Palihapitiya-backed Clover Health plunges after short-seller Hindenburg weighs in

Palihapitiya-backed Clover Health plunges after short-seller Hindenburg weighs in

© Reuters.  © Reuters.

By Chuck Mikolajczak and Ambar Warrick

(Reuters) – Noted short-selling specialist Hindenburg Research published a critical report of Chamath Palihapitiya-backed Clover Health Investments Corp on Thursday, sending the insurance firm's down more than 10%, its biggest daily percentage drop in four months.

Venture capital investor Palihapitiya, who held a 27% stake in Clover Health as of Jan. 7, was among the big financial names to support last week's GameStop (NYSE:GME) buying frenzy against institutional short-sellers, saying early in the slugfest that he had bought in to the video game retailer.

The Hindenburg report https://hindenburgresearch.com/clover, the title of which called Clover Health a "broken business," risks reheating the battle between hedge fund short-sellers and investors.

Clover Health said it would be issuing a statement in the next few hours to address the claims made by Hindenburg. Neither Palihapitiya nor his representative immediately responded to a Reuters request for comment.

Hindenburg said in the report that it had no investment position in Clover Health.

Citron, another of the financial world's famous short-selling research houses, said last week it would no longer publish reports recommending shorts.

Clover, which sells Medicare-backed insurance plans, went public through a $3.7 billion deal with a special purpose acquisition company (SPAC) backed by Palihapitiya. Its other investors had included Alphabet (NASDAQ:GOOGL) Inc and Sequoia Capital.

Palihapitiya's SPAC raised $720 million in April 2020 and six months later announced the tie-up with Clover.

In recent months, the popularity of using SPAC's has exploded among startup companies who want to avoid the more traditional route of using an initial public offering to enter the market.

Clover shares closed down 12.33% at $12.23, the biggest daily percentage drop since Oct. 6. Volume in the session topped 68 million units, by far the most active trading day in the stock's history and well above its 10-day average of about 14.4 million.

Shares of Clover had fallen 16.8% so far this year before Thursday's tumble.

In September, Hindenburg issued a report on Nikola Corp calling it an "intricate fraud built on dozens of lies." Shares of the electric truck maker have fallen about 35% since the report.

In a Dec. 15 report, Hindenburg said it remained short on Loop Industries (NASDAQ:) with a $0 price target. Shares of Loop have climbed nearly 50% since.

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