- Clover Health is under investigation by the US Justice Department, Hindenburg Research said on Thursday.
- Hindenburg accused Clover of misleading marketing and not disclosing a major deal with a firm controlled by its head of sales.
- The Medicare insurer merged with one of investor Chamath Palihapitiya’s SPACs last month.
- Clover said it received an information request from the Justice Department, not an investigation demand, and dismissed Hindenburg’s claims in a Friday statement.
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Clover’s shares fell 12% following the news. The company went public last month via a $3.7 billion merger with one of Social Capital CEO Chamath Palihapitiya’s special-purpose acquisition vehicles.
Hindenburg alleged in its report, citing a “civil investigative demand” it obtained, that Clover is under investigation by the Justice Department in connection with “at least 12 issues ranging from kickbacks to marketing practices to undisclosed third-party deals.”
Clover said in a statement on Friday that it has received a request for information from the Department of Justice, not an investigative demand, and Palihapitiya is aware of it.
It determined the request didn’t need to be specifically disclosed in its SEC filings, and it has since reviewed the issues and concluded it’s in compliance. It received a notice of investigation from the Securities and Exchange Commission on Friday.
Social Capital didn’t immediately respond to requests for comment from Insider. A Justice Department spokesperson declined to comment. Clover Health’s statement can be read in full here.
Hindenburg alleged that Clover has “misled investors about critical aspects of its business.” Specifically, it claims that Clover earns a large chunk of ts revenue from an undisclosed relationship with an outside brokerage firm controlled by its head of sales.
Moreover, Hindenburg alleged that one of Clover’s subsidiaries, Seek Insurance, “makes no mention of its relationship with Clover on its website yet misleadingly advertises to seniors that it offers ‘independent’ and ‘unbiased’ advice on selecting Medicare plans.”
The short-seller said in the report that it investigated Clover for nearly four months, and conducted dozens of interviews with former employees, competitors, and industry experts. It also reviewed thousands of pages of government reports, regulatory filings, and company marketing materials, it said.
Clover responded to Hindenburg’s claims by saying that Seek operates separately from Clover. It added that its head of sales, Hiram Bermudez, hasn’t earned any compensation from his brokerage firm for work from Clover.
Hindenburg emphasized that it is neither long nor short Clover “because we think in this moment for public markets, it is more important for people to understand the role short sellers play in exposing fraud and corporate malfeasance.”
Palihapitiya said at the time of the Clover deal that it would “help bring better healthcare across America.”