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A short seller against Chamath Palihapitiya


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It is the craze for special-purpose acquisition that meets the GameStop madness.

On Thursday, Hindenburg Research, the short-selling company known for reporting issues with the electric car company Nikola last year, published a report targeting the Chamath Palihapitiya Clover health and called it a “broken business”.

The insurance start-up agreed to go public through a merger with Palihapitiya’s Social Capital Hedosophia III in October. “It is one of the simplest investments I have ever made”, Palihapitiya said at the time of the ad.

But on Thursday, the Hindenburg Research report argued that Clover Health was not so simple: Among other issues, the activist group accused the company of boosting sales by using deceptive marketing to seniors and alleged that Clover did not disclose a Justice Department investigation into sales practices of the company.

Clover Health hit back at Hindenburg by a long post on Friday, accusing the short seller of “gross inaccuracies and distortions”. While the DoJ had submitted inquiries to the company, Clover Health downplayed the issue, characterizing it as a regular occurrence in the industry that it did not consider important to its investors.

But since the publication of the Hindenburg report, Clover Health has received a notice of investigation from the Securities and Exchange Commission, the company also revealed. Clover Health shares were down 13% on Friday.

Here is the big surprise about the Hindenburg report: While short sellers usually publish such items along with a bet against the company, Hindenburg has no position in the company. Long or short. Instead, the report appears to address the recent surge in criticism of short sellers, although Hindenburg says he started looking into the business about four months ago: “We think right now for them. public procurement, it is more important for people to understand the role short sellers play in exposing fraud and corporate mischief. “

As investors flocked to GameStop stocks last week, short sellers were strongly targeted by retail traders. Palihapitiya has positioned itself on the side of retail traders for much of the saga.

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Lucinda Shen
Twitter: @shenlucinda
E-mail: lucinda.shen@fortune.com





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