Globe Life Inc. shares had one of their biggest drops on record on Thursday after a report published by a short seller alleged that the life insurer and its subsidiary American Income Life Insurance Company extensively engaged in fraudulent practices.
The Texas-based life insurer's stock plummeted over 50% in light of the claims by Fuzzy Panda Research. The report alleges Globe Life management knew about but ignored practices such as writing policies for deceased people and using fictitious bank accounts to finance fake policies, among other things. The report also alleges Global Life executives received "illegal kickbacks" and called on management to "rectify past bad underwriting by reporting it to insurance regulators."
Globe Life issued a statement April 11 calling the report "wildly misleading," adding that it mixes "anonymous allegations with recycled points pushed by plaintiff law firms to coerce Globe Life into settlements."
"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, misleading and defamatory," Globe Life said. "Globe Life intends to explore all means of legal recourse against the parties responsible."
When asked for comment, a spokesperson for Globe Life referenced the statement it has already released refuting the short seller's claims and said the company would be "commenting further later today or first thing Monday morning."
US Justice Department probe
American Income Life Insurance Co. (AIL) and other related parties were also the target of a 2022 lawsuit filed by a former sales agent who alleged that she was subject to a hostile work environment and sexual harassment.
Globe Life said in a March regulatory filing that the claimant dismissed all claims before a scheduled arbitration that was supposed to happen March 4. However, the regulatory filing also confirmed that it had received subpoenas from the US Attorney's Office for the Western District of Pennsylvania amid the dismissal and following news reports that included allegations of unethical business practices.
In a note, Morgan Stanley analyst Bob Jian Huang said the investor concerns on the share price decline could be a "headwind" for Globe Life's shares this year and could drag into 2025.
"That said we would focus more on the outcome of the [Justice Department] probe as the key barometer of the current situation," Huang said.
AIL is a substantial part of Globe Life's business, Huang said, adding that he is reviewing the company's rating and price target and a "wide range" of possible outcomes were possible.
Piper Sandler analyst John Barnidge said in a note that Globe Life's statement refuting allegations of fraud "serves to assuage concerns but does not completely remove the vacuum that remains absent a broader communication about this matter with the investment community."
Barnidge said he would maintain an "overweight" rating for now since he expects improvement in underwriting margin and a "compelling valuation multiple."
Globe Life shares had rebounded somewhat on Friday, bouncing back around 18% as of midafternoon.