Shares of Clover Health have fallen 26% since it began trading in January.
John Taggart/BloombergClover Health Investments on Friday released its response to a negative report published by activist short seller Hindenburg Research earlier this week. In its response, the company disclosed that the U.S. Securities and Exchange Commission has opened an investigation that Clover believes is related to Hindenburg’s allegations.
Hindenburg’s report alleges Clover (ticker: CLOV) failed to disclose a Justice Department investigation into the company’s business practices and operations when it went public. The short seller also alleges that venture capitalist Chamath Palihapitiya, a backer of the blank-check company through which Clover went public, misled investors when he promoted Clover Health.
Palihapitiya didn’t respond to a request for comment. The SEC declined to comment.
Cosigned by Clover Health CEO Vivek Garipalli and President Andrew Toy, the executives wrote in a post on Medium that the Hindenburg report is “rife with ad-hominem attacks, sweeping inaccuracies, and gross mischaracterizations.” The executives said Hindenburg’s research was “a desperate attempt for publicity that sacrificed any regard for the truth.”
“Given the market’s latest views on short sellers, we believe that Hindenburg, which takes pains to call out their altruism in saying that they are not short on CLOV stock, is foolheartedly seeking to redeem itself by posturing as a white knight of the financial markets,” said Garipalli and Toy.
Hindenburg Research typically takes a short position in stocks that it publishes negative research about, but has previously released reports without doing so. Hindenberg founder Nate Anderson told Barron’s earlier this week that volatile market conditions led to the firm’s decision not to short the stock.
“We found it amusing that the company accused us of posturing as ‘white knight’ altruists for publishing a public interest piece, especially given the comprehensive media tour Chamath has undertaken over the last 3 weeks,” Hindenburg wrote in response to Clover Health on Friday. “Clover is also, after all, the same company that released an investor presentation calling an investment in Clover’s SPAC a ‘once in a generation opportunity to do the right thing.'”
Clover executives said the company and Palihapitiya were aware of the Justice Department inquiry and said its attorneys said the civil investigative demand wasn’t material and didn’t need to be disclosed in its SEC filings.
“Consistent with the views of Clover’s outside counsel, Social Capital’s outside counsel, and independently retained outside counsel of third parties, including IPO underwriters’ counsel, we concluded that the fact of DOJ’s request for information wasn’t material and wasn’t required to be specifically disclosed in our SEC filings,” the executives wrote.
Garipalli and Toy said that Clover and its rivals receive frequent requests for information from regulatory bodies and that it responds to all such inquiries, as it did with the demand from the Justice Department. Clover doesn’t believe it has violated any of the regulations it is required to follow.
“As heavily regulated organizations participating in Medicare Advantage, Clover and its peers receive frequent requests for information from regulatory bodies,” the executives wrote. “These are typically confidential.”
The executives wrote that the company hasn’t received additional civil investigative demands or subpoenas from the Justice Department.
Clover Health’s full response can be found here.
Clover shares fell 5.3% to $11.58 in afternoon trading Friday. Shares of Clover Health have fallen 26% since it began trading as Clover Health in January. The S&P 500 index has advanced 1.2% in the same period.
Write to Max A. Cherney at max.cherney@barrons.com
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Clover Health Disputes Short Seller's Negative Report - Barron's
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