Sri Lankan American businessman and investor Chamath Palihapitiya and executives of Clover Health Investments, which he went public with last year, face a lawsuit that claims he misled investors. U.S. District Judge Aleta Trauger in Nashville declined to dismiss the case on March 1, “allowing investors to pursue allegations that Clover lied about the source of its growth and the existence of a U.S. Department of Justice investigation. Justice on the company,” Reuters reported.
Clover Health was founded by Vivek Garipalli in 2014. According to the company’s website, it has operations in eight states, including New Jersey, Tennessee, Pennsylvania and Texas. Prior to founding Clover, he founded CarePoint Health in 2008, a fully integrated healthcare system in New Jersey. Last year, Palihapitiya took the insurance company public through its SPAC Social Capital Hedosophia group. Forbes estimated that the SPAC listing boosted Garipalli’s net worth to “at least $1 billion.”
The investigation into the company began last February after Hindenburg Research, an investment research firm, released a report on February 4 detailing how “Clover Health and its famous Wall Street promoter, Chamath Palihapitiya, misled investors wrong about critical aspects of Clover’s business in the run-up to the company’s SPAC IPO transaction last month.
According to the report, Clover Health did not disclose that its business model and software offering, called Clover Assistant, is under active investigation by the Department of Justice (DOJ), “which is investigating at least 12 issues ranging from kickbacks to marketing practices to undisclosed third-party transactions.
The report mentions SeekMedicare, calling it the “low disclosure subsidiary” of Clover. Adding that Seek makes no mention of its relationship with Clover on its website, the report says it misleads advertisers by telling them it offers “independent” and “unbiased” advice on selecting business plans. ‘Health Insurance. His activities are also under investigation by the DOJ.
Last month, Palihapitiya resigned as Chairman of the Board of Virgin Galactic. His SPAC took the space tourism company public in October 2019. In a statement announcing the departure in a statement last week, Virgin Galactic CEO Michael Colglazier said he was leaving to “focus on other commitments of the board of directors of the public company”. He said the company had “always known the time would come when [Palihapitiya] would shift its focus to new projects and activities.
A former Facebook executive, Palihapitiya is CEO of Social Capital, a Menlo Park-based venture capital firm he founded in 2011 to invest in businesses in areas overlooked by other venture capitalists, such as healthcare, financial services and education. The company has since grown to also invest in tech companies like Amazon, Tesla and Slack. In 2018, Palihapitiya closed its venture capital funds to new investors.
The 45-year-old, who often describes himself as the next-gen Warren Buffett, is a leading proponent of Special-Purpose Acquisition Companies (SPACs), one of the hottest trends among dealmakers in Silicon Valley. Through his group SPAC Social Capital Hedosophia, Palihapitiya has sponsored six of these companies, raised a total of $4.34 billion and acquired companies in several sectors, including space travel, health insurance, services finance and real estate. Through Social Capital Hedosophia Holdings I, he took Virgin Galactic public and made it the first publicly traded manned spaceflight company. In January 2021, Social Capital filed seven new SPACs. His large investments in them have earned him the nickname “SPAC King” during the pandemic.
Prior to founding Social Capital, he served on Facebook’s leadership team in several capacities, most recently as Vice President of User Growth, Mobile and International. During his four years with the company, he is credited with helping to orchestrate the massive growth of the social media platform. Before that, he worked at AOL and became the company’s youngest vice president while running AOL’s Instant Messenger division. Palihapitiya first entered the venture capital world in 2006 as a director of the Mayfield Fund.