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Clover Health: How Chamath Lured Retail Investors into a Broken Business (hindenburgresearch.com)
120 points by nceqs3 on Feb 4, 2021 | hide | past | favorite | 96 comments



It's important to note that the company who wrote this report makes money by shorting stocks and then putting out negative reports about them. This is not to say that the allegations are false, and, in fact, many such reports by similar companies have been true, and excellent works of investigative journalism. However, this type of report often turns out to be nothing more than market manipulation and fraud. So all of these allegations should be taken with a grain of salt.

edit: Since multiple people asked, source is I used to trade a lot and have been in trades where entities like this have put out similar fraud reports that have turned out to be false, and also seen others that were true. Also it's common sense that you should always question statements from people who stand to benefit from them.


>However, this type of report often turns out to be nothing more than market manipulation and fraud. So all of these allegations should be taken with a grain of salt.

Define "often". More often than all of the banks and investment firms who own companies and put out "research" making fantastical claims about where the companies are going? It happens every day, non-stop. Why is that never questioned? Because stocks up = good.

People who think you can change the fundamentals of any company simply by shorting it don't understand finance. Please provide evidence that one legitimate company has ever been put out of business by short-sellers.


> Please provide evidence that one legitimate company has ever been put out of business by short-sellers.

old goalposts ----------> new goalposts


I really appreciate the short sellers in market actually. They balance the excess positivity in the market.

if I work for or own shares of a public company, I love those guys to look into the company I work for. If they find out that my employer is cooking the books, they have done a massive service for me.


I think the contention is that places that are shorting stock AND writing articles about how badly run the shorted company is have a conflict of interest which damages the credibility of their reporting. I think it's fair to say the same thing of overly positive reports about a specific company coming from an institution that holds normal stock in that same company.

It would probably be ideal if reports came from people who don't have a direct financial stake in the success or failure of the company they're writing about. However, I'll grant that the world doesn't often let us work with ideals for a lot of very valid reasons (retirement accounts, for instance).


>I think the contention is that places that are shorting stock AND writing articles about how badly run the shorted company is have a conflict of interest which damages the credibility of their reporting [...]. It would probably be ideal if reports came from people who don't have a direct financial stake in the success or failure of the company they're writing about

Not really, because then you run into the opposite problem: "experts" making random predictions without putting their money where their mouth is. In a sea of "experts", who do you trust?


The catch here is that this then becomes a self fulfilling prophecy, doesn't it? Report from Well known institution gains credence regardless of quality. This drives down prices not because they were correct, but because of their influence..


people do the opposite all the time? buy a stock and then write articles or go on tv saying how great the company is, even if it could be a fraud

as long as they disclose the position i don’t see the issue


Chamath also made a good point on the All In Podcast yesterday. He said shorting allows people to have market neurtal portfolios.


This is a false dichotomy, DD can be done well by longs as well as shorts.


if you're long, why would you publish a negative research?


You wouldn’t. If you are long, then you publish overly positive statements. Exactly what Chamath did. By saying you did due diligence and found nothing wrong. Or that everyone at the company are outstanding individuals. Now Clover Health being investing by the DOJ but Chamath presumably profited by the increased prices. This is the exact vile behavior that the hedge funds and “Wall St” is constantly accused of.


DD is done before investing, for both longs and shorts. I don’t get your point.


The article does disclose that they hold no positions in cloverhealth which may or may not increase your confidence in the article.


TFA: "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."

They are clearly releasing it without a position because they're mad at Chamath. N.b. that it's also labelled as an initial disclosure.


> this type of report often turns out to be nothing more than market manipulation and fraud

Source?

Do authors of "this type of report" get investigated, tried and convicted of market manipulation/fraud often?



What kind of source are you expecting the op to provide?


Anything other than an unsupported accusation. It could be a link a to Hindenberg being wrong in the past, for example.


Why do you think they make this investigation? I doubt because of public goodwill


It's nice to be able to take down people like Chamath in this way via the market itself.

Chamath is one of those popularity seeking stunt masters who are actually charlatans behind the scenes.


These "short" companies are the only ones who have any incentive to expose negatives about publicly traded stocks.

Everyone else in the financial and real worlds have massive incentives to prop up the values of stocks and push them higher, including executives and the board who have inside information as well.

It amazes me that people think the shorts are the ones to worry about.


> However, this type of report often turns out to be nothing more than market manipulation and fraud.

This isn't true. Mountains of academic research has consistently shown that short sellers generate abnormal returns by detecting actual problems in the underlying company (often corporate fraud), not manipulating prices or spreading rumors.

Short sellers are often vilified by CEOs because they act as a form of corporate governance. But that characterization is not supported by the empirical evidence.

https://www.reddit.com/r/slatestarcodex/comments/la88gv/shor...


Short sellers who put out reports like this represent only a small fraction of short selling. Most of it is done by large hedge funds like Melvin Capital, who just short.


Empirical evidence cannot be since shorting is legal. This is total BS. The concept of price efficiency is like missing the forest for the trees.


Shorting is a risky business, since there is a higher probability for losses/gains due to the nature of the process.

Shorters operate in a high risk, high reward scenario- they do due diligence to reveal frauds and get compensated, when the SEC is short handed for investigations (no pun intended).

Of course there are bad actors who promote lies (ex: using social media), but it is all in the hands of the short seller.

For reference, they are the same firm that released Nikola's infamous fraud report https://hindenburgresearch.com/nikola/


it’s important to note when chamath goes on cnbc and to promote his SPACs he also stands to make a lot of money

and often it turns out to be nothing more than market manipulation

nothing different between talking about short positions you have and long positions


Also, short sellers do other shady stuff. Like intimidating friends and family of people who work at the companies they are shorting.

Look at what happened to Fairfax Financial and their CEO Prem Watsa. Short sellers mailed the pastor at Watsa's church, with a fake return address, claiming that he was a pervert and a fraud. They impersonated journalists, impersonated government investigators, and even harassed the dean of the business school at the University of Toronto.

They filed a lawsuit against the short sellers in 2006 detailing all these activities, and that's what caused the attacks to stop. Elon was correct to call out the short sellers spreading FUD at every opportunity.


A well-known fact in the industry is that most hedge funds (including shorts) don't actually know what they're doing, and rely on selling narratives so they can gamble with other people's money. The overwhelming majority can't even beat the S&P in performance. Short sellers are infamous for spreading massive FUD (Tesla was a prime target for years), and most continue their antics despite no longer having any credibility whatsoever.


Tesla short sellers were definitely silly. But, it's not fair at all to compare hedge fund performance to the S&P. They hedge their market exposure (after all, it's in the name), and most market neutral hedge funds end up with a beta of around 0.2, meaning that if the market goes up by 1%, the fund will go up by 0.2% on average (plus their alpha).


How are Tesla shorts silly? Can you name any other valuation of a company that is more detached from reality? People were clowning Gamestop when it was around $60-80 stock price (it has dropped below that now. Besides the pt) which gave it a market cap below $5B.

Tesla at $800B is more insane. You and all of us have just gotten used to it.


You're talking about the same Tesla that had funding secured at $420 a share. That is probably my favorite social media post of all time. I quote it all the time.

But only with hindsight 2.5 years later does that tweet look tame. Tesla's rise in valuation is something no one credible could have predicted. Tesla relies on selling a narrative for bulls.


This is the "famous" Hindenburg, who had that short-report a while ago and Chamath who's been using SPACs to take things public (IPOC became Clover) and he's in other IPOx names too


I enjoyed their report on Nikola but in a market where fundamentals mean nothing, all of these will fall on deaf ears I'm afraid.


> a market where fundamentals mean nothing

Eventually the music will have to stop. I wonder what's going to be the trigger.


Given the progress so far, something monumentally stupid.

I'm increasingly reminded of https://en.wikipedia.org/wiki/Pyramid_schemes_in_Albania , although that was a much smaller economy with a much more limited capacity to absorb fraud.


Dedollarization


This would be a massive (although it could very well be a gradual process) but given everything that's been going on so far and how the dollars been trending so far you can't help but wonder if its actually going to happen some day


Apparently there is a 1 year lock-up period for the sponsors & directors during a SPAC [1]

Which I guess means it's harder for e.g Social Capital to do a pump & dump (in the case of Clover they couldn't sell until June 2021 at the earliest)

[1] https://corpgov.law.harvard.edu/2018/07/06/special-purpose-a...


It doesn't mean that he can't get a loan on those shares that are locked up.


amazing how he pretends to be for the little guy and then dumps worthless spacs on them leaving them to be bag holders in the long run

that being said, i wouldn’t short anything in this market. considering there are some outright frauds like gsx, nkla and btbt but nothing is happening


He reminds me of that guy who was selling the Four Hour Work Week book -- able to "work" four hours a week while living off proceeds from said book.


A meta-point: I see this as the single best outcome of the SPAC craze. By taking private companies public sooner, rather than later, we provide an incentive for short sellers to find mal-practice which is otherwise difficult to surmise among privately held companies (see: Theranos, WeWork, etc)


If Theranos had done a SPAC, retail investors would've lost a lot of money when it was discovered as a fraud and shorted.

Betsy DeVos and Rupert Murdoch can afford to take the loss and should be sophisticated enough to do their own diligence. If normal people who watched Chamath on CNBC and put their money into an interesting company lose their shirts, that's much worse.


> If Theranos had done a SPAC, retail investors would've lost a lot of money when it was discovered as a fraud and shorted.

You don't know that for sure. Betsy DeVos and Rupert Murdoch lost their millions precisely because there was no mechanism to discover the "counterargument" against Theranos. They were sold on a vision by the founder, and they bought the pitch. It was impossible for anybody else to do any research on whether the pitch was actually accurate, and therefore that research never happened until many years later. Hype continued to grow in a positive feedback, and there was no mechanism to provide any negative feedback.

In the counterfactual, Theranos would have gone public, some retail investors would have bought in, but right at the outset there would be a mechanism (and an incentive!) to provide negative feedback and kill the hype before it gets too big. This is exactly what happened to Nikola. The net harm caused by Nikola to all parties involved is much lower than that caused by Theranos.

Also, retail investors shouldn't be investing in SPACs, which are obviously risky. They have every right to, but I have little sympathy for people that lose money on risky bets. Ultimately, having a risky company go public allows institutional investors to have their say and contribute to the price discovery. It's sort of like peer-reviewed research.


> Betsy DeVos and Rupert Murdoch lost their millions precisely because there was no mechanism to discover the "counterargument" against Theranos.

They lost money because they didn't do any diligence. Theranos pitched every major VC firm and all of them passed because when they researched the team and technology they realized it wasn't what they were claiming it was.


Correct, you're not actually refuting anything I said. It's much more difficult to do diligence on a private firm than it is a public firm (due to SEC requirements). That's my entire point.

In the "what if Theranos was a SPAC" counter-factual, it's just as equally likely that dumb money never makes its way to Theranos in the first place because institutional short sellers have a vested interest in turning the logs over and kicking the tires long before Fortune magazine runs cult-of-personality profiles on the founder.


Let's see what happens. Some of the richest, most powerful people (who conveniently benefit greatly from inflated share prices) are coming out hard against short-selling lately. The narrative is strong.


Yeah I think the angst against short-selling is misguided. It serves a very important function in market price discovery.


This report is a nothingburger. Clover put out a detailed statement today debunking everything in it. This short-and-distort crap needs to end.


So why aren't these guys actually short then? Out of the goodness of their heart? Would be a first. Low conviction. Put your money where your mouth is.


Damned if you do, damned if you don't. In this climate, short sellers are viewed as evil. If you are trying to speak to those exact people about one of their heroes, do you follow the playbook of one of their enemies (shorters who post negative outlooks) or try to appear genuine by not having a position?


There has to be an end game though, if it's not to put food on the table then what is it? These funds are generally closed to outsiders so its unlikely they are just trying to virtue signal to retail.


Speculation: They might be afraid of a GME-style short squeeze. They also might be waiting to see if the stock starts dipping to jump in.


That's only a consideration when SI is a high relative to available float. As of 1/15 CLOV short interest was 9.11M shares out of 143M shares outstanding (minuscule squeeze risk).


Chamath and others using Elon's playbook of leveraging social media to create a brand mostly opposite of what reality is continues.

Elon: I'm a genius! Also TSLA's self-driving technology is better than Waymo's

Chamath: Big Wallstreet needs to be taken down! Get off of Robinhood! Use SoFi instead! I'm taking it public via a SPAC


These are ridiculously broad strokes. It's not at all obvious to me that the notions you're derisively referencing are 'opposite of reality'.

When you respond with pure rhetoric to an op-ed it just sounds like an echo chamber.


It seems relatively easy to find references to the what the parent author is referring to:

elon: https://twitter.com/elonmusk/status/1353564655088619520

chamath: https://twitter.com/chamath/status/1354947541863780365


I'm not sure what you mean. How does that substantiate the parent's derisiveness...?

How are Chamath/Musk so obviously wrong?


I'll admit the parent was caricaturizing these two figures. As far as whether two well-known people might be 'wrong', I say it's worth starting to find the journalists and academics who try really hard to not have a bias and tried to understand things over the years. Hold space for the perspective of the reasoned skeptics/short-sellers but also understand their own character flaws.


The caricatures are likely correct at some level, since the mark of a good businessman, especially in the modern day, is ability to build hype...


Serious question: How is Waymo’s tech better?

I know Tesla’s FSD is used by people quite successfully. Don’t know if people have experiences with Waymo’s


Tesla is at the level Waymo was when they started running Waymo service in Chandler with safety drivers. In Tesla's case, you are the safety driver. That's a huge achievement, but Waymo is now running with no safety driver at all. People will say "but it's a geofenced area". Sure, but Tesla is a ways off from doing even that.


Are they a "ways off"? It's not clear to me that the two are in a linear progression.

Is Tesla even attempting tests with no safety driver? They're selling personal auto mobiles, not ride sharing cabs.


Depends on metrics you choose to evaluate. Tesla is leading on deaths occurring with FSD (many), Uber 1, Waymo 0.


This is the type of disingenuous analysis that greatly skews reality; breakdown for distance driven, % of road types driven on, driver neglect, etc.


If Waymo is at 0 then normalizing by miles driven doesn't really matter...


It does if they’ve driven zero miles


It matters because a low enough miles driven would show insufficient data.


Agree on distance driven as an important metrics, road type too. However, is driver neglect really a variable for self driving cars? If yes, then is it a self-driving car?


Curious on the down votes, these are verifiable numbers and related deaths seems like a reasonable metric.


Probably because you ignored the fact that Tesla is the first to deploy, so obviously there have been more crashes. but on a per mile basis maybe not. It's such an oversight that it comes off as dishonest.


I can see your point and it makes sense. Counterpoint, if I had answered "depends on the metrics you choose but Tesla was first to market" or "depends on the metrics you choose but Tesla has the greatest miles driven" do you think the reaction would be the same?


Not op, but people here don't generally take to clearly misleading data that was presented that way to make a point. The population here is probably sufficiently enriched for data peeps.

And I mean this in the least hostile way, though my choice of language above may sound sarcastic.


Come on man. They latest spacex sn1 crash happened because the motherfucker is trying to stand the rocket up vertical just before landing. The bro is way doper than any billionaire ever and deserves all the hype.

Just take a moment and watch those videos and tell me your conclusion is ‘yeah, this guy is a charlatan’. Also, mainstream EV talk started with Elon. The hype is real and believe it or not, he earned it.


It is possible for these things to be true at the same time: Tesla is overvalued, spacex is not, Elon started both.


It's also important to note that Musk is not SpaceX. He leads and funds it, but it's a bunch of hard working engineers and scientists doing the work.


Needs air quotes: “started”.


Chamath's trying to build a persona of someone who cares about social issues. I'm not surprised to see this, he was always a fraud in my eyes. A lot of people can lose money because of him. I cannot believe billionaires like him and Mark Cuban tell retail investors to hold GME. Even if they are right, don't they think they have some responsibility given their influence as successful business people?

And don't even get me started on the biggest troll of all, mr. Musk. But at least he's not trying to hide behind some fake persona.


Cuban gave very generic advice re: GME on his reddit AMA like "Don't panic sell".

It was only controversial in the context of him being on /wsb in the first place. He wasn't actually giving dumb advice.


> And don't even get me started on the biggest troll of all, mr. Musk

[Citation Needed] Otherwise this is unsubstantiated vitriol.

From my standpoint Musk is responsible for a staggering amount of retail wealth creation and real world technological progress.


None of that is incompatible with him trolling on twitter. Surprisingly.


True but I wonder how relevant the two are to each other.

"Trolling" is starting to feel semantically bankrupt.


Clicking about on their site and I read: https://hindenburgresearch.com/nikola/

Somebody started a company called Nikola? As an overtly fraudulent knockoff of Tesla? Amazing.


I don’t know if I have the appetite for this anymore. For anyone successful, there seems to be this market where someone has space to write the broken lover’s lamentation starting off with ‘Well actually, this is why my ex is awful’.

Like really? For everything and for everyone? There’s no adults in the room that go ‘that’s not worth writing about’?.


It took about 10 words to realize this was written by someone holding a short position. This is fine, but Wallstreetbets demands some sort of regulation?


> Initial Disclosure: This report represents our opinion, and we encourage every reader to do their own due diligence. Please see our full disclaimer at the bottom of the report. We have no position (short or long) in Clover Health because 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. For more on that discussion, see our conclusion. For members of the media who wish to independently corroborate our work, please contact us for information on sources on condition that their anonymity is maintained unless they explicitly agree to go on-record.


If you would continue reading beyond 10 words you'd see this:

> Initial Disclosure: This report represents our opinion, and we encourage every reader to do their own due diligence. Please see our full disclaimer at the bottom of the report. We have no position (short or long) in Clover Health because 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. ...


You can keep downvoting me and that's fine. But Hindenburg Research is an entity that exists solely to short companies and simultaneously publish salacious reports on these companies. How obvious does it have to be for you? Just glance at hindenburgresearch.com


>That was the fastest downvote I have ever received.

Because your comment is nonsensical.

First of all, they claim no position in the stock. Even if you don't believe it, they did research on a company, decided the business looks bad. Do you expect them to be long the stock? Do you think they randomly chose this company to "bring down"?

Where are all the people upset about situations where banks like Morgan Stanley, who have Tesla for a client and own huge portions of ARKK (which in turn owns many Tesla shares) put out ridiculous reports claiming Tesla Insurance is more valuable than Geico, Tesla "parts" is bigger than VW and Tesla autonomy is worth billions, in order to juice the stock upward?

The bias is unbelievable.


Being a short seller in itself does not mean Hindenburg's reports are likely false, anymore than say, a news agency that exists to publish investigative journalism. If anyone has more information about their past track record, that would be great.


It's not really possible to have a productive discussion about a reflexive, unsubstantiated claim that the source article is lying.


But are they wrong in this case? They weren't wrong about Nikola.


Yeah but Nikola stock is shockingly going up.

(Disclosure: I hold puts.)


Short sell researchers aren't new. Their business model is to raise awareness to possible fraud for profit. They've had hits, recently for example, Luckin Coffee, and Nikola. I would assume anyone participating in the markets also knows to take what they say with a grain of salt.

Your claim that they have a position in this case was incorrect, because you can't be bothered to read what you're commenting on, and that's probably why you're downvoted.


It doesn’t make them wrong.




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