Topline
The Securities and Exchange Commission is investigating the recently completed acquisition of Alphabet-backed Clover Health Investments by a special-purpose acquisition company launched by former Facebook executive and “SPAC King” Chamath Palihapitiya, Clover disclosed Friday–one day after a short-seller alleged the company misled investors about its business and failed to tell them about an active Department of Justice investigation into its practices.
Founder and CEO of Social Capital, Chamath Palihapitiya, speaks onstage in San Francisco.
Key Facts
In a regulatory filing on Friday, Clover said it received a letter from the SEC saying the agency has started an investigation into the allegations that short-seller Hindenburg Research (which says it doesn’t have a stake in Clover) published on Thursday.
Clover said the SEC has requested documents and data preservation dating back to January 1, 2020 relating to such matters; the Nashville-based Medicare provider also said it intends to cooperate with the SEC’s investigation.
In a separate Friday filing, Clover disclosed its responses to 18 questions regarding the allegations, stating that it and Palihapitiya were aware of the ongoing DOJ investigation but do not believe they violated any rules or regulations related to the inquiry.
Included in the short-seller’s slew of claims is that Clover’s DOJ investigation–into at least 12 issues concerning “kickbacks,” marketing practices and undisclosed third-party deals–”present a potential existential risk for a company that derives almost all of its revenue from Medicare, a government payor.”
Shares of Clover Health are falling 2% Friday after plunging 12% Thursday.
Chief Critic
“Clover Health and its Wall Street celebrity promoter, Chamath Palihapitiya, misled investors about critical aspects of Clover’s business in the run-up to the company’s SPAC go-public transaction last month,” Hindenburg said Thursday. “Our investigation into Clover Health has spanned almost 4 months and has included more than a dozen interviews with former employees, competitors and industry experts, dozens of calls to doctor’s offices, and a review of thousands of pages of government reports, insurance filings, regulatory filings and company marketing materials.”
Key Background
Clover Health debuted on the Nasdaq exchange on January 8, about three months after the firm disclosed it was going public in a $3.7 billion deal with Social Capital Hedosophia Holdings Corp. III, one of the six SPACs launched by Palihapitiya’s investment firm Social Capital. Shares of the SPAC soared nearly 60% in the two months after the merger’s announcement, but they’ve since fallen nearly 30%.
Tangent
Short-seller Hindenburg published a report last year on Nikola, calling the electric-vehicle company a “fraud,” and alleging then-Chairman Trevor Milton misled investors about the company’s business. The SEC is still investigating those claims, but Milton has since resigned, and legacy carmaker GM pulled out of its partnership with the firm.
Further Reading
How Spacs Became Wall Street’s Money Tree (Forbes)
