On Thursday, January 11, shares of Aflac stock hit a 52-week high of $91.69. That capped an increase of 29.6 percent over the past year, tracking the market’s strong run in 2017. During that time, Aflac management and its board were aware of serious allegations leveled against the company by former workers. None of the allegations were fully disclosed in federal filings to the investors pouring money into the company.

Most pertinent to investors, the workers alleged that Aflac managers in the field have for years manipulated several key operational metrics, the very financial information that investors look at to make trading decisions. They also claimed that Aflac state coordinators have in the past massaged earnings numbers by moving weeks into or out of particular quarters, in what they called “cookie jar accounting.”

These claims form the basis of a derivative shareholder suit, filed by the workers who hold Aflac shares. If true, these actions could represent material misrepresentations to investors, on top of the failure to disclose the allegations — and Aflac’s internal investigations into those matters — over the past year.

The securities-related allegations all appeared in a Dispute Notice the former associates sent to Aflac’s CEO Dan Amos, then-President Paul Amos II, and General Counsel Audrey Boone Tillman, on December 10, 2016. But Amos II had been warned about manipulation of at least one operational metric as far back as 2010, according to evidence reviewed by The Intercept.

Elements of the securities allegations are referenced in three federal lawsuits and in information provided to federal regulators at the Securities and Exchange Commission as part of a whistleblower case, as well as a state investigation by New York’s Department of Financial Services. The Intercept has interviewed numerous current and former sales associates, as well as district and regional managers not involved in the lawsuit, who backed up the allegations. They preferred not to be named because of their continued relationship with the company.

Aflac responded to detailed questions from The Intercept by sending a September 2017 board of directors report that it believes clears the company and its top management of any wrongdoing. The results of the board report are discussed below.

Aflac has generally dismissed the workers’ charges as “false allegations.” In an internal email, obtained by The Intercept, Aflac pledged to aggressively fight the allegations, beginning with a motion to dismiss the shareholder lawsuit.

An internal email from Aflac management to workers, responding to an investigation published in The Intercept.

While Aflac has as many as 75,000 associates in its sales force, only about 10,000 or so write business in a given week. Aflac tracked this latter statistic with a metric known as “average weekly producers,” or AWP. Aflac sales managers use the metric to monitor progress and overall performance: The more producers in the field consistently selling Aflac insurance, the more future sales can be expected. AWP has also been referenced in Aflac’s financial reporting as far back as 2003, suggesting some value to the data for investors.

But the AWP metric can be gamed, the securities lawsuit claims. The decision to assign credit for new sales lies with regional and district managers, who can spread that around to sales associates to increase average weekly producers. “Say I have an account and sell it,” said one former district and regional sales coordinator not in the lawsuit, who requested anonymity because of his ongoing sales associate relationship with Aflac. “I can bring a new agent with me and say, ‘Make some packets and I’ll hook you up.’ I’ll give the agent 100 percent of the production credit and 10 percent of the commission. It shows growth in a new agent.”

The assignment of production is done through the use of “situation codes” or “sit codes,” in which a regional coordinator can dole out business to any sales representative. “Depending on the account and how rich they feel the business is, you could have six people getting paid, or 10 people including the state coordinator’s wife,” said a sales associate with 10 years of experience with Aflac. Spreading the business around can help managers hit quotas that affect their bonuses, according to numerous employees.

Martin Conroy, a whistleblower and lead plaintiff in the action, forwarded to The Intercept a report he had delivered to Aflac’s internal affairs department, Aflac Trust, showing an associate who never produced any business since being contracted in 2015 suddenly writing over $13,000 in production in the final quarter of 2017. This individual, whose name is being withheld, was a full-time public school teacher at the time and was unlikely to have written the business, Conroy contends. However, she was the sister of an Aflac district sales coordinator. “My suspicion is that production was placed in [the associate’s] name to manipulate Aflac’s bonus structure,” Conroy wrote in an email to Aflac Trust requesting an investigation.

This strategy was taken to its extreme in some cases. In a November 18, 2014 email thread referenced in the Dispute Notice and reviewed by The Intercept, Benito Rotondi, a state training coordinator for Aflac in New York, issued to state and regional coordinators a “zero producer” report, denoting those sales associates who sold nothing within the reporting period. “Your help is greatly appreciated in getting at least $1 of production to those who have zero next to there [sic] names that are still active with us,” Rotondi wrote. One recipient of that email, Rick Peterson, forwarded Rotondi’s list to his district sales coordinators, the next level down in the hierarchy. “Just another reminder below is a list of our regions “0” production producers. We need to get at least $1 in production in there [sic] name… The State really need [sic] this to happen and I gave my word we would all do are [sic] part.”

What that means is that shifting just $1 of production would be enough to count a sales associate in the “average weekly producer” metric. A review of Aflac’s compensation and bonus structure for district and regional coordinators suggests incentives to spread production to sales associates. The bonuses, which make up a significant portion of compensation, rely in part on new associates hitting certain production numbers. Inflating the AWP metric, in other words, increased the compensation of district and regional sales managers. Aflac then used these numbers in investor presentations and financial reporting to show overall growth.

Conroy also shared a November 2014 text message between him and Ken Meier, vice president for the northeast territory at Aflac. “Just to confirm, u need new agents contracted within the last 52 weeks to produce for your number?” Conroy asks Meier. “Correct, thanks!” Meier replied. In an email from that same week, Meier encouraged his subordinates: “Let’s not forget about … getting 70 one dollar producers.”

Back in April 2010, Conroy wrote directly to then-president of Aflac Paul Amos II about compensation issues. He recommended having district sales coordinator bonuses based on the total sales they bring in, rather than other operational metrics like AWP. “Average Weekly Producers is, with all due respect, a ‘bull pucky’ number,” Conroy wrote to the president. “There are too many ways to manipulate the figure.” Amos II didn’t agree. “I really like the [district sales coordinator] bonus and I think it aligns,” he wrote back.

This evidence was presented to Aflac in the December 2016 Dispute Notice, and Aflac “unequivocally” denied the manipulation of the metric, among other allegations, as “wholly without merit” in a January 2017 response. However, nine months later, attorneys with Jones Day investigating the allegations on behalf of Aflac’s board of directors admitted that Aflac did not have a copy of the email exchange between Conroy and Amos II; plaintiffs’ co-counsel Dimitry Joffe had to provide it to them, as the board report notes. So notwithstanding Aflac’s claim that it investigated the workers’ allegations, it took the company nine months to gather one of the key pieces of evidence. (The Jones Day attorneys did not respond to a request for comment.)

Four months after it was completed, Aflac released the results of the board’s investigation on Tuesday, following The Intercept’s initial reporting on the allegations. The report found the evidence about manipulation of AWP to “lack merit.” It argued that Conroy’s 2010 email to Amos II only mentioned AWP in passing, without detail of any manipulation. Amos II had “no recollection” of the email exchange. This exchange is featured in the Dispute Notice.

The report minimizes the importance of AWP, claiming that it is not an official accounting figure and is merely “one means to track sales activity.” The report continues, “Any reference to AWP in the Company’s SEC filings is limited to a sentence or two” and “discussed on less than 10 percent of analyst calls.” One could say the same thing about Wells Fargo’s “cross-selling” metric, yet the manipulation of that metric triggered a large scandal.

The report denies that Aflac managers inflated the AWP metric in a robust way, even while admitting the existence of some bogus numbers. Aflac looked at the third quarter of 2016, finding 97 instances of producers (out of 112,815 throughout the quarter) with $1 of credit or less that counted as “average weekly producers.” Calling this a “nominal percentage” of manipulation, the report dismisses it as immaterial.

Martin Conroy responded to the claims in the report by noting that it’s impossible for an Aflac sales associate to earn $1 of production in a week. The lowest-priced Aflac policy costs $160 per year, and no less than 10 percent of production could be assigned to any single associate. So the existence of producers with $1 credit or less in the AWP metric, however “immaterial,” suggests a disconnect at the policy sales level.

It’s unclear whether Aflac checked any other quarters for the $1 production trick, such as the fourth quarter of 2014, where the Dispute Notice details Aflac managers in the New York-New Jersey region asking to put $1 of production in associates’ names. Aflac spokesperson Jon Sullivan said in an email, “We believe [the report] stands for itself.”

While investigating the claims, the attorneys compiling the report spoke to Doug Johnson, chair of the board’s Audit Committee. “[I]n his view, analysts are more concerned about other metrics, such as the New Annualized Premium metric,” the report notes. Yet former sales representatives allege in the lawsuit that that metric has also been gamed, through the conversion of older individual policies into group policies. This can end up costing the company hundreds of thousands of dollars in lost premiums; however, it does on paper create “new business” that can be shown in investor reporting.

“For investors, it’s new business,” said Louis Varela, a former Aflac sales associate and one of the plaintiffs in the cases against the company. “But it means that old business is lost. It’s about posting decent numbers for the next quarter.”

Gerard McCarthy, another plaintiff, has one such example, detailed in the Dispute Notice. A former police department director in Jersey City, New Jersey, McCarthy joined Aflac as a sales associate in 2001, eventually rising to become a regional sales coordinator. Among the $25 million in business he wrote for the company was Univision Communications, the Spanish-language media conglomerate, a $600,000 account.

In June 2015, McCarthy claims that the Broker Division of Aflac told him that it was helping a broker move Univision onto Aflac’s group policies. With individual policies, Aflac sells directly to the employees, who pay through a deduction from their payrolls. With group policies, Aflac sells to the employer, who then offers the options to its employees.

McCarthy was promised a 30 percent commission on the conversion, as a concession to his years of work servicing the account. But the broker proceeded to tell Univision employees that they could not keep their existing individual policies and had to transfer into the group policies. All payroll deductions would be discontinued. McCarthy says he was told by Aflac not to correspond with any Univision policyholders or disrupt the group policy enrollment.

In the end, the cheaper group policies came out to $100,000 in business, a loss of half a million dollars for Aflac. McCarthy ended up receiving no split of commissions at all, he alleges. In a letter to Aflac CEO Dan Amos, McCarthy complained: “I really don’t know if this is what you would consider good business? I would be sure that our stockholders, of which I am one, would not approve?” But a conversion of this type would show up in Aflac’s reporting as a $100,000 “new annualized premium sale,” according to the plaintiffs and current employees interviewed by The Intercept.

Martin Conroy also alleges that his accounts were cannibalized for a less-lucrative group conversion. His $80,000 account for Medical Diagnostics Laboratories, or MDL, got converted into “Aflac Group Texas” policies in 2010. Conroy claims he was even told to write the account as if MDL domiciled in Texas, even though the company headquarters were in New Jersey. In the end, the conversion led to $40,000 in group policies, half of what was in the original $80,000 account. This would also be reported as a new sale, according to Conroy.

The group conversions began in 2009 after Aflac purchased Continental American, which sold these types of policies. Entry-level sales associates do not sell the group policies, only brokers. And the conversions cancel the promise of lifetime income for those associates, since the commissions on the group policies typically go entirely to the brokers. This has the effect of pitting Aflac sales personnel against each other for business.

While this can hurt sales associate commissions and the overall business, it gives Aflac a way to boost its operational metrics to investors. “I am very pleased with our fourth quarter new annualized premium sales, which hit an all-time record,” said Amos in remarking on $496 million in new premiums in the fourth quarter of 2015. The new annualized premium sales number is used to set expectations for Aflac’s overall growth rate.

Aflac’s board report does not respond to these allegations about new annualized premium sales in its report, and Aflac did not respond to questions from The Intercept about them.

The former Aflac sales representatives also allege that Aflac would leave open quarterly earnings periods beyond the calendar date, allowing the company to continue to book premium sales in that period. Plaintiffs provided The Intercept with a September 2016 email from Ken Meier, titled “Holding Open Week 39,” stating that “we will hold open production week 39 until all guaranteed business has been processed.” The week was held open until at least October 2, according to the email.

In a related case, Aflac moved the week of December 29, 2014, into the 2015 period, making it “Week 0” and giving 53 weeks in 2015. “Let’s take advantage of this zero week and get 2015 off to a fast start,” Ken Meier wrote in an email. “Week one 2015 does not close until next Friday [January] 9th, so we can either take this week off or start 2015 one step ahead.” Aflac’s 2015 annual report does not disclose that the company made 2015 a 53-week year, nor does its 2015 10-K. Aflac did not respond to questions about the earnings numbers. The board report, however, claims that “the sales team works on a different cycle, which does not always follow the calendar year.” It states that the extension in 2015, for example, reflected sales data but not the company’s numbers for revenue reporting.

“Investor protections are founded on honest and transparent accounting,” said Andy Green, managing director of economic policy at the Center for American Progress and a former counsel at the Securities and Exchange Commission. “We’ve seen how that can go sorely wrong with end of the quarter manipulations of sales and other practices that are all too common. That’s why it’s essential to have strong regulations and strong private investor enforcement, which is more important than ever.”

The board of directors was made aware of the allegations on March 8, 2017, when plaintiffs sent letters to every independent board member, including the initial Dispute Notice and evidence of whistleblower submissions filed with the SEC, IRS, and the Occupational Safety and Health Administration. Johnson, the board’s audit committee chair, replied on March 20 that “the Board had previously been advised of the allegations raised in your December letter and on the company’s due diligence efforts.”

The former Aflac workers argue that the very fact that none of their allegations have ever appeared in a financial statement or disclosure, despite awareness from top management, constitutes a material misrepresentation to investors and regulators. The CEO, president, and general counsel received the allegations on December 10, 2016 and did not disclose them in any financial reporting. Indeed, it took Aflac four months to release the September 2017 board of directors’ report discussing some of the claims, despite the company issuing financial statements to the SEC after the report’s completion.

On March 17, the board published its proxy statement for the annual shareholder meeting, in which no information about the plaintiffs’ claims appeared, despite Johnson admitting that the board was aware of them. The Audit and Risk Committee report, intended to include information that may pose a risk to Aflac’s bottom line, also has nothing on the plaintiffs’ claims. In fact, in the report, the Audit and Risk Committee, which “relies on the work and assurances of the Company’s management,” approved Aflac’s 2016 year-end financial statement.

“Aflac shareholders reading those publicly released financial statements would have had no clue that something might be seriously amiss at the company,” wrote plaintiff co-counsel Dimitry Joffe to Johnson in a March 28, 2017 letter. The board report concluded that the issues raised by the plaintiffs’ allegations were not material, and shareholders were not damaged as a result.

The workers alleged that Aflac “decommissioned” the average weekly producer metric on January 27, 2017. However, the metric still appears in Aflac’s 2017 10-K filing, issued February 24, 2017, and in subsequent financial statements. According to the board report, “All individuals interviewed who were familiar with the metric believed that it was still in use throughout the Company.”

AWP was left out of Aflac’s 2016 annual report to investors and absent from a customary listing of several metrics — once labeled “key operational metrics,” for 2016 they were changed to “key sales metrics.”

On January 11, in the first part of this ongoing series, The Intercept first reported some of the allegations made by the current and former employees, including that the company misclassifies them as independent contractors despite controlling virtually every aspect of the work experience.  In a statement, Aflac broadly rejected the allegations: “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.”

Top photo: Aflac CEO Dan Amos, displays the 2016 Aflac Holiday Duck, while speaking at the Chasing Cancer event at The Washington Post on Tuesday, Dec. 6, 2016, in Washington.