Globe Life fends off shareholder lawsuits alleging the company misled investors
A Texas judge consolidated two of multiple lawsuits Friday alleging that Globe Life misled investors.
In November, Jui Cheng Hsiao and Gautam Jadhav filed separate shareholder derivative lawsuits against the executives and directors of Globe Life Inc. in the U.S. District Court for the Eastern District of Texas.
A shareholder derivative suit is a lawsuit filed by a shareholder on behalf of a corporation against a third party who has harmed the company. The consolidated lawsuit names 19 current or former Globe Life executives and directors.
It references blockbuster 2024 allegations contained in several short-seller reports.
At least three short-sellers and other research firms have issued reports accusing brokers at subsidiary American Income Life of widespread sexual harassment and insurance fraud, including writing policies for dead and fictitious people, and an alleged kickback scheme that netted millions for senior executives.
“For at least four years, the Company consistently reported artificially inflated profitability metrics for Globe Life, and particularly its [American Income Life] subsidiary,” the Jadhav lawsuit states. “These metrics were inflated because, over that period, [American Income Life] was engaging in widespread insurance and recruiting fraud. Instead of disclosing these issues, the Individual Defendants attributed the Company’s financial success to increased agent count, policy persistency, and high sales.”
Despite the swirling controversies – Globe Life also faced or is facing various inquiries from the Equal Employment Opportunity Commission, the Securities and Exchange Commission, and the Department of Labor, along with various civil lawsuits – the insurer continues posting strong quarterly earnings.
Another shareholder lawsuit
Plaintiffs are asking for damages for shareholders and Globe Life, as well as a series of reforms to strengthen financial reporting, disclosures and oversight of the insurer’s day-to-day operations.
A similar, but separate, non-derivative lawsuit, was filed in April by the City of Miami General Employees’ & Sanitation Employees’ Retirement Trust. The trust filed its complaint as a class action on behalf of anyone who acquired shares of Globe Life common stock between May 8, 2019, and April 10, 2024.
Globe Life was initially rocked by an April 11 report by short-seller Fuzzy Panda. The report said Fuzzy Panda Research had uncovered “extensive allegations of insurance fraud ignored by management despite being obvious and reported hundreds of times”, including policies written for dead and fictitious people.
Globe Life denied the allegations and claimed that analysis by Fuzzy Panda “mischaracterizes facts and uses unsubstantiated claims and conjecture to present an overall picture of Globe Life that is deliberately false.”
As a result of the report, the price of Globe Life common stock declined $55.76, or 53%, from a closing price of $104.93 per share on April 10, 2024, to a closing price of $49.17 per share on April 11, 2024.
Globe Life “represented that its employees adhered to a Code of Conduct that expressly prohibited various forms of misconduct, and which required that all Globe Life employees comply with relevant laws and regulations, purportedly ensuring that the Company would maintain a workplace free from violence, threatening behavior, and illegal drugs,” the City of Miami lawsuit says. “As a result of Defendants’ misrepresentations, shares of Globe Life common stock traded at artificially inflated prices throughout the Class Period.”
District Judge Amos L. Mazzant is overseeing all of the cases against Globe Life, which is headquartered in McKinney, Texas.
‘None of that happened’
In a motion to dismiss filed last month, Globe Life attorneys say the plaintiffs’ case is nothing more than a rehash of allegations made by a conflicted short-seller.
“Plaintiffs essentially cut and paste large sections of an online ‘report’ by Fuzzy Panda to support implausible allegations that Globe Life, a regularly audited and scrutinized public company, engaged in massive insurance fraud over a five-year period and knowingly fostered a deplorable business culture that condoned sexual harassment, drug use, and a host of other unethical practices by independent insurance agents,” the motion reads.
If Globe Life were selling substantial numbers of fraudulent life policies, it would be reflected in higher lapse rates, marked increases in allowances for credit losses, and large write-offs, the motion notes.
“None of this happened,” the motion reads. “Globe Life’s publicly-reported lapse rates held steady and its audited financial statements did not reflect increasing allowances for credit losses or large write-offs.”
Mazzant has not ruled on the motion to dismiss.
Securities lawsuits alleging misstatements or omissions of sexual misconduct have had mixed success in federal courts. Signet settled one such lawsuit for $240 million in 2020. But other cases against Papa Johns and Teladoc, to name two, have been dismissed.
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