company’s earnings call that same day, Defendant Ersek boasted,

“[w]e have a strong foundation with our brand, our global network, our consumer relationships,

our regulatory and compliance capabilities , and our range of send-and-deliver options.”

Further, in response to a Deutsche Bank analyst’s questions about the potential impact of the

Company’s regulatory compliance framework on its competitive position, Ersek stated:

[W]ith our compliance ones, we are really on it. I think Western Union is, I believe has the focus, and is a high priority in our environment. I think we are really setting the industry standard , and my aim is with our General Counsel, and with our anti-money laundering activities to setup, are a very high priority , that is the first thing . . . .We work very closely with regulators . . . . I feel quite confident that we have the right structure to meet the regulatory environment needs .

91. During the call, a Barclays Capital analyst also demanded “a lot more color on

what exactly [Defendants] are doing [in Mexico]” and “more explanation” on the “slower trend”

in cash remittance business there. In response, Defendant Ersek stated that the Company’s C2C

business in Mexico was only “a little bit affected by ongoing compliance procedure , which we

are changing, especially from southwest [of] the border.” Ersek further stated that “[w]e are in

the process of reviewing some agent agreement [sic], and changing out operating model.”

Ersek concluded, “I believe we have the right approach there .”

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92. Each of Defendants’ statements set forth above in ¶¶90-91, including that the

Company’s compliance efforts, which included “reviewing some agent agreement [sic]” in

Mexico,” were a “high priority,” that were “really setting the industry standard,” and that

Western Union’s C2C business in Mexico would only be “a little bit affected” by the Company’s

compliance efforts, was materially false and misleading and had no reasonable basis when made

because Defendants knew and/or recklessly disregarded, or failed to disclose, the following facts:

a. While touting the Company’s review of agent applications, Defendants

failed to disclose that agents began leaving Western Union in mid-2011, due to the

requirements of the Southwest Border Agreement, leading Company executives to

redirect López-Negrete from her regular duties in an effort to prevent the departure of

further agents in Mexico;

b. CW-1 observed that “things began hitting the fan” in mid-to-late 2011 in

reaction to the technical and operational difficulties that Western Union encountered in

attempting to implement the compliance measures required under the Southwest Border

Agreement, and that it was “not a happy time” at the Company;

c. Western Union’s efforts to implement compliance measures under the

Southwest Border Agreement revealed that, rather than positively distinguishing the

Company from its competitors, these measures actually pushed its agents and their

business away, including agents operating under its lower-priced Vigo and Orlandi

Valuta brands, and that, as reflected in strategy memos, severe price actions would likely

be required with respect to its Western Union premium branded services to remain

42


competitive and to retain its market share in Mexico, including reducing prices and

increasing agent commissions;

d. Far from “really setting the industry standard,” for regulatory compliance

Western Union “had not successfully implemented an [anti-money laundering] program

for the Southwest Border Area,” causing the State of Arizona to later contend that it was

“entitled to declare a willful and material breach of the [Southwest Border] Agreement;”

e. Based upon the approximately 30 – 35 Experis analysts that Western

Union hired in June 2012 in connection with its Southwest Border Agreement

compliance project, and the approximately 25 Experis analysts that Western Union added

to the project in September 2012, the Company had not yet fully staffed its review of

approximately 50,000 – 60,000 applications for agents in the Southwest Border area, a

review which revealed that no more than 20% of the agent applications initially reviewed

were in compliance with the Southwest Border Agreement and only an additional 15% of

the non-compliant agents became compliant as a result of the Company’s efforts; and

f. Thus, contrary to Defendant Ersek’s statements that Western Union’s

business in Mexico was only “a little bit affected ” by compliance efforts, in fact the

Company was losing a considerable number, and risked losing all, Vigo and Orlandi

Valuta agents who either failed to, or elected not to, comply with the requirements of the

Southwest Border Agreement.

93. During the same conference call, Defendant Ersek also misleadingly represented

that Western Union would continue to grow its market share without significantly lowering

43


prices stating, in response to questions from a Goldman Sachs analyst, “ as you recall our pricing

investment was around 1% [in] 2011. And we assume that it will be 1% to 2% in 2012 .”

94. Additionally, Robert Napoli, a William Blair & Co. analyst, questioned Western

Union’s comments on market share, noting that some of the Company’s competitors were

reporting growth well above expected market growth. After noting Western Union’s challenges

in Mexico, the analyst pressed: “ are you currently losing market share . . . ? ” In response,

Defendant Ersek assured investors that Western Union’s market share continued to grow despite

regional challenges, stating, in pertinent part:

We believe, in the cross-border money transfer, we gained market share. We compare, as you know Bob, usually with [IETA] numbers, we believed we gain market share. We do have as I mentioned before, in some countries like Russia, or southern Europe, some challenges. But I would say that our belief is gaining market share , and we believe we have gained market share in 2011.

95. Each of Defendant Ersek’s statements set forth above in ¶¶93-94 concerning

Western Union’s ability to maintain both its pricing model and its market share growth in the

face of intensifying competition was materially false and/or misleading and had no reasonable

basis when made for the reasons set forth in ¶92, which created a significant risk to the

Company’s market share position and necessitated that Western Union make “pricing

investments” materially in excess of the 1% to 2% reported to investors—particularly on its

premium-priced Western Union branded products—in order to remain competitive in the region

and retain its market share position.

B. MARCH 13, 2012 - CREDIT SUISSE GLOBAL SERVICES CONFERENCE

96. On March 13, 2012, Defendants Ersek and Scheirman participated in the Credit

Suisse Global Services Conference on behalf of Western Union. During the call, Defendants

44


continued to tout the strength of the Company’s C2C business, as well as Western Union’s

ability to increase its share of the C2C market without materially reducing prices.

97. For example, during the conference, a Credit Suisse analyst asked, “Can you say

here that you’re confident that the core C2C business, the business model is intact and you can

grow the core C2C business over time?” Defendant Scheirman responded, unequivocally: “ Yes,

Jim, we are very confident in the core C2C business model .” Scheirman further represented

that Western Union could continue to grow its market share, stating: “we’ve continued to gain

market share, each of the years over the last 10 years. And today our share stands at about 18%.

And we believe we have opportunities to continue to grow that share .” Indeed, in response to

the analyst’s follow-up question, “can you grow faster, can you accelerate the growth?”

Scheirman stated “[w]e clearly feel like there’s opportunities to continue to gain share at an

increased pace as we move forward . So, again, no long-term objectives as far as growth rates,

but we feel like very much the growth story is intact in the core business .”

98. The Credit Suisse analyst further inquired whether Western Union expected a

price war with its competitors: “[a]re you concerned that like Coke, Pepsi, maybe that’s not such

a bad thing, you’ll definitely win as did Coca-Cola, but it’s more pricing competition when

you’re sharing shelf space?” In response, Defendant Scheirman explained that although the

Company had seen “a lot of competition, many competitors in the marketplace,” “[w]e do

believe our brand, our agent network of 485,000 locations are really competitive strengths for

us, along with our compliance programs .” Scheirman acknowledged that reducing prices was a

way to gain market share, stating that “anytime [Western Union] adjust[s] pricing it’s really an

eye to gain market share and to do the things that, if you will, drive the strongest revenue and

45


profit growth on a long-term basis.” He assured investors, however, that Western Union would

not need to further lower its prices, stating “if you look at 2011 our prices were down about 1%.

If you fast forward that to the outlook we gave in February, about a month ago as part of our

earnings conference, we see pricing being down 1% to 2%, so similar to what we saw in 2011 .

According to Scheirman, even without deviating from this minimal pricing reduction, “ we can

continue to gain share as we move forward .”

99. Defendants’ statements in ¶¶97-98, concerning Western Union’s competitive

advantages, and its resulting ability to continue to grow market share and make minimal pricing

investments in spite of staunch competition, were materially false and/or misleading and had no

reasonable basis when made for the reasons set forth in ¶¶92 and 95.

C. APRIL 24, 2012 – 1Q12 PRESS RELEASE & EARNINGS CONFERENCE CALL

100. On April 24, 2012, Western Union issued a press release announcing its first

quarter 2012 results and reaffirming the 2012 guidance that the Company first provided on

February 7, 2012.

101. During an earnings call that same day, Defendants continued to mislead investors

regarding Western Union’s compliance efforts. For instance, in response to a request by an

analyst for an update “on the compliance situation in Mexico” and “when [] [Defendants]

expect[ed] to be in some compliance,” Defendant Ersek stated, “ we have been working with the

appointed external monitor very close to determine and appreciate changes, which we have

outlined in our agreement and improvements about anti-money laundering oversight along all

the border .” Ersek continued, “[t]hese changes are happening and we are going to be, as an

46


industry leader, we’re implementing the changes and that will also impact all the industry

long-term .”

102. Additionally, Defendant Ersek downplayed the negative impact of Western

Union’s compliance efforts, telling investors: “[a]lthough we still expect to see some negative

impact on the Vigo and Orlandi Valuta brands as we evolve our business model and

compliance-related practices throughout the year, our Western Union brand is performing well.”

At the same time, Defendant Ersek explicitly acknowledged the materiality of the Company’s

Mexican corridor, stating that the “Mexico corridor for us is a very important corridor.”

103. Defendants’ statements in ¶¶101-02 regarding Western Union’s compliance

efforts and their impact on the Company’s business were materially false and/or misleading and

had no reasonable basis when made for the reasons set forth in ¶¶92 and 95. Indeed, far from

having “some negative impact,” the Company was losing a considerable number, and risked

losing all, Vigo and Orlandi Valuta agents who either failed to, or elected not to, comply with the

requirements of the Southwest Border Agreement.

D. MAY 9, 2012 - WESTERN UNION INVESTOR DAY

104. On May 9, 2012, Western Union held its Investor Day. During the event,

Defendants repeatedly misrepresented that Western Union’s regulatory compliance and anti-

money laundering capabilities provided it with a “huge competitive advantage” that would allow

the Company to grow its business and capture additional market share. Specifically, Defendant

Ersek stated, “let me take a few minutes to remind you about our strengths of the Company.

These strengths separate us from the competitors— I believe they are a huge competitive

47


advantage —our global network, our strong brand, our global organization and resources, and

our regulatory and anti-money laundering capabilities .” Ersek further elaborated:

Our fourth competitive advantage is our global anti-money laundering regulatory capabilities. The regulations around our business are really highly complex. And we have regulatory complexity in all our markets. We have to comply with various acts and interdiction lists around the world, as well as maintain a very active risk management system to detect and deter potential money laundering activities. It sounds complex and, indeed, it is complex, but we see that as a competitive advantage as we comply with various acts and interdiction lists around the world in 200 countries. And the regulatory environment is changing constantly in different parts of the world. Let me give you an example. A recent example here in the US actually with money transfer providers now have to adopt to conform with the rules of Dodd-Frank Act. Implementation and operation of the new disclosure requirements under Dodd-Frank is really complex. And, although, there are going to be some costs for to implement that, we view as a competitive advantage. We have the technology and resources available to meet the installation needs across our agents that are based in the US while others may—don’t have the resources and the technology.

105. Likewise, Defendant Scheirman stated: “we believe our compliance capabilities

on a long-term basis are very much of a competitive advantage as we move forward.”

106. Moreover, Defendants explicitly tied Western Union’s compliance capabilities to

its ability to gain market share from its competitors:

So, many investors always ask me, why you, Hikmet— why you at Western Union think that you can grow this business, and why you’re going to be successful rather than any technology company? Let me spend a few minutes in explaining this one . . . . Our brand is well known and trusted around the globe. We have the regulatory and anti-money laundering capabilities to operate in all countries . . . .

107. Throughout the Company’s Investor Day, Defendants continued to tout Western

Union’s ability to gain market share and drive growth. For example, Defendant Ersek stated:

“[w]e believe the opportunity to accelerate growth over the next few years are strong . Despite

the economic challenges in some parts of the world which exist today, we believe we have the

48


right growth model. We believe in our core money transfer business and are taking steps to

drive a higher growth rates than we have seen recently .”

108. Western Union’s ability to accelerate its growth, even in the face of increased

competition, was, according to Defendant Ersek, the direct result of the Company’s key

competitive advantages:

We have the regulatory environment. It scares to death the competitors to enter this market, I’ll openly say it. But this is good. It’s good that this business is complex because we have the competencies. We are very focused as a team with our agents to take this company to the next level. With the growth, the margin expansion will come . . . . The regulatory environment challenges are here. They are constant. They’re happening but it’s part of our business. However, I believe that we have the right business plan, right model to grow this business short term and long term.

109. Similarly, Defendant Scheirman assured investors that the Company’s compliance

capabilities would allow it to grow revenue, thereby capturing market share:

And as Hikmet mentioned, we’re keenly focused on three key growth areas. And those growth areas very much leverage our strength, our brand, our distribution network, our compliance and regulatory capabilities and our organization and our infrastructure. And we believe by leveraging these strengths and focusing on our strategies and our strategic roadmaps and being very focused on execution, we can deliver strong returns in each of these areas over the years to come . . . . It first starts with revenue growth. And as Hikmet mentioned, we believe we’ve got opportunities over the next several years to accelerate the pace of revenue growth as we move forward. Every day we think about how do we grow the top line, how do we gain market share.

110. Defendants’ statements in ¶¶104-09 concerning Western Union’s putatively

robust regulatory compliance capabilities and the distinct “competitive advantage” that these

compliance measures supposedly provided in fueling the Company’s growth and market share

expansion were materially false and/or misleading and had no reasonable basis when made

because Defendants knew and/or recklessly disregarded, or failed to disclose, that:

49


a. Agents began leaving Western Union in mid-2011, due to the

requirements of the Southwest Border Agreement, leading Company executives to

redirect López-Negrete from her regular duties in an effort to prevent the departure of

further agents in Mexico;





c. Western Union’s efforts to implement compliance measures under the

Southwest Border Agreement revealed that, rather than positively distinguishing the

Company from its competitors, these measures actually pushed its agents and their

business away, including agents operating under its lower-priced Vigo and Orlandi

Valuta brands, and that, as reflected in strategy memos, severe price actions would likely

be required with respect to its Western Union premium branded services to remain

competitive and to retain its market share in Mexico, including reducing prices and

increasing agent commissions;

d. Western Union’s compliance capabilities were not a “competitive

advantage” that would allow the Company to avoid raising prices while growing market

share, but rather, by that time, the Company had not even “successfully implemented an

[anti-money laundering] program for the Southwest Border Area,” causing the State of

Arizona to later contend that it was “entitled to declare a willful and material breach of

the [Southwest Border] Agreement;”

50


e. Based upon the approximately 30 – 35 Experis analysts that Western

Union hired in June 2012 in connection with its Southwest Border Agreement

compliance project, and the approximately 25 Experis analysts that Western Union added

to the project in September 2012, the Company had not yet fully staffed its review of

approximately 50,000 – 60,000 applications for agents in the Southwest Border area, a

review which revealed that no more than 20% of the agent applications initially reviewed

were in compliance with the Southwest Border Agreement and only an additional 15% of

the non-compliant agents became compliant as a result of the Company’s efforts;

f. The Company was losing a considerable number, and risked losing all,

Vigo and Orlandi Valuta agents who either failed to, or elected not to, comply with the

requirements of the Southwest Border Agreement; and

g. These circumstances created a significant risk to the Company’s market

share position and necessitated that Western Union make “pricing investments”

materially in excess of the 1% to 2% reported to investors—particularly on its premium-

priced Western Union branded products—in order to remain competitive in the region

and retain its market share position.

111. During the same event, López-Negrete, speaking on Western Union’s behalf,

represented that the Company’s “improving” “products and services for sustained growth” would

allow it to take advantage of a “huge opportunity” in Mexico. Specifically, according to López-

Negrete, “we’re investing in Mexico to accelerate our growth .”

112. The statements in ¶111 were materially false and/or misleading and had no

reasonable basis when made for the reasons set forth in ¶110.

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113. Finally, a SunTrust analyst noted that, “I didn’t hear any discussion today even a

little about pricing” and inquired, “how sophisticated are your pricing models?” In response, the

Company reiterated its guidance of a “ 1% ” pricing investment. In addition, the Company

assured investors that it had sophisticated models in place that allowed it to accurately reflect

trends in its business: “we do have models and sensitivity models on how to play with the fee

and the FX . . . . So we’re playing with pricing and we’ve actually gotten over the course of the

last couple of years—few years, very sophisticated with sensitivity models....”

114. The statement in ¶113 regarding the Company’s ability to withstand pricing

pressures and maintain its pricing investment outlook was materially false and/or misleading and

had no reasonable basis when made for the reasons set forth in ¶110, which indicated that

Defendants had no reasonable basis for reiterating the Company’s guidance that no additional

“pricing investments” beyond 1% to 2% would be necessary for Western Union to remain

competitive and to grow its market share.

E. JUNE 12, 2012 − WILLIAM BLAIR & CO., LLC GROWTH STOCK CONFERENCE

115. On June 12, 2012, Defendants Ersek and Scheirman participated in the William

Blair & Co., LLC Growth Stock Conference. During the conference, Bob Napoli, an analyst at

William Blair & Co., questioned how Western Union would avoid losing market share to

companies that eliminate the need for middle-men, asking “why wouldn’t I just send money

cross-border on PayPal?” In response, Defendant Ersek falsely assured investors that Western

Union would withstand competitive pressures, and retain market share, in part, because of its

regulatory compliance capabilities: “I think first of all you have to build the fundamentals we

have done for many, many years . . . . You have to get the regulatory environment—somebody

52


has to do that. It’s not easy to do that. You have to [go down to] money laundering—

somebody has to do that .”

116. Indeed, according to Ersek, “the regulatory and anti-money-laundering

capabilities of Western Union” were one of the Company’s “core strengths” and one of the

reasons “why the Company has th[e] strength to be so successful on the market.” Likewise,

Ersek stated, “[o]ne of our very strong competitive advantage is our regulatory environment,

our regulatory and anti-money-laundering competency capabilities. ” He further detailed that:

“we spend about $60 million yearly on the anti-money-laundering activities. We have about 600

employees really looking after the regulatory environment on the day to day . . . . So it’s a

competitive advantage for Western Union and we are very proud of that.”

117. Defendants’ statements in ¶¶115-16 concerning Western Union’s compliance

prowess and the Company’s resulting ability to withstand competitive pressures were materially

false and misleading and had no reasonable basis when made for the reasons set forth above at

¶110.

F. JULY 24, 2012 – 2Q12 PRESS RELEASE & EARNINGS CONFERENCE CALL

118. In a July 24, 2012, press release, Western Union announced its second quarter

2012 results and its outlook for the remainder of 2012. In this press release, and during its

earnings call that same day, Defendants disclosed that, as a result of its regulatory compliance

efforts, the Company had experienced “anticipated” challenges in Mexico that were “really what

[they] expected to have.” Defendants, however, expressed confidence in the Company’s revenue

growth projections. For example, in the press release, Defendant Ersek misleadingly assured the

market that Western Union was still “ on track for our full year financial outlook ” and added

53


that “[t]he long-term opportunities are strong . . . .” Further drawing attention away from the

Company’s problems in Mexico, Defendants even increased the Company’s EPS projections due

to a tax benefit recorded in the second quarter, but omitted that the Company was losing agents

and that, based upon its compliance review, Western Union was facing a heightened risk of

losing thousands of additional agents and corresponding revenues.

119. Ersek reaffirmed these statements during the conference call, claiming that the

Company remained “ on track for the revenue, earnings per share, and cash flow outlook

[Defendants] provided at the beginning of the year, despite economic challenges .” He further

assured investors that “[o]ur core business is sound, and our cash generation is strong.”

Defendant Scheirman sold the same story, stating, “ [o]verall, we’re on track to deliver our

financial outlook, despite the expected macro and other challenges and higher compliance

costs, as our diversified portfolio allows us to produce stable results and generate and deploy

strong cash flow .”

120. Tom McCrohan of Janney Capital Markets, who participated in the Company’s

July 24 Earnings Call, asked Defendants why Western Union “kept the revenue guidance

unchanged” despite macro-economic headwinds, slowing global trade, and challenges impacting

the Company’s “core consumer business.” In response, Defendant Scheirman falsely assured the

market that: “overall, the core C2C business is strong, it’s solid . We had consistent margins

with a year ago and so we feel good about where that business is at and where we’re heading .”

Scheirman later reaffirmed these statements, claiming: “[f]irst I’d say the broad headline is

we’re confident with the guidance that we’ve provided, the 2012 outlook we’ve provided today

for revenue growth, margins, and EPS. We’re confident in the guidance that we’ve provided .”

54


121. A Citigroup analyst likewise asked whether Western Union’s outlook had

stabilized, noting that the Company’s “guidance would seem to imply it’s stabilized.” In

response, Defendant Scheirman repeated, “[a]gain, I would probably go back to we’re confident

in our full-year outlook .”

122. The same Citigroup analyst proceeded to grill Defendants on pricing. He noted

that the Company’s price reductions were modest and asked whether pricing declines would

return to a historical 2% to 3%. In response, Defendant Ersek reiterated the Company’s prior

guidance, stating: “ we are going, in 2012, we are going to be around 1%. And 1% to 2%, that

will be the next forecast .”

123. The statements in ¶¶118-22, which reassured the market that Western Union’s

core business remained strong, that the Company would continue to grow revenue, and that

pricing would remain stable, were materially false and/or misleading and had no reasonable basis

when made because Defendants knew or recklessly disregarded, and/or failed to disclose, that:

a. Since at least mid-summer 2011, the Company had been losing agents in

Mexico due to the extensive and costly systems upgrades and business compliance

requirements and scrutiny that these agents were subjected to under the Southwest Border

Agreement, leading Company executives to redirect López-Negrete from her regular

duties in an effort to prevent the departure of further agents in Mexico;





55


c. Western Union had to hire approximately 30 – 35 Experis analysts to

undertake an extensive compliance review project in June 2012, which revealed that no

more than 20% of the applications reviewed for its Southwest Border agents were

deemed compliant upon initial review, and the Company was not able to bring more than

approximately 15% of non-compliant agents into compliance;

d. The agents most affected by the Company’s compliance efforts under the

Southwest Border Agreement were those who offered services under Western Union’s

lower-priced Vigo and Orlandi Valuta brands, and the Company was losing a

considerable number, and risked losing all, Vigo and Orlandi Valuta agents who either

failed to, or elected not to, comply with the requirements of the Southwest Border

Agreement;

e. Based upon the loss of agents operating under the Company’s lower-

priced Vigo and Orlandi Valuta brands, internal strategy memos reflected that severe

price actions would likely be required with respect to its Western Union premium

branded services to stay competitive and retain its market share in Mexico, including

reducing prices and increasing agent commissions; and

f. In light of the foregoing, Western Union knew and/or recklessly

disregarded that it would have to reduce prices materially in excess of its standard 1% to

2% pricing investments, and offer increased commission rates to mitigate against any loss

of market share. A price reduction—as Western Union knew and previously

acknowledged—would result in immediate revenue losses.

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124. During the July 24 Earnings Call, Defendants further misled investors by

downplaying the challenges in Mexico as nothing more than what they had expected while

continuing to tout the Company’s compliance efforts as competitive advantage with long-term

benefits for the Company. For example, when a William Blair & Co. analyst requested details

about Western Union’s outlook for Mexico, Defendant Ersek responded “ [w]e were expecting

some slow down due to our, some changes we implemented in the southwest border area....

Long term we believe that we’re going to be upgrading and we’re going to set some industry

standards here .”

125. Defendant Scheirman echoed this sentiment, stating “[j]ust to reiterate with

Mexico, it’s really what we expected to have some challenges in 2012. But as we work through

evolving the business model and so forth, we believe that will put us in a much stronger

position on a long-term basis with Mexico .”

126. Moreover, when a Credit Suisse analyst sought additional detail about issues in

Mexico, Defendant Ersek attempted to minimize the challenges that Western Union faced,

stating that 2012 would merely be “ a little bit challenging until we turn around.” The same

analyst pressed Defendant Ersek by asking whether “compliance issues are the main problem in

Mexico.” In response, Defendant Ersek stated that the Company was “ actively pursuing new

agents there in Mexico that will help also to grow our business long-term in Mexico” but failed

to disclose the ongoing and intensifying exodus of Western Union agents in Mexico.

127. The same day, the Company also disclosed that it had incurred additional

compliance costs. According to Defendants, however, the impact of these additional costs was

limited, with GAAP operating margin decreasing modestly from 25% to 24.5%, operating

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margin from 26% to 25.5%, and EBITDA margin remaining unchanged. At the same time,

Defendants misleadingly assured investors that, in the long-term, the Company’s compliance

costs would remain unchanged and that its resulting compliance capabilities would allow it to

excel: “we expect global spending on compliance activities over the next couple of years will

not change significantly from the 2012 levels as the breadth and complexity requirements and

sustainability around the globe continues to expand. But we view our ability to adapt to this

environment as a long-term competitive advantage .”

128. Likewise, when a J.P. Morgan analyst asked Defendant Ersek whether

“compliance costs . . . [would] eventually apply to . . . smaller peers . . . and . . . ease some of the

competition, especially in pricing,” Ersek again took the opportunity to tout the Company’s

compliance as an edge over its peers, stating, “ [a]s you know, we’re very focused here and we

are very serious. It’s a competitive advantage, long-term. I think we are investing heavily

here to be, really I think as an industry leader, we are setting the tone here and I think we are

very focused here and I see that as definitely a competitive advantage. ”

129. Defendants’ statements in ¶¶124-28, which touted Western Union’s compliance

efforts as a core competitive advantage while downplaying and omitting the impact of those

efforts on its business, including the actual and impending loss of Vigo and Orlandi Valuta

agents and the consequent need to adjust its pricing model in Mexico to remain competitive and

retain its market share in that region, were materially false and/or misleading and had no

reasonable basis when made for the reasons set forth above in ¶123. Additionally, Western

Union’s regulatory compliance was not providing the Company with a “competitive advantage”

because it did not “successfully implement[] an [anti-money laundering] program for the

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Southwest Border Area,” causing the State of Arizona to later contend that it was “entitled to

declare a willful and material breach of the [Southwest Border] Agreement.” Moreover, rather

than the impact on Mexico from its Southwest Border Agreement compliance efforts being “a

little bit challenging,” Defendants knew or recklessly disregarded, and/or failed to disclose that

these measures resulted in a mass exodus of agents and required a revamping of Western

Union’s entire pricing model then in place to stave off further revenue and market share losses.

G. OCTOBER 16, 2012 - VOICES OF EXPERIENCE : STEWART A. STOCKDALE FROM

WESTERN UNION AT THE UNIVERSITY OF DENVER

130. On October 16, 2012, Defendant Stockdale spoke on behalf of Western Union at

the University of Denver, where he continued to tout Western Union’s compliance capabilities as

a competitive strength. He stated:

What makes us unique that allow us to have these relationships and really our core competencies to reach consumers in 200 countries and territories is really these four pillars of our strategy . . . . Three is the regulatory and AML [anti-money laundering] capabilities of the Company in almost every jurisdiction around the world.

131. Defendant Stockdale elaborated on this point, giving the impression that the

Company had robust compliance programs. In particular, he stated:

What really is more difficult is to make sure that you’re complying with all the laws around the world. And we spend a ton of money. And we have over 600 people on an ongoing basis monitoring the system on an ongoing basis. And you have to do that. One of the core capabilities is to being able to work with governments not only the U.S. government but the governments of Vietnam, the governments of India, the governments of China to make sure that this cash movement which is in the billions of dollars is all being monitored on an ongoing basis.

132. Defendant Stockdale again repeated the mantra that Western Union’s compliance

measures would be a competitive advantage for the Company. Using yet to be implemented

compliance requirements under the new Dodd-Frank regulations as an example, Defendant

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Stockdale stated: “I’ll tell you that we hope that over time [Dodd-Frank] becomes a competitive

advantage for us as—as all regulation does because if you’re in front and you have the

resources to implement and do it well .”

133. Defendant Stockdale’s statements in ¶¶130-32, which touted Western Union’s

compliance efforts as a core competency and a competitive advantage, were materially false

and/or misleading and had no reasonable basis when made for the reasons set forth above in

¶¶123 and 129.

VI. LOSS CAUSATION

134. As a direct result of Defendants’ misrepresentations and omissions of material

facts alleged above in Section V, the price of Western Union common stock was artificially

inflated throughout the Class Period. This artificial inflation was removed from the price of

Western Union common stock in direct response to the information revealed in the Company’s

October 30, 2012, press release (the “October 30 Press Release”) and during the Company’s

October 30, 2012, earnings call (the “October 30 Conference Call”), both of which occurred after

normal trading hours, but on a day when the NASDAQ was closed as a result of Hurricane

Sandy.

135. As alleged herein, the October 30 Press Release and October 30 Conference Call

revealed previously misrepresented and/or concealed material facts and risks concerning: (i) the

putative competitive advantages that the Company derived from its anti-money laundering

compliance efforts, including those related to the Southwest Border Agreement; and (ii) the

Company’s results and prospects in connection with its C2C remittance business, particularly in

Mexico. When these previously misrepresented and/or concealed facts were revealed and/or the

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concealed risks materialized, the price of Western Union common stock declined precipitously,

causing Lead Plaintiffs and other Class Members to suffer losses.

136. Specifically, on October 30, 2012, Defendants issued the October 30 Press

Release: (i) announcing the Company’s disappointing financial results for 3Q12; (ii) reducing

Western Union’s revenue and EPS guidance for the remainder of 2012; and (iii) forecasting a

10% to 15% decline in GAAP operating income for fiscal year 2013 from 2012 levels.

Moreover, the Company abruptly announced that in connection with Western Union’s desire to

“improve and expedite customer focused decisions across all products and channels and reduce

costs,” Defendant Stockdale, formerly Executive Vice President and President, Global Consumer

Financial Services, had “left the organization.”

137. In the October 30 Press Release, the Company announced the following results

for 3Q12, which reflected, among other things, the impact of Western Union’s loss of agents and

downturn in transactions resulting from the Company’s ongoing Southwest Border Agreement

compliance struggles: (i) the Company experienced a 22% decline in revenues from Mexico

with an 18% decline in transactions ; (ii) the North America region, which accounted for 20% of

the Company’s quarterly revenues, suffered an 8% decline in revenues; (iii) cross-border

principal declined by 7% on a reported basis and by 4% on a constant currency basis; and (iv)

C2C revenue decreased 4%, or by 1% on a constant currency basis, on flat transaction growth.

138. Belying Defendants’ consistent Class Period representations that Western Union’s

purportedly rigorous and comprehensive compliance measures, including those applied in

connection with the Southwest Border Agreement, provided the Company with a distinct

competitive advantage that positioned Western Union to gain market share, the Company’s

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October 30 Press Release reported, among other things: (i) that “compliance related changes,

and competitive pressures in certain money transfer corridors impacted revenues”; (ii) that

“North America region revenue decrease of 8% from the prior year period, primarily due to the

impact of compliance related actions affecting the Vigo and Orlandi Valuta brands serving the

U.S. to Mexico [corridor] and various Latin American countries”; and (iii) a “Consumer-to-

Consumer (C2C) decrease of 4% on a reported basis and a decrease of 1% constant currency,

with transactions at the same level as the prior year period.”

139. During the October 30 Conference Call, Defendants provided further details

concerning the negative impact of the Company’s compliance challenges, especially those

pertaining to the Southwest Border Agreement, on the Company’s results and prospects. In this

regard, Defendant Ersek stated, among other things, that the Company’s market share eroded

based, in part, upon “ the impact of compliance changes, particularly those related to our

Southwest Border Agreement .” Shedding more light on this issue, Defendant Ersek revealed

that the Company had suffered a more than 20% revenue decrease in Mexico in connection with

“end[ing] relationships with over 7,000 Vigo agent locations that could not meet our new

compliance requirements.” According to Ersek, the Company also suffered from “operational

challenges from related system implementations for our Vigo brand in Latin America as we

moved this onto our Western Union Platform.”

140. Later during the call, Defendant Scheirman explained that the approximately

7,000 Vigo agents with whom the Company had ended its relationships comprised

approximately “40% of our network in Mexico.” Based upon these compliance issues,

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Scheirman explained that “Mexico revenue declined 22% and transactions decreased 18% in

the quarter .”

141. The October 30 Press Release also revealed previously misrepresented and

concealed facts contrary to the Company’s consistently positive portrayal of its competitive

position, including that Western Union: (i) was poised to gain market share; (ii) had the right

model in place to accelerate growth, including growth in Mexico; and (iii) would invest no more

than 1% to 2% of its revenues to maintain competitive pricing levels. Specifically, the October

30 Press Release revealed that, based upon so-called “competitive pressures,” the Company

would be implementing “a series of strategic actions” to position itself for sustainable growth,

and that these actions would include “accelerating pricing investment in certain corridors.” In

this regard, the Company stated that rather than comprising 1% to 2% of revenues, as Defendants

represented during the Class Period, the Company’s pricing investment would be dramatically

increased to “the mid-single digit range, ” or more than 5% . Based upon these surprise

measures that the Company announced in an effort to shore up its competitive position in the

market, Defendants reduced their guidance for the remainder of 2012, and forecasted a steep

10% to 15% decline in 2013 GAAP revenues.

142. During the October 30 Conference Call, commenting on “competitive pricing

pressures in certain corridors,” Defendant Ersek admitted that “ [a]side from compliance-related

issues, we are also seeing market share challenges this year from competitive pressures in

other parts of the world. ” In this regard, Defendant Ersek explained that to respond to these

previously misrepresented and concealed market challenges that the Company faced during

2012:

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We are implementing a series of strategic actions to quickly adjust to this environment and regain market share momentum. These plans are focused on, first, enhancing our value proposition in key corridors.

* * *

While our brand remains strong and stands for trust, reliability, speed, and convenience, we need to enhance overall consumer value proposition in certain corridors. For competitive reasons, we will not disclose these specific plans, but beginning in the fourth quarter, we will accelerate our pricing actions in key corridors. In 2013, we will also address other areas of the consumer value proposition, as needed. While not finalized at this point, we expect our 2013 pricing investment may be in the mid single-digit range as a percentage of revenues compared to 1% in both 2011 and 2012.

143. During the October 30 Conference Call, Defendant Scheirman also addressed the

pricing initiatives that Western Union announced it would be implementing in an effort to

recover the market share that it had lost during the Class Period. Among other things, Scheirman

confirmed that these measures were a substantial cause of the Company’s reduction of its 2012

EPS guidance from a range of $1.68 to $1.72 per share to a range of $1.60 to $1.63 per share.

According to Scheirman, “EPS was negatively impacted by $0.04 from our prior outlook, due to

the $30 million of expenses related to the new cost-savings initiatives.” Scheirman also

confirmed the Company’s new guidance that money transfer pricing investments as a percentage

of revenues were expected to be in the “mid single-digit range in 2013.”

144. The closing price of Western Union common stock was $17.93 per share on

October 26, 2012. The NASDAQ was closed on Monday, October 29, 2012, and on Tuesday,

October 30, 2012, as a result of Hurricane Sandy. Accordingly, Friday, October 26, 2012, is the

trading day immediately prior to Wednesday, October 31, 2012. As a direct result of the

previously misrepresented and concealed information revealed in the October 30 Press Release

and during the October 30 Conference Call, the price of Western Union common stock declined

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by $5.20 from its closing price of $17.93 per share on October 26, 2012, to close at $12.73 per

share on October 31, 2012, a single trading day decline of approximately 29% on heavier than

usual trading volume of approximately 62.74 million shares—the Company’s highest single-day

trading volume since it began trading as an independent company in 2006, exceeding its Class

Period average daily trading volume of 5.82 million shares by more than more than 10 times.

145. Numerous analysts issued reports expressing surprise over the information

revealed in the October 30 Press Release and during the October 30 Conference Call. For

example:

JPMorgan issued an October 31, 2012, report under the headline “ Negative Surprise – Another Reinvestment Year to Come; Lowering Estimates and Price Target ,” in which the analysts noted that “[w]hile the [compliance and competitive pricing] issues are not new, the magnitude of the impact surprised us in relation to what we heard last quarter and at the May [9] Investor Day. ” JPMorgan further noted that “Southwest border compliance impact was larger than expected , with non-WU brands (Vigo, OV) hurting revenue growth by 200bps as 7k locations (40% of network in Mexico) were shut down (3Q Mexico revenue down 22% v. JPMe 10%).

Evercore Partners issued an October 30, 2012, report bearing the headline “Downgrading to Underweight on Seismic Price Shift, ” in which the analysts noted “[w]e are downgrading our rating on Western Union to Underweight from Overweight following the announcement during its 3Q 12 earnings call Tuesday night of a new value pricing strategy undercutting the company’s long-held view that its superior brand and extensive global distribution network justify a premium price .”

* * *

“Notably, North America revenue declined 8% year-over-year in 2Q12 given an 18% drop in US-Mexico transactions following the surprise closing of 7,000 Vigo locations for compliance issues.”

Credit Suisse issued an October 31, 2012, report maintaining a neutral rating, while noting “ WU acknowledged it is losing share to traditional and new competitors and is implementing a new strategy which includes significant pricing concessions (from 1 pt. of revenue to ~5 pts. in 2013) and yet additional

65


restructuring.” The analysts further remarked that “[t]he issues facing the company appear more structural than cyclical to us.”

Compass Point issued an October 31, 2012, report in which it noted that the “update of pricing pressures in certain corridors is most alarming . ”

JMP Securities issued an October 31, 2012, report under the headline “Market Share Bleeding Was Worse Than Expected; Uncertain Pricing Outlook,” in which the analysts stated that “[t]he results out of Mexico were even worse than our negative checks last month had predicted, and management highlighted market share losses that sounded global in nature .”

Wells Fargo issued an October 31, 2012, report, downgrading Western Union to “Market Perform,” while stating “[w]e are lowering our rating, estimates and valuation range on WU as the impact of competition is weighing on results to a greater degree than we had envisioned, prompting the company to embark on a strategy to reduce prices in key corridors, weighing on our revenue outlook while also prompting investment in product, marketing, and consumer experience.” The analysts further noted that “the company has to not only rebuild earnings momentum but also credibility both of which will likely take some time . . . .”

Barclays issued a November 1, 2012, report noting that Western Union’s announced pricing initiatives “come with material earnings pressure and bring to light additional risks. ” In this regard, the analysts remarked, “ [w]e believe a variety of new entrants (including growth of online and mobile channels) is erasing WU’s 10-50% pricing premium and cannibalizing the company’s existing business with lower yield .”

* * *

“We also believe that WU may face a backlash from agents as pricing deteriorates. Finally, as

WU consolidates the Vigo brands, its pricing falls to Vigo’s levels.”

146. The material misrepresentations and omissions detailed above had the effect of

creating and maintaining artificially inflated prices for Western Union common stock throughout

the Class Period. Lead Plaintiffs and other Class members purchased or otherwise acquired

Western Union common stock at prices that were artificially inflated by Defendants’

misrepresentations and omissions of material fact alleged herein. Those misrepresentations and

omissions of material fact that were not immediately followed by an upward movement in the

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price of Western Union common stock served to maintain the price of Western Union common

stock at an artificially inflated level.

147. Defendants’ wrongful conduct, as alleged herein, directly and proximately caused

the damages suffered by Lead Plaintiffs and other Class members. Throughout the Class Period,

Defendants made materially false and misleading statements and omissions of material fact

concerning: (i) the competitive advantages that the Company’s anti-money laundering

compliance efforts provided, including those related to compliance with the requirements of the

Southwest Border Agreement; and (ii) the Company’s results and prospects in connection with

its C2C remittance business, particularly in Mexico. Had Defendants disclosed complete,

accurate, and truthful information concerning these matters during the Class Period, Lead

Plaintiffs and other Class members would not have purchased or otherwise acquired Western

Union common stock, or would not have purchased or otherwise acquired their shares at the

artificially inflated prices that they paid.

148. It was entirely foreseeable to Defendants that misrepresenting and concealing

these material facts from the public would artificially inflate the price of Western Union common

stock. It was also foreseeable that the ultimate disclosure of this information, and/or the

materialization of the risks concealed by Defendants’ material misstatements and omissions,

would cause the price of Western Union common stock to decline as the inflation caused by the

Company’s earlier materially false and misleading statements and omissions of material fact was

removed from the stock price.

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149. Accordingly, Defendants’ conduct, as alleged herein, proximately caused

foreseeable losses to Lead Plaintiffs and the other members of the Class who purchased or

otherwise acquired Western Union common stock during the Class Period.

150. The economic loss, i.e., damages, suffered by Lead Plaintiffs and other Class

members directly resulted from Defendants’ materially false and misleading statements and

omissions of material fact, which artificially inflated the price of the Company’s common stock,

and the subsequent significant decline in the value of Company’s common stock when the truth

was revealed and/or the risks previously concealed by Defendants’ material misstatements and

omissions materialized.

151. As a result of the previously misrepresented and concealed material information

and risks that Defendants disclosed on October 30, 2012, and the corresponding substantial

decline in the price of Western Union common stock when the market absorbed this information

on October 31, 2012, Lead Plaintiffs and other Class members have suffered economic loss.

VII. ADDITIONAL SCIENTER ALLEGATIONS

152. As alleged herein, Defendants acted with scienter in that each Defendant: (i)

knew or recklessly disregarded that the public statements or documents issued or disseminated in

the name of the Company (or in their own name) were materially false and misleading when

made; (ii) knew or recklessly disregarded that such statements or documents would be issued or

disseminated to the investing public; and (iii) knowingly and substantially participated or

acquiesced in the issuance or dissemination of such statements or documents as primary violators

of the federal securities laws. Defendants, by virtue of their receipt of information reflecting the

true facts regarding Western Union, and their control over, receipt, and/or modification of

4] M.]


Western Union’s materially misleading statements, were active and culpable participants in the

fraudulent scheme alleged herein.

153. Defendants knew and/or recklessly disregarded the false and misleading nature of

the information that they caused to be disseminated to the investing public, which artificially

inflated the trading prices of the Company’s common stock during the Class Period. The

misrepresentations and omissions of material fact alleged herein concerning: (i) the competitive

strength of Western Union’s compliance program; (ii) the impact of the Company’s compliance

efforts on its pricing model and market share growth; (iii) pricing actions required for the

Company to remain competitive in certain markets and to attempt to grow its market share; and

(iv) the resulting impact on Western Union’s business and financial outlook, could not have been

made during the Class Period without the knowledge and complicity or reckless disregard of the

personnel at the highest levels of the Company, including the Individual Defendants.

154. Each Individual Defendant, because of his position with Western Union, also

controlled the contents of the Company’s public statements during the Class Period. In addition,

each Individual Defendant was provided with, or had access to, copies of the documents alleged

herein to be false and/or misleading prior to or shortly after their issuance and/or had access to

the data underlying the representations therein and in other public statements made during the

Class Period, including during investor calls and conferences. Each of the Individual Defendants

also had the ability and opportunity to prevent the materially false and misleading statements

alleged herein from being made and/or to cause them to be corrected. Because of each

Individual Defendant’s position and access to material non-public information, each Individual

Defendant knew or recklessly disregarded that the adverse facts alleged herein had not been

69


disclosed to, and/or were being concealed from, the public, and that the positive representations

that were being made were materially false, misleading, and incomplete. As a result, each

Individual Defendant is responsible for the accuracy of the statements that he made, and for

Western Union’s corporate statements, and each is therefore responsible and liable for the

representations contained therein and/or the material facts omitted therefrom.

155. As alleged herein, numerous facts support a strong inference that, during the Class

Period, each Defendant knew or recklessly disregarded that each of their statements and

omissions regarding the competitive strength and advantage of Western Union’s compliance

efforts, pricing actions, competitive position and market share, and the impact of the Company’s

compliance efforts on each of these matters and on Western Union’s business and financial

outlook, was materially false and/or misleading at the time each such statement was made.

156. Western Union made the materially false and/or misleading statements and

omissions of material fact alleged herein based on the fact that the Individual Defendants

identified above, including, the Company’s CEO and CFO throughout the Class Period, knew

and/or recklessly disregarded that these statements were materially false and/or misleading,

and/or omitted material facts at the times that such statements were made. Each of the Individual

Defendants was among the Company’s most senior executives throughout the Class Period, as

well as a member of the Company’s management, and their knowledge may be imputed to the

Company.

157. In addition, the following facts support a strong inference of Defendants’ scienter:

a. As of mid-2011, Western Union was losing and expected to continue to

lose agents in Mexico based, in part, upon its compliance efforts under the Southwest

70


Border Agreement, and internal strategy memos were generated reflecting plans to lower

fees and increase agent commissions in an effort to retain agents, according to CW-1;

b. López-Negrete was “peeled off” her regular duties by senior management

to “rescue” Mexican agents that were leaving Western Union based, in part, upon

Southwest Border Agreement compliance difficulties, according to CW-1;

c. As of the beginning of the Class Period on February 7, 2012, Defendant

Ersek noted that the Company was “in the process of reviewing some agent applications”

for Western Union agents in Mexico;

d. Western Union claimed to be “really on it,” when it came to monitoring

the Company’s compliance efforts, which were the Company’s “focus” and a “very high

priority,” according to Defendant Ersek;

e. CW-2’s supervisors informed CW-2 that Pipeline Reports were prepared

for Defendants Ersek and Scheirman, and other Western Union Executives containing

information from which it could be deduced, among other things, that the overwhelming

majority of Western Union’s agents in Mexico did not meet the Company’s compliance

obligations under the Southwest Border Agreement, and that the vast majority of efforts

to bring non-compliant agents into compliance were failing;

f. Company executives, including Defendant Stockdale, participated in

weekly conference calls where the status of Western Union’s Southwest Border

Agreement compliance efforts was discussed, according to CW-2;

g. Defendants Ersek, Scheirman, and Stockdale were responsible for making

pricing determinations, according to CW-1;

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h. Western Union was “very sophisticated with sensitivity models” that

allowed the Company to reliably assess the need for pricing adjustments;

i. “Every day,” Western Union executives “think about how do we grow the

top line, how do we gain market share,” according to Defendant Ersek;

j. According to Defendant Scheirman, “[a]nytime [Western Union] adjust[s]

pricing it’s really an eye to gain market share”;

k. In explaining how he was positioned to assume certain of Defendant

Stockdale’s responsibilities when the Company abruptly announced that Defendant

Stockdale had “left the organization” on October 30, 2012, Defendant Ersek claimed that

he knew the agents under Stockdale’s watch, including agents in Mexico, “very well”;

and

l. Defendant Stockdale “left the Company” in the two-week time period

between making the misrepresentations and omissions alleged herein on October 16,

2012, and the Company’s October 30, 2012, disclosure of the loss of 7,000 agents in

Mexico.

158. The foregoing facts strongly suggest that the Individual Defendants knew or

recklessly disregarded information indicating that a significant number of Western Union’s Vigo

and Orlandi Valuta agents were not in compliance with the Company’s requirements under the

Southwest Border Agreement, and likely would not be able to become compliant. As a result,

the Individual Defendants knew and/or recklessly disregarded that Western Union would have to

suspend or let these agents go, or that they would elect to leave Western Union to avoid the

increased costs and scrutiny of complying with Western Union’s obligations under the Southwest

72


Border Agreement, and that the Company would have to lower prices in its key Mexico corridor

in connection with the known adverse impact that the loss of these agents would have on

Western Union’s operations and financial outlook.

159. In addition, the misstatements and omissions alleged herein concerned Western

Union’s C2C business segment, the Company’s self-proclaimed “core” operating segment,

raising a strong inference that the Individual Defendants knew or recklessly disregarded the

contemporaneously available facts alleged herein that contradicted or undermined their

statements during the Class Period.

160. Furthermore, the alleged misstatements and omissions concerned the Company’s

compliance efforts under the Southwest Border Agreement—a significant undertaking that

required the oversight of the Monitor. In this regard, the Company’s Southwest Border

Agreement compliance efforts and results had developed into another “core operation” by the

beginning of the Class Period, requiring constant oversight on a day-to-day basis, such that a

Steering Committee at Western Union was formed to oversee these efforts.

161. As part of implementing the Monitor’s recommendations, CW-1 explained,

Western Union determined, in late 2011, that it would need to migrate the computer systems of

Western Union’s Vigo and Orlandi Valuta agents onto Western Union’s Norkom platform. CW-

1 recalled that it was immediately known that this process would be difficult. Among other

things, the Vigo and Orlandi Valuta agents had antiquated point-of-sale systems and had not

previously been integrated into Western Union’s IT systems.

162. Due to the significance and high costs incurred by Western Union in complying

with the Southwest Border Agreement, a cogent and compelling inference may be drawn that

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each Individual Defendant and Western Union knew and/or recklessly disregarded that the

misstatements and omissions alleged herein were materially false and/or misleading when made.

VIII. A PRESUMPTION OF RELIANCE APPLIES

163. At all relevant times, the market for Western Union common stock was open and

efficient for the following reasons, among others:

a. Western Union common stock met the requirements for listing, and was

listed and actively traded on the NASDAQ, a highly efficient electronic stock market;

b. As a registered and regulated issuer of securities, Western Union filed

periodic public reports with the SEC;

c. Western Union regularly communicated with public investors via

established market communication mechanisms, including regularly disseminating press

releases on the national circuits of major newswire services and other wide-ranging

public disclosures, such as conference calls with analysts and investors and other

communications with the financial press and other similar reporting services; and

d. Western Union was followed by securities analysts employed by major

brokerage firms, including JPMorgan, Barclays, and Credit Suisse, which authored

reports that were distributed to the sales force and certain customers of their respective

brokerage firms. Each of these reports was publicly available and/or entered the public

marketplace.

164. As a result of the foregoing, the market for Western Union common stock

promptly digested current information regarding the Company from all publicly available

sources, and the prices of Western Union common stock reflected such information. Based upon

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the materially false and misleading statements and omissions of material fact alleged herein,

Western Union common stock traded at artificially inflated prices during the Class Period. Lead

Plaintiffs and all other members of the Class purchased Western Union common stock relying

upon the integrity of the market price of Western Union common stock and other market

information relating to Western Union.

165. Under these circumstances, all purchasers of Western Union common stock

during the Class Period suffered similar injuries through their purchases of Western Union

common stock at artificially inflated prices, and the presumption of reliance under the fraud-on-

the-market doctrine applies.

166. Further, at all relevant times, Lead Plaintiffs and the other members of the Class

reasonably relied upon Defendants to disclose complete, truthful, and accurate material

information as required by law and in the Company’s SEC filings. Lead Plaintiffs and the other

members of the Class would not have purchased or otherwise acquired Western Union common

stock at artificially inflated prices if Defendants had disclosed all material information as

required. Thus, to the extent that Defendants concealed or improperly failed to disclose material

facts concerning the Company and its operations, Lead Plaintiffs and the other members of the

Class are entitled to a presumption of reliance in accordance with Affiliated Ute Citizens of Utah

v. United States , 406 U.S. 128, 153 (1972).

IX. THE STATUTORY SAFE HARBOR AND BESPEAKS CAUTION DOCTRINE ARE INAPPLICABLE

167. The PSLRA’s statutory safe harbor and/or the bespeaks caution doctrine

applicable to forward-looking statements under certain circumstances do not apply to any of the

materially false and/or misleading statements alleged herein.

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168. None of the statements complained of herein was a forward-looking statement.

Rather, each was a historical statement or a statement of purportedly current facts and conditions

at the time each statement was made.

169. To the extent that any materially false and/or misleading statement alleged herein,

or any portion thereof, can be construed as forward-looking, such statement was not

accompanied by meaningful cautionary language identifying important facts that could cause

actual results to differ materially from those in the statement. As set forth above in detail, given

the then-existing facts contradicting Defendants’ statements, the generalized risk disclosures

made by Defendants were not sufficient to insulate Defendants from liability for their materially

false and misleading statements.

170. To the extent that the statutory safe harbor may apply to any materially false

and/or misleading statement alleged herein, or a portion thereof, Defendants are liable for any

such false and/or misleading forward-looking statement because at the time such statement was

made, the speaker actually knew the statement was false, or the statement was authorized and/or

approved by an executive officer of Western Union who actually knew that the statement was

false.

171. Moreover, to the extent that the Company and the Individual Defendants issued

any disclosures purportedly designed to “warn” or “caution” investors of certain “risks,” those

disclosures were also materially false and/or misleading because they did not disclose that the

risks that were the subject of such warnings had already materialized and/or because Western

Union and the Individual Defendants had actual knowledge of undisclosed material adverse facts

that rendered such “cautionary” disclosures materially false and/or misleading.

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X. CLASS ACTION ALLEGATIONS

172. Lead Plaintiffs bring this action as a class action pursuant to Federal Rules of

Civil Procedure 23(a) and 23(b)(3) on behalf of themselves and all other persons who purchased

or otherwise acquired Western Union common stock during the Class Period, and were damaged

thereby. Excluded from the Class are: (i) Defendants; (ii) present and former directors or

executive officers of the Company, and members of their immediate families (as defined in 17

C.F.R. § 229.404, Instructions (1)(a)(iii) and (1)(b)(ii)); (iii) any of the foregoing individuals’ or

entities’ legal representatives, heirs, successors, or assigns; and (iv) any entity in which any

Defendant has a controlling interest, or which is related to or affiliated with, any Defendant.

173. The members of the Class are so numerous and geographically dispersed that

joinder of all members is impracticable. While the precise number of Class members is

unknown to Lead Plaintiffs at this time, and can only be ascertained through appropriate

discovery, Lead Plaintiffs believe that there are likely hundreds, if not thousands, of Class

members. At the end of the Class Period (as of October 31, 2012), there were approximately

596.6 million shares of Western Union common stock outstanding and actively trading on the

NASDAQ. The names and addresses of Class members can be ascertained from the books and

records of Western Union or its transfer agent, and notice of this action can be provided to Class

members by a combination of published notice and first-class mail, using techniques and a form

of notice similar to those customarily used in class actions arising under the federal securities

laws.

174. Lead Plaintiffs do not possess any interests that are antagonistic to the interests of

the other members of the Class, and Lead Plaintiffs will fairly and adequately represent and

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protect the interests of the other members of the Class. Lead Plaintiffs have retained competent

and experienced counsel, and Lead Plaintiffs intend to prosecute this action vigorously.

175. Lead Plaintiffs’ claims are typical of the claims of all other members of the Class

because Lead Plaintiffs’ and all of the other Class members’ claims and associated damages arise

from, and were caused by, purchasing or otherwise acquiring Western Union common stock at

prices that were artificially inflated by the same materially false and misleading statements

and/or omissions of material fact made by or chargeable to Defendants. Moreover, Defendants

have acted on grounds generally applicable to the Class with respect to the matters complained

of herein, thereby making appropriate the relief sought herein with respect to the Class as a

whole.

176. A class action is superior to other available methods for fairly and efficiently

adjudicating Class members’ claims. Because the damages suffered by individual Class

members may be relatively small, the expense and burden of individual litigation make it

virtually impossible for Class members to otherwise seek redress for Defendants’ wrongful

conduct. Moreover, the prosecution of separate actions by individual Class members would

create the risk of inconsistent or varying adjudications with respect to the individual Class

members, which would establish incompatible standards of conduct for Defendants, or

adjudications with respect to individual Class members that would, as a practical matter, be

dispositive of the interests of the other members not parties to the adjudications or substantially

impair their ability to protect their interests.

177. Lead Plaintiffs know of no difficulty that will be encountered in managing this

litigation that would preclude its maintenance as a class action.

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178. Common questions of law and fact exist as to all members of the Class, and such

common questions predominate over any questions solely affecting individual members of the

Class. Among the questions of law and fact common to members of the Class are:

a. whether the federal securities laws were violated by Defendants’ acts as

alleged herein;

b. whether Defendants’ statements issued during the Class Period were

materially false and misleading and/or omitted material facts;

c. whether and to what extent the market price of Western Union common

stock was artificially inflated and/or distorted during the Class Period due to the

misrepresentations and/or omissions of material fact complained of herein;

d. whether the Defendants named under Section 10(b) of the Exchange Act

acted with scienter;

e. whether Class members’ reliance may be presumed pursuant to the fraud-

on-the-market doctrine and/or Affiliated Ute ; and

f. the extent of injuries sustained by members of the Class and the

appropriate measure of damages.

XI. CAUSES OF ACTION

COUNT I

For Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder Against All Defendants

179. Lead Plaintiffs repeat and reallege all preceding paragraphs as if fully set forth

herein. This claim is brought against all Defendants pursuant to Section 10(b) of the Exchange

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Act, 15 U.S.C. § 78(j)(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, by

Lead Plaintiffs on behalf of themselves and all other members of the Class.

180. During the Class Period, Defendants used the means and instrumentalities of

interstate commerce, the United States mails, and the facilities of a national securities exchange

to knowingly and/or recklessly make and/or approve the materially false and misleading

statements and omissions of material fact alleged herein to: (i) deceive the investing public,

including Lead Plaintiffs and the other Class members; (ii) artificially inflate and/or maintain the

market price of Western Union common stock; and (iii) cause Lead Plaintiffs and the other

members of the Class to purchase or otherwise acquire Western Union common stock at

artificially inflated prices. In furtherance of their unlawful scheme, plan, and course of conduct,

Defendants took the actions alleged in this Complaint.

181. While in possession of material adverse, non-public information, Defendants,

individually and in concert, directly and indirectly, by using the means and instrumentalities of

interstate commerce, the United States mails, and the facilities of a national securities exchange:

(i) employed devices, schemes, and artifices to defraud; (ii) made untrue statements of material

fact and/or failed to disclose material facts necessary to make the statements that they made not

misleading; and (iii) engaged in acts, practices, and a course of business that operated as a fraud

and deceit upon the purchasers of the Company’s common stock in an effort to maintain

artificially high market prices for Western Union common stock, in violation of Section 10(b) of

the Exchange Act and Rule 10b-5 promulgated thereunder.

182. As alleged herein, the material misrepresentations contained in, and the material

facts omitted from, Defendants’ public statements included, but were not limited to, materially

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false and/or misleading representations and omissions during the Class Period regarding: (i) the

putative competitive advantages that Western Union derived from its anti-money laundering

compliance efforts, which included downplaying the impact that the requirements of the

Southwest Border Agreement would have on C2C business in Mexico; and (ii) the Company’s

competitive position in the C2C market, particularly the stability of its pricing in key business

corridors, including Mexico.

183. By virtue of their high-level positions at the Company during the Class Period, the

Individual Defendants were authorized to make public statements, and made public statements

during the Class Period on Western Union’s behalf. The Individual Defendants were privy to

and participated in the creation, development, and issuance of the materially false and misleading

statements alleged herein, and they and the Company disseminated information to the investing

public that they either knew, or recklessly disregarded, was materially false and misleading.

184. In addition to the duties of full disclosure imposed on Defendants as a result of

making affirmative statements and reports to the investing public, Defendants also had a duty to

disclose information required to update and/or correct their prior statements, misstatements,

and/or omissions, and to update any statements or omissions that had become false or misleading

as a result of intervening events. Further, Defendants had a duty to promptly disseminate

truthful information that would be material to investors in compliance with the integrated

disclosure provisions of the SEC, as embodied in SEC Regulation S-X (17 C.F.R. § 210.01 et

seq. ) and Regulation S-K (17 C.F.R. § 229.10 et seq. ), as well as other SEC regulations,

including accurate and truthful information with respect to the Company’s operations, so that the

market price of the Company’s common stock would be based on truthful, complete, and

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accurate information. Defendants Ersek and Scheirman had duties under the Sarbanes-Oxley

Act of 2002 to ensure that Western Union’s Forms 10-Q and 10-K filed with the SEC did not

misrepresent or omit any material facts.

185. Defendants had actual knowledge of the misrepresentations and omissions of

material facts set forth herein, or acted with reckless disregard for the truth in that they failed to

ascertain and to disclose such facts, even though they were responsible for monitoring such facts

and/or because such facts were readily available to them. Defendants’ material

misrepresentations and omissions were made knowingly or recklessly, and for the purpose and

effect of concealing the truth with respect to Western Union’s operations, business, performance,

and prospects from the investing public and supporting the artificially inflated price of its

common stock.

186. The dissemination of the materially false and misleading information and failure

to disclose material facts, as set forth above, artificially inflated the market price of Western

Union’s common stock during the Class Period. In ignorance of the fact that the market prices of

Western Union’s common stock were artificially inflated, and relying directly or indirectly on

the materially false and misleading statements made by Defendants, and on the integrity of the

market in which the Company’s common stock traded, or on the absence of material adverse

information that was known to or recklessly disregarded by Defendants but not disclosed in

public statements by Defendants during the Class Period, Lead Plaintiffs and the other members

of the Class purchased Western Union’s common stock during the Class Period at artificially

inflated prices. When the previously misrepresented and/or concealed material facts emerged,

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the price of Western Union’s common stock substantially declined, causing Lead Plaintiffs and

other Class members to suffer damages.

187. At the time of the material misrepresentations and omissions alleged herein, Lead

Plaintiffs and the other members of the Class were ignorant of their falsity, and believed them to

be true. Had Lead Plaintiffs and the other members of the Class known the truth with respect to

the business, operations, performance, and prospects of Western Union, which was

misrepresented and/or concealed by Defendants, Lead Plaintiffs and the other members of the

Class would not have purchased Western Union’s common stock, or if they had purchased such

stock, would not have done so at the artificially inflated prices that they paid.

188. By virtue of the foregoing, Defendants have violated Section 10(b) of the

Exchange Act, and Rule 10b-5 promulgated thereunder.

189. As a direct and proximate result of Defendants’ wrongful conduct, Lead Plaintiffs

and the other members of the Class suffered damages in connection with their Class-Period

purchases and/or acquisitions of the Company’s common stock.

COUNT II

For Violations of Section 20(a) of the Exchange Act Against the Individual Defendants

190. Lead Plaintiffs repeat and reallege each and every allegation contained above as if

fully set forth herein. This Claim is brought against the Individual Defendants pursuant to

Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), by Lead Plaintiffs on behalf of

themselves and all other members of the Class.

191. During the Class Period, each of the Individual Defendants was a senior executive

officer and/or director of Western Union and was privy to and monitored confidential and

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proprietary information concerning Western Union, and its business, operations, performance,

and future prospects, including its compliance with applicable federal, state, and local laws and

regulations.

192. Because of their high-level positions at Western Union, each of the Individual

Defendants had regular access to non-public information about the Company’s business,

operations, performance, and future prospects through access to internal corporate documents

and information, conversations, and connections with other corporate officers and employees,

attendance at management meetings and meetings of the Company’s Board of Directors and

committees thereof, as well as reports and other information provided in connection therewith.

193. Each of the Individual Defendants acted as and was a controlling person of

Western Union within the meaning of Section 20(a) of the Exchange Act, as alleged herein. By

virtue of their respective high-level positions, participation in the Company’s day-to-day

operations, and knowledge of the statements filed by the Company with the SEC and other

statements disseminated to the investing public, each of the Individual Defendants had the power

to influence and control, and did influence and control, directly or indirectly, the day-to-day

decision-making of the Company, including the content and dissemination of the various

statements Lead Plaintiffs allege were materially false and misleading and/or omitted material

facts. Each of the Individual Defendants was provided with, or had unlimited access to, copies

of the Company’s reports, press releases, public filings, and other statements alleged by Lead

Plaintiffs to have been misleading prior to and/or shortly after those statements were issued, and

each of the Individual Defendants had the ability to prevent the issuance of the statements or to

cause the statements to be corrected.

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194. In particular, each of the Individual Defendants had direct and supervisory

involvement in the day-to-day operations of the Company, and therefore had, or is presumed to

have had, the power to control or influence the particular transactions giving rise to the securities

violations as alleged herein, and exercised the same.

195. As set forth above, the Individual Defendants and Western Union violated

Section 10(b) and Rule 10b-5 by making or causing to be made the materially false and

misleading statements and omissions of material fact alleged herein. By virtue of each

Individual Defendant’s respective position as a controlling person, and each Individual

Defendant’s participation in the underlying violations of Section 10(b) and Rule 10b-5, each

Individual Defendant is also liable pursuant to Section 20(a) of the Exchange Act. As a direct

and proximate result of the Individual Defendants’ wrongful conduct, Lead Plaintiffs and the

other members of the Class suffered damages in connection with their purchases and/or

acquisitions of the Company’s stock during the Class Period.

XII. PRAYER FOR RELIEF

WHEREFORE , Lead Plaintiffs, on behalf of themselves and the other members of the

Class, pray for relief and judgment, including:

A. Determining this action to be a proper class action under Federal Rule of Civil

Procedure 23, certifying Lead Plaintiffs as Class representatives under Rule 23 of the Federal

Rules of Civil Procedure, and certifying Lead Counsel and Liaison Counsel as Class Counsel

pursuant to Rule 23(g) of the Federal Rules of Civil Procedure;

B. Awarding compensatory damages in favor of Lead Plaintiffs and the other Class

members against all Defendants, jointly and severally, for all damages sustained as a result of

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Defendants’ wrongdoing, in an amount to be determined at trial, including any applicable and

recoverable interest thereon;

C. Awarding Lead Plaintiffs and the other members of the Class the reasonable costs

and expenses incurred in this action, including reasonable counsel fees and expert fees; and

D. Awarding such other and further relief as may be just and proper.

JURY TRIAL DEMANDED

Lead Plaintiffs hereby demand a trial by jury on all triable claims.

Respectfully submitted,

/s/Johnston de F. Whitman, Jr. Johnston de F. Whitman, Jr. Michelle M. Newcomer KESSLER TOPAZ MELTZER & CHECK, LLP 280 King of Prussia Road Radnor, PA 19087 Telephone: (610) 667-7706 Facsimile: (610) 667-7056 Email: [email protected]

[email protected]

Stacey M. Kaplan Paul Breucop KESSLER TOPAZ MELTZER & CHECK, LLP One Sansome Street, Suite 1850 San Francisco, CA 94104 Telephone: (415) 400-3000 Facsimile: (415) 400-3001 Email: [email protected]

[email protected]

Lead Counsel for Lead Plaintiffs and The Putative Class

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Michael L. O’Donnell Joel S. Neckers Christine Lyman WHEELER TRIGG O’DONNELL LLP 370 Seventeenth Street, Suite 4500 Denver, Colorado 80202 Telephone: (303) 244-1800 Facsimile: (303) 244-1879 Email: [email protected]

[email protected] [email protected]

Liaison Counsel for Lead Plaintiffs and the Putative Class

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CERTIFICATE OF SERVICE

I hereby certify that on October 27, 2014, I electronically filed the foregoing

Consolidated Amended Class Action Complaint with the Clerk of the Court using the CM/ECF

system which will send notification of such filing to the following email addresses:

Naumon Amjed [email protected]

Darren Jon Check [email protected]

Rusty Evan Glenn [email protected]

David Franklin Graham [email protected], [email protected], [email protected]

Joseph Peter Guglielmo [email protected], [email protected] , [email protected]

Christopher J. Keller [email protected], [email protected], [email protected], [email protected]

Christine H. Lyman [email protected], [email protected]

Kevin Christopher McAdam [email protected] , [email protected], [email protected]

Christopher F. Moriarty [email protected] ,[email protected]

Danielle S. Myers [email protected],[email protected]

Joel S. Neckers [email protected] ,[email protected],[email protected]

Michael L. O'Donnell [email protected], [email protected], [email protected]

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Hille von Rosenvinge Sheppard [email protected] , [email protected], [email protected], [email protected] , [email protected], [email protected], [email protected], [email protected], [email protected]

Kip Brian Shuman [email protected] , [email protected]

Matthew J. Smith [email protected] , [email protected] , [email protected] , [email protected]

Holly Stein Sollod [email protected] , [email protected], [email protected]

Jeffrey Mark Villanueva [email protected], [email protected], [email protected]

/s/Johnston de F. Whitman, Jr. Johnston de F. Whitman, Jr.

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in the united states district court for the...

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