Globe Life in spotlight again as another short seller bets against insurer

Shares of Globe Life (GL) are in the spotlight yet again this month after Viceroy Research revealed a short position against the insurer. In a newly published report, the short seller said it had accessed thousands of Globe Life agency training and marketing materials, “concluding that fraudulent, dishonest, and misleading sales tactics” are core to subsidiary American Income Life’s operations.

This follows a short report published by Fuzzy Panda Research earlier this month on Globe Life, saying that it had uncovered “extensive” allegations of insurance fraud ignored by management despite being “obvious and reported hundreds of times.”

FRAUDULENT SALES TACTICS: Viceroy Research says it is short Globe Life following “an extensive investigation of the company and its subsidiary American Income Life.” On the heels of what the short seller called its “longest investigation by far,” Viceroy claims that “There are an extremely high number of allegations of fraud by AIL and its agents, many of which are disclosed within other cases of unfair dismissal or sexual harassment/assault. Viceroy have pulled dozens of detailed statements from plaintiffs, defendant, and witness statements to paint a fuller picture of the pervasive nature of fraud at AIL… Viceroy has accessed thousands of Globe Life agency training and marketing materials, concluding that fraudulent, dishonest, and misleading sales tactics are core to AIL’s operations.”

Further, the report reads that, “Viceroy’s financial analysis will show how AIL’s modus operandi affects its churn, structural cash flow issues, the increasing risk of employee misclassification, and the existence of offshore captive reinsurers that appear to be providing Globe Life liquidity against impaired assets.”

Given “the number and seriousness of the issues at Globe Life, and the ongoing investigations and their financial situation,” the short seller does not believe a target price can be assigned at this time. Viceroy also adds that, “We tip our hat to Fuzzy Panda, who produced a solid report outlining the extent of fraud at Globe Life.”

EXTENSIVE ALLEGATIONS OF INSURANCE FRAUD: Earlier this month, Fuzzy Panda Research said in a short report that it had uncovered “extensive” allegations of insurance fraud ignored by management despite being “obvious and reported hundreds of times.” The firm said it reviewed hundreds of pages of court documents and interviewed dozens of former executives and agents and uncovered a whistleblower from the executive ranks “who showed us where the fraud was hidden,” adding that “We even went undercover to go through the recruiting process more than 10 times.” Fuzzy Panda further stated that the fraudulent policies were not a one-off, and that it uncovered insurance fraud at many of AILs largest agencies and by AIL’s top producers. The firm believes Globe Life and AIL executives were involved in a bribery and kickback scheme that a lawsuit estimates netted them more than $65M.

Responding to Fuzzy Panda allegations, Globe Life said that, “We are disappointed today to see self-motivated short sellers push inflammatory allegations in order to drive down Globe Life’s stock price. We reviewed the report and found it to be wildly misleading, mixing anonymous allegations with recycled points pushed by plaintiff law firms to coerce Globe Life into settlements. The motivations behind this short seller’s report are driven solely by short-term profit earned on the backs of the thousands of shareholders, hardworking employees, independent contractor sales agents and customers who know and trust our brand and strong track record. We have successfully defended ourselves against these types of claims.

“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 intends to explore all means of legal recourse against the parties responsible… American Income Life has processes in place to review, investigate and address all allegations brought to the company’s attention concerning unethical business practices, sexual harassment and inappropriate conduct and we do not tolerate such behavior. We intend to more fully rebut these allegations in the near future.”

Lowering the stock’s price target to $75 from $125 on In Line-rated Globe Life, Evercore ISI called it a “scathing” short selling report on Globe Life. The firm says that with the recent disclosure that the Department of Justice has issued a subpoena to the company to investigate some of the allegations, there is “significant uncertainty for the shares.”

Meanwhile, Keefe Bruyette upgraded Globe Life to Outperform from Market Perform with a price target of $110, down from $130. The stock is down 40% over the past six weeks from a Department of Justice subpoena over agent sales practices and a short report alleging wider spread fraud. The firm acknowledges ongoing risk from these accusations, but feels better following Globe Life’s response on the Q2 earnings call that included a willingness to accelerate and possibly increase buybacks. Keefe estimates the company’s run-off value at $80 per share in a distressed run-off scenario that it assigns a 35% weighting for valuation purposes. It sees “meaningful value” at current share levels despite the risks.
Globe Life had not responded to The Fly’s request for comment at time of publication.

PRICE ACTION: In Tuesday trading, shares of Globe Life are fractionally up at $78.25.