Fraud Allegations at AFLAC

Shares of AFLAC (AFL) are down sharply today after The Intercept ran an article detailing troubling practices by the company.

The insurance firm AFLAC Aflac has exploited workers, manipulated its accounting, and deceived shareholders and customers, according to nine former employees. This article is based on interviews with multiple current and former employees, as well as three previously unreported lawsuits.

The allegations contained in the lawsuits involve nearly every aspect of Aflac’s business and have already led to a series of investigations by state and federal regulators. But though Aflac’s top management and board of directors have known about the claims for over a year, they have not disclosed anything to shareholders in public filings with the Securities and Exchange Commission beyond generalities about unnamed pending lawsuits that they say they expect will not hurt the company’s bottom line.

I want to be careful how I word my response. The allegations, if true, are disappointing. However, nothing I’ve seen so far has me concerned for AFLAC’s future.

First, let me say that I’m hardly an independent observer. I’ve owned AFLAC’s stock for many years, and I’ve admired the company.

Also, The Intercept has a political bent to their reporting. I’m reading this with my eyes open.

But most of what I’ve read so far is what I’d call the unseemly byproduct of running a large and profitable enterprise.

For example, the sales jobs described and very tough and demanding. That’s not a surprise. Perhaps AFLAC makes the jobs seem better than they are, but that’s a long way from an Enron-type scam. It’s not difficult for them to revamp their recruitment process.

Any big company will have lawsuits brought against them. If you read what the lawyers have to say, without any explanation from the company, the picture can look quite ugly. That’s what lawyers do.

In the movie Raising Arizona, the police asked Nathan Arizona, Sr., if he had any disgruntled employees. He answered, “Hell, they’re all disgruntled. I ain’t running no damn daisy farm.”

Some of The Intercept’s language is stretched. For example:

Sharecroppers after the Civil War were famously charged endless fees and rent for farming equipment and use of the land, an arrangement that feels reminiscent for Aflac’s white-collar version.

Comparing selling supplemental life insurance to sharecropping? That’s just absurd.

Most of what’s alleged can be explained by saying that AFLAC plays to win in a tough business. The company has 10,000 full-time employees and they do more than $20 billion in annual revenue. If you talk to all the former employees, the most disaffected can surely share some ugly stories.

But AFLAC could not have grown so large by stomping on so many people. The reality is that sales jobs are not for everyone.

The Intercept says this is the first of a series. So far, I’m not exactly overwhelmed by the allegations. What’s important to me is seeing evidence of fraud or illegal behavior. I also want to see AFLAC get in front of this story.

Posted by on January 12th, 2018 at 10:09 am

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