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It’s the special purpose craze that comes along with the GameStop madness.
On Thursday, Hindenburg Research, the short-selling company known for spotting problems with electric car company Nikola last year, released a report targeting Chamath Palihapitiya-backed Clover Health, calling it a “ broken business. ”
The insurance start-up agreed to go public through a merger with Palihapitiya’s Social Capital Hedosophia III in October. “This is one of the easiest investments I’ve ever made,” Palihapitiya said at the time of the announcement.
But on Thursday, the Hindenburg Research report argued that Clover Health was not that simple: Among other things, the short activist group accused the company of cranking up sales using misleading marketing to the elderly and claimed that Clover did not conduct a Justice Department investigation into the sales practices of the company.
Clover Health hit back in Hindenburg on Friday, accusing the short-seller of “sweeping inaccuracies and grossly mismatched characteristics.” Although the DoJ had questioned the company, Clover Health downplayed the problem, characterizing it as a regular in the industry that it did not consider important to its investors.
But since the release of Hindenburg’s report, Clover Health has received an investigation notice from the Securities and Exchange Commission, the company also disclosed. Shares of Clover Health fell 13% on Friday.
Here’s the big surprise about Hindenburg’s report: While short sellers typically release such papers in addition to a bet against the company, Hindenburg has no position in the company. Long or short. Instead, the report appears to address the recent flare-up of criticism of short sellers, even though Hindenburg says it began investigating the company some four months ago: “ We think it’s more important for public markets right now that people understand the role short sellers play in uncovering fraud and corporate crime. “
When investors poured into GameStop stock last week, short sellers were heavily targeted by retailers. Palihapitiya, meanwhile, positioned herself on the retail side in much of the saga.
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