Nathan Anderson's Hindenburg Research, made famous by last year's scathing short call on Nikola Motors, published a report this morning on "SPAC King" Chamath Palihapitiya's latest go-public project, Clover Health. Calling Palihapitiya a "celebrity promoter", the report claims he "misled investors about critical aspects of Clover’s business in the run-up to the company’s SPAC go-public transaction last month."
"But while we agree with the ideals being supported by Chamath, we’re also skeptics by nature. And we were intrigued to see a billionaire taking media calls from his mansion, making hundreds of millions of dollars selling SPACs to retail investors, all while positioning himself as the de facto leader of the average Joe," the report says.
"Since then, 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 asserts right off the bat that Clover is currently in the midst of a DOJ investigation because of its business practices. The report claims to have obtained a copy of the CID/subpoena that was issued in conjunction with the DOJ's investigation.
"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. This Civil Investigative Demand and the corresponding investigation present a potential existential risk for a company that derives almost all of its revenue from Medicare, a government payor. Our research indicates that the investigation has merit."
Hindenburg also claims that "much of Clover's sales are driven by a major undisclosed related party deal and misleading marketing targeting the elderly."
Of note, the report says that "Clover has a thinly-disclosed subsidiary called 'Seek Insurance'", which "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."
The site claims "'We don’t work for insurance companies. We work for you', despite literally being owned by Clover, an insurance company," the report says. The report also says Seek's activities are under investigation by the DOJ.
The report also touched on former employees claiming that sales are fueled by an undisclosed related party:
"Multiple former employees explained that much of Clover's sales are fueled by a major undisclosed relationship between Clover and an outside brokerage firm controlled by Clover's Head of Sales, Hiram Bermudez. One former employee estimated Bermudez drove ~68% of Clover’s total sales, though was unclear on the amount coming from the undisclosed relationship. The former employees explained that Clover's Head of Sales took efforts to conceal the relationship by putting it in his wife's name 'for compliance purposes'. Insurance filings confirm this. The Clover contract was quietly put into his wife's name in the weeks after Clover's go-public announcement."
Turning back to Chamath, Hindenburg points out that in a CNBC interview announcing the Clover transaction, Chamath proclaimed, unprompted, "they create transparency...they don't motivate doctors to upcode or do all kinds of things to get paid".
Hindenburg says a former Clover employee "explained to us that the DOJ is specifically asking about upcoding, or the practice of overbilling Medicare" and that "multiple former employees explained that Clover's software is primarily a tool to help the company increase coding reimbursement."
The report ends with a section called "Do Short Sellers Play A Role In A Healthy Market?" in which Hindenburg discloses it has no position in Clover and lays out the benefits of short sellers to the public markets:
Despite nearly 4 months of due diligence we performed and financed for this report, we have no position in Clover.
Why? Because while short selling is always high risk, these are unprecedented times; many people are angry and right now we believe it is important to demonstrate the role short sellers play in a healthy, functioning market.
Usually, the gripe with short sellers is the business model (i.e.: making money when a stock goes down). We are taking that off the table for this one report so the investing public can more clearly see the work for what it is; deep-dive investigative research.
Critical, adversarial research is needed because Wall Street is a finely tuned machine, built to sell securities to the public, regardless of quality. The corporate world is rife with fraud, and investors have little protection.
CLOV is down around 10% in the pre-market...
You can read the entire report here.