SEC Probes Clover Health Actions In Going Public Via SPAC

Clover Health said Friday (Feb. 5) it would cooperate with the Securities and Exchange Commission (SEC) on an investigation prompted by a scathing report on Clover Health’s actions as it went public last month, CNBC reported.

Clover, however, argued that some claims in the report — issued by short-selling specialist Hindenburg Research Thursday (Feb. 5) — were “completely untrue.”

For its part, Hindenburg said that, while going public, Clover Health “lured retail investors into a broken business facing an active, undisclosed” Department of Justice investigation. The report said Clover failed to disclose DOJ inquiries properly.

Clover Health went public Jan. 8 through a merger with a blank-check company called Social Capital Hedosophia. Such a special purpose acquisition company (SPAC) has no commercial operations, but is formed to raise cash and go on the hunt for an existing company or companies to buy up.

Investors in the combined venture, according to a filing last October, included Chamath Palihapitiya, who was expected to put in $100 million, and others. Hindenburg accused billionaire Palihapitiya of misleading investors when he took Clover Health public, calling him the “King of SPACS.”

On Thursday (Feb. 4), after Hindenburg published the report, Clover shares went down 12 percent. Clover Health is a tech-oriented provider of Medicare Advantage insurance plans.

CNBC reported that Hindenburg, which has a history of publishing short-selling research, said it did not hold a position in Clover.

In a press release, Clover’s Vivek Garipalli, CEO, and Andrew Toy, president, said they were “fully aware” of earlier DOJ inquiries, but did not believe they were material to investors.

Clover said it had received inquiries from the DOJ in the past, but did not believe they were material to its investors. The company characterized the DOJ inquiries as standard practice, since Clover works with the Medicare system. Clover said it decided it did not need to disclose the DOJ inquiries after consultation with its lawyers at the time.

The company said it is cooperating with the SEC after being notified of the official investigation Jan. 4, following Hindenburg’s report.