Aflac stock tumbles more than $7 after online story’s allegations

Insurance company Aflac grappled Friday with the fallout of an online site’s story from the day before containing allegations against it, with the ripple effect sending the firm’s stock tumbling more than $7 per share out of the gate on the New York Stock Exchange.

The Thursday story on TheIntercept.com site prompted Columbus-based Aflac to respond with a statement on its own website.

The story itself quotes former sales people — including a Martin Conroy — now suing Aflac and alleging they were deceived during their recruitment about their compensation. It also alleges insider trading has occurred within the firm. Click here to read the story, which also was picked up by The Huffington Post.

Aflac saw its shares close at $91 in trading Thursday on the New York Stock Exchange. They dived $7.30, or more than 8 percent, after the opening bell on Friday morning to $83.70 apiece. The stock ultimately closed Friday down $6.75 per share at $84.94, a decline of nearly 7.4 percent

Aflac Chairman and Chief Executive Officer Dan Amos told the Ledger-Enquirer on Friday that the use of commission-based independent contractors, or sales agents, are the norm in the insurance industry, and have never been considered employees that receive guaranteed pay and benefits such as 401(k) contributions.

“An independent contractor or an agent can write a lot of business, or in another year they can write zero and still be licensed with us because they might be licensed with someone else as well,” he said. “So to act like independent contractors are our employees is just not true. You just can’t tie the two together. And no one else ties them together in the industry. That’s why we have a lot of agents that are writing business for us, but also writing business for other companies, or working part-time for us.”

Aflac issued this statement posted on its website:

“Recent media stories regarding Aflac contain false allegations made by a very small group of independent contractors. Aflac intends to aggressively fight these allegations beginning with filing for their dismissal. The unfounded articles allege claims including insider trading, fraudulent sales and financial manipulation. The Company has investigated these claims and found them to be without merit.

“Mr. Conroy and the individuals involved with these unfounded claims are not employees of Aflac and as such can be part-time and licensed to sell with other companies as well. Mr. Conroy has formerly served as an Aflac district sales coordinator and has realized financial benefits through his association with Aflac. It should also be noted that these allegations are coming from fewer than 10 individuals among up to 70,000 independent contractors and brokers licensed to sell Aflac products. The insider trading, fraudulent sales and financial manipulation claims alleged by the individuals have been investigated by the Company and an independent special committee of the Company's board of directors.

“Aflac has a long history of operating with transparency and integrity, having been named by Fortune Magazine as one of the Best Companies to Work For for 19 consecutive years and a World's Most Ethical Company by Ethisphere for 11 consecutive years.”

Friday’s turmoil not only spooked investors in Aflac stock, but also Wall Street analysts who follow the company’s financial performance. Catherine Seifert, an analyst with research firm CFRA, downgraded the insurer’s stock from “hold” to “sell,” while also chopping $7 off of her previous 12-month price target of $87 per share.

“We caution that there are few details available and we are waiting for AFL to return our phone call, but we think that if even a fraction of this suit has merit it could imperil AFL's plans to expand its U.S. distribution network,” Seifert wrote in a research note for investors.

Aflac Executive Vice President and General Counsel Audrey Boone Tillman, who joined Amos on a phone call with the Ledger-Enquirer, reiterated the company’s statement issued on its website, but also stressed there is no risk to the insurer’s operations.

“I can just tell you that when these allegations, or any allegations are raised about our operations, our way of doing business, our financial reporting, or anything, we take it seriously, we investigate exhaustively, and we’ve done that in this instance,” she said. “So we feel confident that the allegations are not founded, and that we don’t have any risk or any concern about our operations.”

Aflac, well known for its duck advertising campaign, typically acknowledges in its annual report filings with the U.S. Securities and Exchange Commission that it, like most firms, fields legal matters routinely.

“We are a defendant in various lawsuits considered to be in the normal course of business,” according to its 10K filing with the SEC in 2017. “Members of our senior legal and financial management teams review litigation on a quarterly and annual basis. The final results of any litigation cannot be predicted with certainty. Although some of this litigation is pending in states where large punitive damages, bearing little relation to the actual damages sustained by plaintiffs, have been awarded in recent years, we believe the outcome of pending litigation will not have a material adverse effect on our financial position, results of operations, or cash flows.”

This story was originally published January 12, 2018 at 4:23 PM with the headline "Aflac stock tumbles more than $7 after online story’s allegations."