Clover Health Responds To Hindenburg Short Report As Shares Hit Post-SPAC Low

Shares of Clover Health were falling Friday in the wake of a short report on the company from Hindenburg Research and subsequent disclosure of a Department of Justice investigation into the company.

What Happened: Hindenburg Research released a report Thursday alleging that Clover Health Investments Corp CLOV misled investors and is under investigation by the Justice Department. 

Hindenburg said it conducted an investigation into Clover Health over a four-month period and interviewed dozens of people, including former employees and competitors.

Related Link: Clover Health Merger Approved By Shareholders

Hindenburg's Allegations: Hindenburg said the “King of SPACs” lured retail investors into a “broken business facing active, undisclosed Department of Justice investigation.”

Clover Health said Friday that it has received a request from the Department of Justice, but has not received a civil investigative demand or subpoena.

The short report refers to Chamath Palihapitiya, whose SPAC took Clover Health public.

Palihapitiya owns 20 million founder shares valued at $290 million in exchange for promoting the SPAC, Hindenburg said. 

Clover’s CEO Vivek Garipalli owned hospitals prior to founding Clover and was accused of price-gouging, the short report said. 

Hindenburg said the company’s Clover Assistant software offering is under active investigation by the Justice Department

Hindenburg said the company has a major undisclosed related third-party deal that centers on the company’s relationship with an outside brokerage firm that is alleged to be controlled by Clover’s sales director Hiram Bermudez.

The short report said the firm was responsible for over 66% of the company’s sales and was put into Bermudez’s wife’s name to conceal the relationship.

Hindenburg accused Clover of misleading marketing targeting the elderly population.

Management has come and gone over the last four years, according to Hindenburg. Clover’s chief technology officer left six months before the Clover Assistant software was launched. The company has also seen three CFOs, two COOs and two general counsels over the last four years.

Clover Health Responds: The company called many of the claims from Hindenburg "completely untrue" in a Friday press release.

Clover Health said Seek Insurance operates independently from Clover Health and offers 80% of available plans in its operating markets.

Clover said it represents 13.5% of Seek's sales.

Bermudez has 50% ownership in B&H Assurance, a company that referred 8,200 members to Clover Health, according to the Friday statement. 

The ownership was changed to his wife's name due to Bermudez undergoing organ transplant surgery, according to Clover Health. 

The company said it saw turnover of executives due to needing different people with different skill sets for each stage of its expansion. 

Clover Health said it received a letter from the SEC after the short report was published. 

BofA Bullish On Clover: Bank of America analyst Kevin Fischbeck reiterated a Buy rating on Clover Health and price target of $20 on Friday.

"We continue to believe that the Clover Assistant does drive value and the extra benefits are the main drivers behind membership growth, so we are reiterating our Buy rating," the analyst said. 

The analyst called the response to Hindenburg "compelling" and liked the responses to mischaracterized allegations. 

Hindenburg tweeted Friday that it is pleased to get a response from Clover and that investors now know a Justice Department investigation occurred. 

CLOV Price Action: Shares of Clover Health were down 1.88% at $12 at last check Friday. Shares have traded as low as $11.44 Friday, setting a new post-merger low.