SEC Is Said to Review Allegations That Aflac Misled Investors

Aflac's headquarters in Columbus, Georgia. (Photo: Chris Rank/BB)

The U.S. Securities and Exchange Commission is reviewing whistle-blowers' allegations that Aflac Inc. may have misled investors in reporting its financial results, according to two people familiar with the matter.

The complaint filed with the SEC on behalf of former workers accuses the Columbus, Georgia-based insurer of inflating a measurement of how many associates were making sales and suggests the firm possibly manipulated earnings by shifting the timing of when it booked revenue, according to one of the people and the document, which was reviewed by Bloomberg News.

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"These allegations were made public several months ago, and have been thoroughly investigated by external independent counsel, which found them to be without merit and immaterial," Teresa L. White, the president of Aflac U.S., said in a statement to Bloomberg News. "We have been transparent on this matter, posting detailed independent reports on our website and providing these reports to the SEC and other regulators. To date we have received no requests for information from the SEC pertaining to its review of these matters."

It couldn't be determined whether the SEC has drawn any conclusions about the whistle-blowers' allegations and the regulator hasn't accused Aflac of any wrongdoing. Judith Burns, an SEC spokeswoman, declined to comment.

Income Smoothing

The whistle-blowers' claims include an assertion that the company may have improperly shifted sales between reporting periods to meet earnings projections, a practice known as income smoothing. Three of the former Aflac workers who made the allegations to the SEC are also plaintiffs in litigation against current and former board members, as well as the company's chairman and chief executive officer. Attorneys working for Aflac have asked a court to throw out that case.

While the assertions against Aflac were previously made public in court documents and news articles, the SEC's decision to look into them hasn't previously been reported. The agency's inquiries can end without cases being filed, but when wrongdoing is found, companies and employees can face fines and other penalties. Whistle-blowers are eligible to receive significant monetary rewards if the SEC credits them for helping it bring an enforcement action.

In addition to suggesting that Aflac may have engaged in income smoothing, the former workers, represented by attorney Dimitry Joffe, also alleged that the company inflated a performance metric in regulatory filings. The complaint to the SEC also accuses Aflac of improperly converting individual accounts into group policies.

Outside lawyers from Jones Day, who were hired by a special litigation committee formed by Aflac's board, have found the earnings manipulation claims to be "factually inaccurate." The Jones Day attorneys were retained to look into the allegations of wrongdoing, which have also been raised to Aflac's directors and are the subject of an ongoing lawsuit.

'No Evidence'

A February report released by the board's special committee said Jones Day found "no evidence to support the allegations that several of these practices occurred." When the probe showed that an alleged practice had occurred, there was "no evidence of any systemic wrongdoing" and the issues were already being fixed, the report added. The special committee decided it was not in the best interests of the company to pursue the claims.

The claims that the company may be improperly booking revenues "are simply incorrect," the report said. "As plaintiffs' concede, they do not understand how the company recognizes revenue."

In January after The Intercept reported on the claims, the company issued a statement saying that recent media coverage contained "false allegations made by a very small group of independent contractors."

The issues haven't spooked investors. Aflac shares reached a record high of $45.99 on April 27 and remain near those levels. Last month, S&P Global Ratings boosted its outlook for the insurer to positive from stable, citing optimism for Japan, which is the source of most of the company's revenue.

—With assistance from Katherine Chiglinsky.

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