A short seller vs. Chamath Palihapitiya

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It’s the special purpose acquisition craze meeting the GameStop insanity.

On Thursday, Hindenburg Research, the short-selling firm known for flagging issues with electric car company Nikola last year, released a report targeting Chamath Palihapitiya-backed Clover Health and called it a “broken business.”

The insurance startup agreed to go public via merger with Palihapitiya’s Social Capital Hedosophia III in October. “This is one of the most straightforward investments I’ve ever made,” Palihapitiya said at the time of the announcement.

But on Thursday, Hindenburg Research’s report argued Clover Health was not so straightforward: Among other issues, the short-activist group accused the company of fueling sales using misleading marketing to elderly people and alleged that Clover did not disclose a Department of Justice investigation into the company’s sales practices.

Clover Health hit back at Hindenburg in a lengthy post Friday, accusing the short seller of “sweeping inaccuracies and gross mischaracterizations.” While the DoJ had submitted inquiries to the company, Clover Health downplayed the issue, characterizing it as a regular occurrence in the industry that it did not consider material to its investors.

But since the release of Hindenburg’s report, Clover Health has received a notice of investigation from the Securities and Exchange Commission, the company revealed too. Shares of Clover Health were down 13% Friday.

Here’s the big surprise about Hindenburg’s report: While short sellers typically release such papers alongside a bet against the company, Hindenburg has no position in the company. Long or short. Instead, the report seems to address the recent flare-up in criticism against short sellers, even though Hindenburg says it began looking into the business some four months ago: “We think in this moment for public markets, it is more important for people to understand the role short sellers play in exposing fraud and corporate malfeasance.”

As investors flooded into GameStop shares last week, short sellers were heavily targeted by retail traders. Palihapitiya meanwhile positioned himself on the side of the retail traders in much of the saga.

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Lucinda Shen
Twitter: @shenlucinda
Email: lucinda.shen@fortune.com

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