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Miami Retirement Fund class action lawsuit accuses Globe Life officials of concealing fraud

After an investment research firm dropped a bombshell last month that sent shares of Globe Life Inc. plunging 53%, the insurance company denied allegations that officials had covered up fraud and sexual harassment.

But this week, the City of Miami's Employee Retirement Fund filed a class action lawsuit against Globe Life, alleging new allegations of deception that artificially inflated the value of Globe Life's stock for more than five years.

The lawsuit, which purports to represent thousands of Globe Life shareholders, argues that “the truth emerged” when Fuzzy Panda Research's report was released, alleging widespread fraud and a corporate culture that included harassment and even The insurer turns a blind eye to drug use. Fuzzy Panda, which said in its April 11 report that it engaged in short selling of Globe stock, accused a subsidiary of Globe Life of writing policies for deceased or fictitious people and adding policies to accounts without policyholders' consent.

The Miami pension fund invested in Globe Life stock from 2019 through last month and suffered significant losses after the report was announced, the lawsuit says.

In the lawsuit, filed in federal court in the Eastern District of Texas, plaintiffs' attorneys said their own investigation was based on government filings and Globe Life financial reports that were vouched for by senior company officials. 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 information shows that Globe Life officials did not mention any of the internal problems, the lawsuit says.

Globe Life Inc., formerly known as Torchmark Corp., is based in McKinney, Texas. It owns five subsidiaries:

  • Globe Life and Casualty Insurance Company.
  • American Income Life Insurance Company.
  • United American Insurance Company.
  • Liberty National Life Insurance Company.
  • Family Heritage Life Insurance Company of America.

“Because of their positions and their access to the material non-public information available to them, each of the individual defendants knew that the adverse facts set forth herein had not been communicated to and were concealed from the public and that the positive representations made… “The ones made Information was then materially false and/or misleading,” the complaint states.

The insurance giant has not yet filed a response to the complaint and Globe Life media and investor relations representatives could not be reached for comment Thursday. After the Fuzzy Panda report was released last month, Globe Life released a statement: “Fuzzy Panda Research's short seller analysis misrepresents facts and uses unsubstantiated claims and assumptions to paint an overall picture of Globe Life that is intentionally false.”

According to news service Reuters and Yahoo! This has helped Globe Life shares regain some of their value. Finance. But the stock price had already fallen, from $105 per share to under $50. Late Thursday, the stock was trading at about $79 per share.

The episode may provide some valuable lessons for directors of other listed insurance companies, including property and casualty insurers. The class action lawsuit argues that statutory safe harbor provisions designed to protect companies' stock prices from misstatements by officials do not apply to the “alleged misstatements” described in the lawsuit.

“Many of the specific statements described herein were not considered 'forward-looking' at the time they were made. To the extent that there were forward-looking statements, there was no meaningful cautionary language identifying important factors that could cause actual results to differ materially from those in the purported forward-looking statements,” the complaint states.

Current and former Globe Life executives are named in the lawsuit. Frank Svoboda has been Co-CEO of the company since January 2023. The lawsuit does not mention any specific claims for damages.

If the lawsuit is true, it will also shed light on how Globe Life's insurance agents will be compensated. Brokers' compensation depends on the number of life insurance policies they sell. But sometime in the last few years, the company changed things: Instead of paying bonuses at the end of each year, Globe Life began frontloading sales commission bonuses, “which meant agents received their bonus for a new policy in their next paycheck.” .”

At the same time, Globe Life implemented a clawback policy that required an agent to repay any bonus received on a policy that was canceled within a certain number of months, the complaint says.

The complaint can be viewed here.

Photo: Globe Life Field in Arlington, Texas, home of the Texas Rangers Major League Baseball team.

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