A brief vendor vs. Chamath Palihapitiya

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It’s the particular goal acquisition craze assembly the GameStop madness.

On Thursday, Hindenburg Analysis, the short-selling agency identified for flagging points with electrical automobile firm Nikola final yr, launched a report focusing on Chamath Palihapitiya-backed Clover Health and known as it a “damaged enterprise.”

The insurance coverage startup agreed to go public by way of merger with Palihapitiya’s Social Capital Hedosophia III in October. “This is likely one of the most easy investments I’ve ever made,” Palihapitiya said at the time of the announcement.

However on Thursday, Hindenburg Analysis’s report argued Clover Well being was not so straightforward: Amongst different points, the short-activist group accused the corporate of fueling gross sales utilizing deceptive advertising and marketing to aged individuals and alleged that Clover didn’t disclose a Division of Justice investigation into the corporate’s gross sales practices.

Clover Well being hit again at Hindenburg in a lengthy post Friday, accusing the brief vendor of “sweeping inaccuracies and gross mischaracterizations.” Whereas the DoJ had submitted inquiries to the corporate, Clover Well being downplayed the difficulty, characterizing it as a daily prevalence within the business that it didn’t take into account materials to its buyers.

However for the reason that launch of Hindenburg’s report, Clover Well being has acquired a discover of investigation from the Securities and Trade Fee, the corporate revealed too. Shares of Clover Well being had been down 13% Friday.

Right here’s the massive shock about Hindenburg’s report: Whereas brief sellers sometimes launch such papers alongside a wager in opposition to the corporate, Hindenburg has no place within the firm. Lengthy or brief. As an alternative, the report appears to handle the current flare-up in criticism in opposition to brief sellers, although Hindenburg says it started wanting into the enterprise some 4 months in the past: “We predict on this second for public markets, it’s extra essential for individuals to know the position brief sellers play in exposing fraud and company malfeasance.”

As buyers flooded into GameStop shares final week, brief sellers had been heavily targeted by retail merchants. Palihapitiya in the meantime positioned himself on the facet of the retail merchants in a lot of the saga.

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

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