Clover Health facing SEC probe over short-seller report

Clover Health disclosed in a regulatory filing Friday that it received a letter from the SEC “following the publication of an article by Hindenburg Research” a day prior. The company said the SEC has requested “document and data preservation” for the period Jan. 1, 2020, to the present, “relating to certain matters that are referenced in the article.”

Clover Health said it “intends to cooperate with the SEC’s investigation.” The firm went public last month after its merger with a special purpose acquisition company (SPAC) run by venture capitalist and former Facebook executive Chamath Palihapitiya.

Among its long list of allegations, Hindenburg Research claims Clover Health hasn’t disclosed its business model and its software offering, Clover Assistant, “are under active investigation by the Department of Justice, which is investigating at least 12 issues ranging from kickbacks to marketing practices to undisclosed third-party deals.”

“Our investigation into Clover Health has spanned almost four 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,” Hindenburg said.

The report also painted a picture of a senior management team in “turmoil.” Claiming it was “likely a sign that development wasn’t going great,” Hindenburg noted Clover’s chief technology officer left six months before the first release of the Clover Assistant software, and that Clover’s executive team has had three CFOs, three COOs, and two general counsels in the last four years.

Hindenburg posed 18 questions to Clover’s senior management, including whether the company knew about the Justice Department investigation and, if so, why it was concealed; whether it’s aware of any other regulatory investigations and the details of those; and whether the company has received any subpoenas or civil investigative demands from regulators. It also asks Clover why it has had “such extensive executive turnover.”

Clover Health responds

In a separate regulatory filing Friday, Clover Health CEO Vivek Garipalli and President and CTO Andrew Toy responded to all 18 questions. “As you will see from our detailed, point-by-point response to the short seller firm’s questions, the alleged ‘report’ is rife with ad-hominem attacks, sweeping inaccuracies and gross mischaracterizations,” Garipalli and Toy state in their joint response. “Importantly, the short seller firm did not contact Clover, and we had no knowledge of the short seller report prior to it being made publicly available. In our view, it belies a desperate attempt for publicity while sacrificing any regard for the truth.”

In their response, Garipalli and Toy state the company and Palihapitiya were “fully aware” of the Department of Justice probe, but that “Clover does not believe it is, or has been, in violation of any rules or regulations related to the inquiry.” Following a due diligence process, the firm concluded the Justice Department’s request for information “was not material and was not required to be specifically disclosed in our SEC filings.”

“For absolute clarity,” Garipalli and Toy added Clover Health:

• Believes it has made all appropriate disclosures, which were reviewed and vetted by outside counsel to all parties;
• Has not received any civil investigative demands or subpoenas from the Justice Department;
• Received a request for information from the Justice Department, to which it responded; and
• Conducted a detailed review of matters potentially addressed by the Justice Department’s request for information concluding that it complies with all laws and regulations material to its business.

In response to the executive turnover, Garipalli and Toy responded, “Clover has evolved significantly over the past four years, and we needed different people with different skillsets at each stage of our journey.” They continued, “As is evident from our team’s background, they bring extensive experience across their areas of expertise. We believe we should always be looking to bring on more and more talented and mission-oriented individuals as we evolve and grow.”