Shares of Globe Life closed down 53% Thursday after Fuzzy Panda Research disclosed a short position in the company, alleging multiple instances of insurance fraud.
The short-seller in a report said it had uncovered "extensive allegations of insurance fraud ignored by management despite being obvious and reported hundreds of times", including policies written for dead and fictitious people.
Reuters could not independently verify the claims in the report.
In a statement later Thursday, Globe Life refuted the Fuzzy Panda report, saying the allegations are "driven solely by short-term profit."
"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.
Shares of Globe Life rebounded during extended trading, climbing 9%.
Michelle Meyers, senior counsel at law firm Singleton Schreiber said the company would have to do damage control to avoid questions.
"I would expect that the regulators should take this exceptionally seriously," she added.
Short interest in Globe Life is at an estimated 2.99% of free float, according to data from Ortex.
Fuzzy Panda alleged that third-party policy sellers known to have committed insurance fraud contributed over 60% of the new business at Globe Life's American Income Life unit, which accounted for nearly half of the total underwriting margins last year.
The unit sells policies to labor unions, credit unions and associations.
Earlier in April, Nate Koppikar of hedge fund Orso Partners said Globe Life's book value was "inflated" and it was an "attractive" potential target for short selling.
In response, the company touted its sustainable earnings growth and said the articles Koppikar had referenced in his criticism of the company were inaccurate and misleading.
In the fourth quarter, Globe Life reported higher profit, driven by stronger underwriting and better returns on investments.