Hindenburg Research has just come out with scathing attack on Clover Health, a company backed by none other than Chamath Palihapitiya – get the popcorn ready, this is going to get interesting.

First of all, I am not taking a view on the allegations. However, despite the research report and allegations contained therein, Hindenburg says it does not have a position in Clover. Given the timing, this is what appears interesting. Firstly, let’s acknowledge that many will say this is simply untrue, or they are publishing on behalf of clients who are short.

However, 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 /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. It will also raise some questions over SPACs and the regulatory oversight in this space.

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. (three, it could still have a short position, but I’m not that cynical).

Hindenburg takes the high road and says that “while short selling is always high risk, these are unprecedented times; many people are angry and right now we believe it is important to demonstrate the role short sellers play in a healthy, functioning market”. It adds: “Usually, the gripe with short sellers is the business model (i.e.: making money when a stock goes down). We are taking that off the table for this one report so the investing public can more clearly see the work for what it is; deep-dive investigative research. Critical, adversarial research is needed because Wall Street is a finely tuned machine, built to sell securities to the public, regardless of quality.”

Anyway, back to the market impact. Shares in Clover (NASDAQ: CLOV) are down 9% in per-mkt trade following publication.

In the report, Hindenburg alleges that “Clover Health and its Wall Street celebrity promoter, Chamath Palihapitiya, misled investors about critical aspects of Clover’s business in the run-up to the company’s SPAC go-public transaction last month”. Clover’s business model and software offering, Clover Assistant, are under “active investigation” by the Department of Justice (DOJ), which is Hindenburg says is investigating “at least 12 issues ranging from kickbacks to marketing practices to undisclosed third-party deals”, according to a Civil Investigative Demand obtained by the research house. Hindenburg says the investigation presents a “potential existential risk” for the company since it gets almost all of its revenue from Medicare.

All the allegations can be viewed here.