Is the founder of social capital, which manages more than 2.5 billion dollars over the past decade? Chamath palihapatiya, the ceo of social capital, has solidified himself as one of the greatest investors in today's age. Most recently, however, chemoth was accused of participating in fraudulent activities where he misled investors. The accusation comes from hindenburg research, the company which exposed the scam that is nikola motors. Yet we can't give too much credibility to hindenburg from nicola, as many pointed out about nikola's, suspicious activities.

Long before the report was released, such as myself behind the accusations of hindenburg is a full-fledged war, which is exactly what we'll cover in this video welcome to cass games academy, if you're new to the channel, please consider subscribing for more content like this and let's get Right into it, in october, of 2020, chamath took a medical insurance company named clover health public via spac, under the ticker symbol of ipoc. Hindenburg research claims that during this transaction, chamath misled investors about critical aspects of clover's business in the run-up to the company's space. Go public transaction, their investigation, spanned almost four months and includes over a dozen interviews and calls with doctors and former employees. Additionally, hinderbill claims to have reviewed thousands of government reports, insurance filings, regulatory filings and company marketing materials on the other side, chamath palihapatiya and cloverhealth's.

Ceo have also compiled a response to hindenburg. This includes answering all 18 of hindenburg's questions and even hindenburg's bonus question. Ultimately, this escalated to even more responses from both parties. The question is what really led hindenburg to go against chamath palihapatiya and how is it that chamoth misled investors on such a large scale transaction without many people noticing in 2012, cloverhealth was founded by vivek garipeli, who desired to build upon medicare to offer healthcare insurance in 2013, the company began selling medicare advantage, and by 2019 the company had 57 000 members and became labeled as one of the fastest growing medicare advantage insurance in the entire united states.

Behind this fast growth, hindenburg claims to have found some major flaws in clover's sales practices and has even gone as far as the state that clover's sales practices are deceptive and illegal. When it comes to chamath's, spac hindenburg accuses chamath palihapatiya of purposely leaving out legal investigations on clover health to get a clear picture of what is going on. We need to cover both sides of the story before we get into that. I have some news for you.

Patrons will now have access to exclusive videos. This is on top of the already existing benefits, such as exclusive in-depth reports on stocks i purchase or sell my personal portfolio with explanations and exclusive spreadsheets to help you value stocks. Now that we understand the situation, let's start off with hindenburg's accusations against clover and chamath in 2016. Clover, allegedly falsely led seniors to think that clover had more services than it actually offered.

This, according to hindenburg, led to clover denying services that senior thought were included or charging further expenses for the services that they thought were part of their plan. This led the centers of medicare and medicaid services to finding clover one hundred six thousand ninety five dollars. According to a former clover employee, this fine was so small that gary pelly continued using its deceptive sales practices. The employee stated the problem was when i got there, the thought process was well.

The penalty was so small, we're not worried about it. Ultimately, this caught the eye of the department of justice, the department of justice listed 12 issues regarding clover, health, with the most important being the first third, fourth, fifth and twelfth issues. One of the key criticisms cited by hindenburg is seek insurance. A subsidiary of global health seek insurance, advises, seniors on which medicare insurance plan they should choose hindenburg's criticism about this is that, because seek insurance is owned by clover health.

The website is biased towards clover's medicare insurance plans. This is despite seek insurance's website, clearly saying that their services are neutral. Another key criticism: centers around clover's, head of sales here on bermudez prior to joining clover, health hirum, worked at a sales place named bermudez and hansen which similar to seek insurance, helps clients choose medicare insurance plans according to hirum's linkedin profile, hirum left, bermudez and henson in 2012, after joining clover, health, contrary to his linkedin profile, hindiburg claims that, while working at clover hirum not only still works at bermudez and hansen, but is also the sole agent of the firm, a former employee stated he was brought into clover since early on like day. One, and because he had such a large ground force of sales agents, he was key and instrumental in getting clover started.

The reason why this is a problem is that cloverhealth is supposed to negotiate contracts with marketing companies such as bermudez and henson, because hirum works at clover and bermudez and henson. This creates a conflict of interest. The former employee stated he's got both feet in those waters. One is he's head of sales at clover and the other one is he owns and manages his mass sales market foundation in the north east, in other words, hirom negotiates with himself with one side of him on clover and the other side on bermudez and henson.

When cloverhealth went, public, kieran removed his name from bermudez and henson and replaced it with his wife's name. Hindenburg stated that clover misled investors by not disclosing this in his sec filings. The last criticism is that clover handed out gift cards to doctors and nurses to recruit patients to clover's medicare advantage plans. This practice of bribing doctors and nurses for recruitment is prohibited by the centers for medicare and medicaid services.

In addition to this, clover also has another confidential program where they paid physicians to switch users from their current insurance plans to clover health hindenburg source stated. The receptionist would notice that a patient checking in was enrolled in say united healthcare and would mention to the patient that there was another plan that might meet their needs better. Do you want more information, no problem i'll. Have them give you a call now you might be wondering how does this all tie back to chamath palihapatiya according to hindenburg chamath crossed the line after saying this, and what's great, is their gross margins start better because they're a technology business and we think it's going To get better and better over time and the reason why is because they create transparency, they don't play games, they don't motivate doctors to up code or do all kinds of things in order to get paid.

They've created an extremely transparent and efficient business, so their gross margins out of the box are better and we think they're going to continue to only get better relative to the companies like united and humana hindenburg stated that chamata is purposely deceitful when he stated that clover Doesn't pay doctors to get paid by this hindenburg is referring to what we talked about earlier with the gift cards and paid physicians. Additionally, hinderberg also stated that chimato is going to benefit, regardless of whether it benefited retail investors. This is because chamath received 20.5 million clover shares for just 25 000, and this is for promoting clover health and also purchased 100 million dollars worth of clover at an average cost basis of 10. Because of this chamath's cost basis is much lower than retail investors.

Now there are two sides to every story with that being said, we need to analyze chamath and clover's response. Hindenburg's accusation centered around the department of justice's inquiry on cloverhealth, which not surprisingly, was the first key component to clover's response. Hindenburg asked the question: how could a doj inquiry not be considered material information? Clover responded by stating that clover often receives requests from regulatory bodies, and these are typically confidential. Clover also went further by stating that chamath and clover were both aware of the doj inquiry and that they made all the appropriate disclosures.

In my opinion, this actually makes sense, as inquiries are typically not disclosed, especially if they're confidential, not only that but clover never receives any demands for subpoenas from the department of justice in the subpoena. That hindenburg was citing was from a former employee. So, although clover and moth knew the doj inquiry, they did not receive any demands or subpoenas. What clover did disclose was that, following hindenburg's report, clover received an investigation from the sec clover stated that seek insurance is a startup that has its own management team outside investors board and employees.

Clover also went on to say that it's not unusual for insurance companies to have stakes in field marketing organizations and that seek insurance was built as a separate company that has raised the majority of its capital from outside investors. Furthermore, although seek insurance does work with clover, it also offers over 80 of the available plans in the market. Not only that, but only 13.5 percent of seek insurance's sales were from clover health when it comes to hirom and bermudez, and henson clover mentions that hirum does not receive compensation from clover for his work at bermudez and henson, going even further than that. Clover argues that building relationships with marketing operations is standard in the medicare advantage space and that they will continue to build such relationships in the future.

What's quite hilarious is that hindenburg got the part about hiram, removing his name in bermudas and henson's legal files and replacing it with his wives totally wrong. The filing that hindenburg cited was for hirum's wife to become an insurance agent. Herself hirom was going through a major organ transplant surgery. The previous year did this so that his wife would take over his ownership in burmese and henson.

If his own health deteriorated when it comes to the quote, unquote paid physicians, there is no financial motivation for the physicians to have patients sign up for clover. The same fixed rate also applies to doctors in the gift cards. Because of this chamat's statement about cloverhealth's transparency was actually true. They create transparency, they don't play games, they don't motivate doctors to up code or do all kinds of things in order to get paid.

Chamath also responded to hindenburg by telling his twitter followers to trust the process, and the facts attached to his tweet was a document where he reaffirmed his long-term bullish stance on clover in a separate tweet chamath posted his current returns on all the spaces he has done, And said trust the process now that we got both sides of the argument, let me explain my personal thoughts on the situation. The stats brought up by cloverhealth in its response refuted hindenburg's report quite well. Hindenburg asked some legitimate questions about clover and it's interesting to see the doj investigation come to light from chamath and clover's point of view. They handled the situation very well.

Of course, we do have to know more information before coming to a conclusion, but in my opinion, chamath and clover aren't guilty of fraud. Let me know whether you think chamath and clover are guilty in the comment section below. If you enjoyed this video, please hit the like button and subscribe and i'll see you in the next one.