Shares of Globe Life, one of Texas’ largest insurance providers, dropped more than 50%, following a short position taken by Fuzzy Panda Research that alleged potential fraud at the company. Globe Life denied the allegations, and the stock recovered some of its losses Friday morning.
Globe Life stock traded at $96 per share on Thursday morning. It fell sharply to $41 by the late afternoon. It was hovering around $49 per share early Friday morning, down 53% over the course of a day. And the stock was back to about $57 by mid-morning, up 15% on the day but still down down 40% over the course of about 24 hours.
The stock collapse initially wiped out $5 billion in market cap, The Wall Street Journal reports.
Reuters reports that the-short seller uncovered “extensive allegations of insurance fraud ignored by management despite being obvious and reported hundreds of times.” That includes policies written for dead and fictitious people.
Short-seller Fuzzy Panda’s report alleged that third-party policy sellers known to have committed insurance fraud contributed more 60% of new business at Globe Life’s American Income Life unit. That accounted for almost half of Globe Life’s total underwriting margins, Reuters reports. Fuzzy Panda’s allegations have not been independently verified.
Globe Life denied the allegations in a statement.
“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 company said.
Globe Life said the short-seller’s report was motivated by short-term profit gained on the backs of thousands of shareholders and customers.
Short-sellers are traders who bet that stocks will fall by borrowing shares and selling them high with the belief that they can be repurchased later at a lower cost.