(CN) - Shareholders claim in a class action that MetLife painted a rosy financial picture that inflated its stock price while it was being investigated by the New York Attorney General's office during a prope of insurance benefit disbursement practices.
Lead plaintiff City of Birmingham Retirement and Relief System says MetLife accesses the Social Security Administration's "Death Master File" (DMF) to verify whether its annuity policyholders have died in order to immediately stop making payments to them. It also uses the DMF to determine whether death benefits are due under the company's life insurance policies or the Retained Asset Account, though shareholders say it is utilized much less frequently for that purpose.
"Furthermore, the time would begin to run for escheatment of unclaimed property or benefit funds to relevant state authorities if beneficiaries either could not be located or did not submit a claim to MetLife within the statutorily-mandated period," the suit states.
On July 29, 2010 New York Attorney General Andrew Cuomo announced a major fraud investigation into the insurance industry's practice of using retained asset accounts as settlement options for death benefits, specifically calling out MetLife among the eight other carriers being subpoenaed.
Investigators, according to the complaint, demanded information from MetLife about its procedures.
"The purpose of this investigation was to determine whether life insurance companies like MetLife were doing enough to identify beneficiaries of life insurance policies once a policyholder died," the complaint states.
Shareholders claim MetLife kept them in the dark while the company was aware of the investigation.
"Despite this investigation, MetLife misled the general public regarding its financial results," the complaint states, adding that the company "disavowed this investigation and stated that it would not have a material impact on MetLife's financial results.
However, "a few short weeks after the NY-AG announced the subpoena and investigation, MetLife announced its financial results for the second quarter of 2011, and reported strong results," the complaint states
The report, according to the complaint, included a 13 percent growth of earnings per share over the previous year and a record $11.8 billion in premiums, fees and "other" revenues. Shareholders say the company's "selective" use of the DMF caused the allegedly misleading statements.
"As a result of MetLife's selective use of the DMF, MetLife issued materially false and misleading statements and material omissions of fact in the registration statement, prospectus and prospectus supplement related to the offering because: (1) the company irregularly used the DMF; (2) the company might be subject to liability for its irregular use of the DMF; (3) the company's finances would suffer as a result of its use of the DMF; (4) MetLife failed to reserve sufficient funds for payment to the beneficiaries of deceased policyholders when it knew or should have known that such policyholders were in fact deceased; and (5) MetLife stated that the NY-AG's July 29, 2010 investigation would not alter the company's financial statements and would not violate state or federal laws," the suit states. "Essentially, unbeknownst to investors, MetLife sold CEU's of MetLife without disclosing information of which the company knew or should have known."
On August 5, 2011, the Securities and Exchange Commissione released a report describing the subpoena and investigation. That day, stocks fell from $36.35 per share to $32.74 by Monday, August 8, representing a 10 percent dip. A follow-up report on the situation caused stock to fall further to $28.80 on October 7, according to the complaint.
Shareholders are represented by Greg Davis in Montgomery, Ala., David R. Scott in Colchester, Conn., Joseph Guglielmo in New York and Geoffrey Johnson of Scott & Scott in Cleveland Heights, Ohio.