Chamath Palihapitiya
Olivia Michael | CNBC
Clover Health Investments, backed by Chamath Palihapitiya, said on Friday that it had received an investigation notice from the Securities and Exchange Commission and intended to cooperate.
Clover, however, withdrew against a critical report by short-selling specialist Hindenburg Research, which said some of the report’s claims were “completely false”.
On Thursday, Hindenburg released a scathing report, the title of which called Clover Health a “broken business,” which sent insurance company shares up more than 12 percent, its highest daily percentage in four months. Clover shares rose more than 3% in pre-market trading after the company released its response. Hindenburg, who has a background in publishing short selling research, said Thursday he does not hold any position at Clover.
Hindenburg also said Clover was under investigation by the Justice Department and the investigation was not disclosed to investors. In his response to the Hindenburg report on Friday, Clover said he has received inquiries from the DOJ, but did not believe the investigations were important to its investors. The company characterized DOJ consultations as standard practices, as Clover works with the Medicare system.
Clover said he decided he did not need to disclose the DOJ’s inquiries after consulting with his attorneys. The company did not say what the DOJ’s investigations were about. On the part of the SEC, Clover said he received the letter from the agency on Thursday after the publication of the Hindenburg report. The company said it was unaware of any investigation outside the SEC letter it received Thursday.
On Thursday, the DOJ declined to comment on possible Clover-related investigations or inquiries.
In addition to the alleged investigations, Clover responded to Hindenburg’s criticism of an independent company that shares investors and governance with Clover called Seek Insurance. Hindenburg said Seek Insurance, a site designed to help people find Medicare plans, does not disclose its relationship with Clover, although its website is characterized by being an unbiased platform for choosing a health plan. Clover said in its response that Seek Insurance is a subsidiary of Clover, but that it is still an independent start-up.
Clover also said Seek’s website will be updated soon with more information and posted a breakdown of the plans customers will choose. According to Clover, 13.5% of Seek customers chose a Clover plan, behind CVS / Aetna (17%), Humana (20%) and Cigna (20%).
Finally, Clover addressed Hindenburg’s allegations that the company’s software asks doctors to charge the Medicare system more than necessary, a practice called “upcoding.” Hindenburg said Clover’s software encourages coding with “irrelevant diagnoses” to “trick” and overload the Medicare system. Clover denied these allegations in his response and said doctors receive a fixed payment for the office visit and that it is up to the doctor to choose the diagnosis.
–Reuters contributed to this report.
This story is unfolding.