Chamath Palihapitiya-Backed Clover Health (CLOV) Confirms SEC Investigation After Short-Seller Report; Analyst Positive on Company's Response

February 5, 2021 10:06 AM EST
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Price: $7.35 -0.94%

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Clover Health (NASDAQ: CLOV), a data-driven health insurance company backed by Chamath Palihapitiya, confirmed that the Securities and Exchange Commission (SEC) is conducting an investigation and published a length defense after yesterday's short-seller report.

"Following the publication of an article by Hindenburg Research on February 4, 2021, concerning the recently completed business combination of Clover Health Investments, the company received a letter from the Securities and Exchange Commission indicating that it is conducting an investigation and requesting document and data preservation for the period from January 1, 2020, to the present, relating to certain matters that are referenced in the article. The company intends to cooperate with the SEC's investigation,” it is said in the statement.

Yesterday, short-seller Hindenburg Research released a report that described Clover Health as a “broken business,” which sent shares about 12% lower on Thursday. Hindenburg added it doesn’t have a position in Clover.

“Critically, Clover has not disclosed that its business model and its software offering, called the Clover Assistant, are under active investigation by the Department of Justice (DOJ), which is investigating at least 12 issues ranging from kickbacks to marketing practices to undisclosed third-party deals, according to a Civil Investigative Demand (similar to a subpoena) we obtained,” it is said in the report.

Among other things, Hindenburg also accused Seek Insurance, a site designed to help customers find Medicare plans, that it didn’t disclose its relationship to Clover.

“Clover has a thinly-disclosed subsidiary called “Seek Insurance”. Seek 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. It claims, “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,” it is further said in the report.

CLOV issued a detailed response to all allegations mentioned in the short seller’s report saying it is true that it did not disclose inquiries made by the DoJ about its business prior to its IPO, but says these types of inquiries are seen as a standard practice.

“Clover welcomes questions about our business, as it gives us the opportunity to share our vision and to address any skepticism, whether founded or unfounded. As you will see from our detailed, point-by-point response to the short seller firm’s questions, the alleged “report” is rife with ad-hominem attacks, sweeping inaccuracies and gross mischaracterizations.

“Importantly, the short seller firm did not contact Clover, and we had no knowledge of the short seller report prior to it being made publicly available. In our view, it belies a desperate attempt for publicity while sacrificing any regard for the truth,” Vivek Garipalli, CEO and Andrew Toy, President of Clover Health, wrote in a statement.

On Hindenburg attacking Chamath Palihapitiya, Garipalli and Toy said:

“We suspect this was done in order to sensationalize what is otherwise a rather underwhelming piece of research. 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.”

BofA analyst Kevin Fischbek defended CLOV and praised the company’s stance, calling the response from the company "compelling." He reiterated a “Buy” rating and the price target of $20.00.

The fact that CLOV received only a request for information is “positive, in our view, because these types of requests are more preliminary than a [Civil Investigative Demand] CID,” Fischbek wrote in today’s note to clients.

“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 a “Buy” rating,” it is added in the note.

CLOV trades 2.9% lower in New York today

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