Clover Health Investments (CLOV) and the special-purpose acquisition company (SPAC) led by Chamath Palihapitiya that went public in the technology-focused healthcare company in January were attacked on Thursday based on allegations by Hindenburg Research.
The report states that Clover unfairly attracted retail investors to buy shares, although it did not disclose that it was under active investigation by the Department of Justice.
Clover’s shares fell more than 10% in early trading after the report.
Although Hindenburg is known as a short seller, it says it has taken no position at Clover, long or short. “Why? Because although short selling is always high risk, these are unprecedented times; many people are furious and we now believe that it is important to demonstrate the role that short sellers play in a healthy and functional market,” said Hindenburg.
Clover, which sells Medicare insurance, has a mission to serve “low-income and often overlooked communities”. According to Hindenburg, a civil investigative demand letter shows that the Department of Justice is investigating 12 issues related to Clover, including its “Clover Assistant” software, as well as undisclosed kickbacks, marketing practices and third-party agreements.
“This Civil Investigation Demand and the corresponding investigation present a potential existential risk to a company that obtains almost all of its revenue from Medicare, a government payer,” said Hindenburg in his report, which came after four months of Clover investigation.
Hindenburg continues to describe a relationship between Clover and its subsidiary Seek Insurance as “underreported”, noting that it does not mention the subsidiary on its website, but tells the elderly that it will provide unbiased information on how to find Medicare plans.
“Seek does not mention its relationship with Clover on its website, but it misleads the elderly that it offers ‘independent’ and ‘impartial’ advice on selecting Medicare plans,” writes Hindenburg. “It says: ‘We don’t work for insurance companies. We work for you ‘, despite literally being owned by Clover, an insurance company. Its activities are also under investigation by the DOJ. “
Hindenburg says his report is based on “more than a dozen interviews with former employees, competitors and industry experts”, along with government reports and insurance records.
Investor and venture capitalist Chamath Palihapitiya helped go public on Clover on January 8 through Social Capital Hedosophia Holdings Corp III, a special purpose acquisition company (SPAC).
Yahoo Finance contacted the Department of Justice to inquire about Hindenburg’s allegations, as well as Social Capital of Clover Health and Chamath Palihapitiya to request a response to Hindenburg’s allegations, and did not receive any responses prior to the publication of this story.
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Alexis Keenan is a legal reporter at Yahoo Finance and a former litigation attorney. Follow Alexis Keenan on Twitter @alexiskweed.
Ines serves the United States stock market. Follow her on Twitter at @ines_ferre
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