Short-seller Hindenburg Research has picked a fight with US venture capitalist Chamath Palihapitiya after the firm fired a broadside at insurance firm Clover Health Investments Corp (NASDAQ:CLOV) on Thursday.
In a report, Hindenberg said that in their view Palihapitiya, who holds a 27% stake in Clover, as well as the company itself, had not been entirely truthful about what they said were “critical aspects” of the business model and service offering.
The short-seller said its investigation spanned almost four months and 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’s scorching or Clover may hold a tinge of irony for Palihapitiya, who was one of the more notable figures to support last week’s trading frenzy in shares of video game retailer GameStop Corp (NYSE:GME), which saw its shares rocket in value after a horde of retail traders, inspired by users of the Reddit forum r/wallstreetbets, piled into the stock in a bid to take on various hedge funds shorting the stock.
However, Markets.com’s Neil Wilson noted that despite its broadside, Hindenburg also said it does not have a short position against Clover, which may itself be a consequence of the GameStop affair.
“At face value this seems more like a acceptance of where things stand today vs two-three weeks ago and is due the recent upset in financial markets and Reddit attacks on shorts. Hindenburg doesn’t want to put its head above the parapet and get mown down by the r/wallstreetbets crowd. There will be commentary that this is yet more evidence that hedge funds are going to be a lot more careful about naked shorts in individual names, and I would agree”, Wilson said.
“Hindenburg actually notes that it has taken no position despite 4 months of due diligence for the report. This looks to be two-fold: one it doesn’t fancy taking on a short squeeze in the current climate (maybe it changed its mind but published anyway to help beat the short selling drum), and two, it has a vested longer-term interest in taking a position defending the practice of short selling”, he added.
However, there seemed to be little immediate sign that the same collective effort was rushing to support Clover against the bears, with the stock down 9.2% at US$12.67 in mid-morning trading in New York.