Clover Health Investments Corp. shares slumped lower Thursday after noted short-seller Hindenburg Research accused one of the company's key backers, Chamath Palihapitiya, of misleading investors as it prepared to go public last month.
Hindenburg, which insisted it had no position in Clover Health, said the group is under 'active investigation' by the U.S. Department of Justice linked to "at least 12 issues ranging from kickbacks to marketing practices to undisclosed third-party deals" based on a civil investigative demand it claims to have seen.
Clover Health listed on the Nasdaq earlier this year following a $3.7 billion merger with Palihapitiya's Social Capital Hedosophia Holdings Corp. III, a so-called special purpose acquisition company, that left Palihapitiya with a 27% stake. The group sells Medicare Advantage plans to its 57,000 members
The company was not immediately available for detailed comment when contacted by TheStreet early Thursday, but said it would be issuing a statement in due course.
"While Chamath has seemingly taken every opportunity available to present himself as a beacon of rigorous due diligence and Wall Street know-how, our 4-month investigation led us to conclude that Clover Health’s culture is rooted in deception and has taken every opportunity to push or break the rules to mislead its customers, investors, and Medicare," Hindenburg said.
“We have no position (short or long) in Clover Health 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," Hindenburg said.
Clover Health shares were marked 11.3% lower in early trading Thursday to change hands at $12.40 each.
Palihapitiya, the billionaire investor and CEO of Social Capital who also owns a stake in the Golden State Warriors NBA franchise, found himself at the center of last week's Reddit-fueled short squeeze in GameStop (GME) - Get GameStop Corporation Report shares.
Palihapitiya Tweeted on January 26 that he had purchased call options that he would later claim earned him around $500,000 - all of which he donated to The Barstool Fund, a charity aimed at supporting struggling small businesses.