Finances
Miami Retirement Fund Class Action Alleges Globe Life Officers Concealed Fraud
After an investment research firm dropped a bombshell last month and sent shares of Globe Life Inc. plunging by 53%, the insurance company denied the allegations that officers had concealed fraud and sexual harassment issues.
But this week, the City of Miami’s employees’ retirement trust filed a class-action lawsuit against Globe Life, claiming new charges of deceit that had artificially inflated the value of Globe Life’s stock for more than five years.
The lawsuit, purporting to represent thousands of shareholders in Globe Life, argues that “the truth emerged” when the Fuzzy Panda Research report was published, alleging widespread fraud and a company culture that looked the other way on harassment and even drug use at the insurer. Fuzzy Panda, which advised in its April 11 report that it was short-selling Globe stock, charged that a Globe Life subsidiary had written policies for dead or fictitious people and had added policies to accounts without policyholder consent.
The Miami retirement fund had invested in Globe Life stock, during the years from 2019 through last month, and suffered significant losses after the news of the report broke, the suit said.
In the complaint, filed in federal court in the Eastern District of Texas, the plaintiffs’ attorneys said that their own investigation was based on regulatory filings and financial statements by Globe Life that top company officials had vouched for as accurate. The plaintiffs’ counsel also examined press releases and news reports about the company, which owns five subsidiaries that sell life, accident and Medicare supplement products.
All of the information shows that Globe Life officers did not mention any of the internal issues, the lawsuit contends.
“Because of their positions and access to material non-public information available to them, each of the Individual Defendants knew that the adverse facts specified herein had not been disclosed to, and were being concealed from, the public, and that the positive representations which were being made were then materially false and/or misleading,” the complaint claims.
The insurance giant has yet to file an answer to the complaint and Globe Life media and investor relations representatives could not be reached for comment Thursday. After the Fuzzy Panda report hit the wires last month, Globe Life issued a statement: “The short seller analysis by Fuzzy Panda Research mischaracterizes facts and uses unsubstantiated claims and conjecture to present an overall picture of Globe Life that is deliberately false.”
That helped Globe Life stock recover some of its value, according to Reuters news service and Yahoo! Finance. But the stock price had already plunged, from $105 a share to under $50. By late Thursday, the stock was trading at about $79 a share.
The episode potentially provides some valuable lessons for directors of other publicly traded insurance companies, including property-casualty insurers. The class-action suit argues that statutory safe-harbor provisions, designed to protect companies’ stock prices from misstatements by officers, do not apply to the “allegedly false statements” described in the complaint.
“Many of the specific statements described herein were not identified as ‘forward-looking’ when made. To the extent that there were any forward-looking statements, there was no meaningful cautionary language identifying important factors that could cause actual results to differ materially from those in the purportedly forward-looking statements,” the complaint contends.
The suit names current and former officers of Globe Life. Frank Svoboda has been co-CEO of the company since January 2023. The suit does not specify damages sought.
The lawsuit, if accurate, also gives some insight into how Globe Life insurance agents are compensated. Agents are paid based on the number of life insurance policies they sell. But at some point in the last few years, the company changed things: Instead of paying bonuses at the end of each year, Globe Life began front-loading sales commission bonuses, “which meant that agents would receive their bonus for a new policy in their very next paycheck.”
At the same time, Globe Life instituted a claw-back policy, under which an agent would have to pay back any bonus received on a policy that was cancelled within a certain number of months, the complaint reads.
The complaint can be seen here.
Photo: Globe Life Field in Arlington, Texas, home of the Texas Rangers Major League Baseball team.
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