A brief vendor vs. Chamath Palihapitiya

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It’s the particular goal acquisition craze assembly the GameStop madness.

On Thursday, Hindenburg Analysis, the short-selling agency recognized for flagging points with electrical automobile firm Nikola final yr, launched a report focusing on Chamath Palihapitiya-backed Clover Well being and referred to as it a “damaged enterprise.”

The insurance coverage startup agreed to go public through merger with Palihapitiya’s Social Capital Hedosophia III in October. “This is likely one of the most simple investments I’ve ever made,” Palihapitiya stated on the time of the announcement.

However on Thursday, Hindenburg Analysis’s report argued Clover Well being was not so simple: Amongst different points, the short-activist group accused the corporate of fueling gross sales utilizing deceptive advertising to aged folks and alleged that Clover didn’t disclose a Division of Justice investigation into the corporate’s gross sales practices.

Clover Well being hit again at Hindenburg in a prolonged publish Friday, accusing the quick vendor of “sweeping inaccuracies and gross mischaracterizations.” Whereas the DoJ had submitted inquiries to the corporate, Clover Well being downplayed the difficulty, characterizing it as an everyday prevalence within the business that it didn’t take into account materials to its traders.

However because the launch of Hindenburg’s report, Clover Well being has acquired a discover of investigation from the Securities and Trade Fee, the corporate revealed too. Shares of Clover Well being have been down 13% Friday.

Right here’s the massive shock about Hindenburg’s report: Whereas quick sellers sometimes launch such papers alongside a wager towards the corporate, Hindenburg has no place within the firm. Lengthy or quick. As a substitute, the report appears to deal with the latest flare-up in criticism towards quick sellers, despite the fact that Hindenburg says it started trying into the enterprise some 4 months in the past: “We expect on this second for public markets, it’s extra vital for folks to know the function quick sellers play in exposing fraud and company malfeasance.”

As traders flooded into GameStop shares final week, quick sellers have been closely focused retail merchants. Palihapitiya in the meantime positioned himself on the facet of the retail merchants in a lot of the saga.

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Lucinda Shen
Twitter: @shenlucinda
Electronic mail: lucinda.shen@fortune.com

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