Chamath Palihapitiya
Olivia Michael | CNBC
Clover Health Investments, supported by Chamath Palihapitiya, said on Friday that it had received an investigation notice from the Securities and Exchange Commission and that it plans to cooperate.
Clover, however, resisted a critical report by short sales specialist Hindenburg Research, saying that some statements in the report were “completely false”.
On Thursday, Hindenburg published a hard-hitting report, the title of which called Clover Health a “broken business”, causing the insurer’s stock to fall by more than 12%, the biggest daily percentage drop in four months. Clover’s shares rose more than 3% in Friday’s pre-market after the company published its response. Hindenburg, which has a history of publishing short sales surveys, said on Thursday that it does not have a position at Clover.
Hindenburg also said that Clover is under investigation by the Justice Department and that the investigation has not been revealed to investors. In his response to the Hindenburg report on Friday, Clover said he had received consultations from the DOJ, but he did not believe the consultations were relevant to his investors. The company characterized DOJ consultations as standard practice, since Clover works with the Medicare system.
Clover said it decided it did not need to disclose the DOJ’s investigations after consulting its lawyers. The company did not say what the DOJ consultations were about. On the SEC side, Clover said he received the letter from the agency on Thursday after the Hindenburg report was published. The company said it was unaware of any investigations outside the SEC letter it received on Thursday.
The DOJ on Thursday declined to comment on any possible investigations or inquiries related to Clover.
In addition to the alleged investigations, Clover responded to Hindenburg’s criticism of a separate company that shares investors and governance with Clover, called Seek Insurance. Hindenburg claimed that Seek Insurance, a website designed to help people find Medicare plans, does not disclose its relationship with Clover, although its website is characterized as an impartial platform for choosing a health plan. Clover said in its response that Seek Insurance is an affiliate of Clover, but is still an independent start-up.
Clover also said that the Seek website would be updated soon with more information and published a list of plans that Seek customers chose. According to Clover, 13.5% of Seek customers opted for a Clover plan, behind CVS / Aetna (17%), Humana (20%) and Cigna (20%).
Finally, Clover addressed Hindenburg’s claims that the company’s software drives doctors to charge the Medicare system more than necessary, a practice called “upcoding”. Hindenburg said Clover’s software encourages updating with “irrelevant diagnostics” to “cheat” and charge more to the Medicare system. Clover denied these claims in its response and said that doctors receive a fixed payment for the office visit and that it is up to the doctor to choose the diagnosis.
–Reuters contributed to this report.
This story is developing.