Trade Alert: This Clover Looks Unlucky
As part of my cautious outlook on the overall stock market, I find myself splitting time between looking for bubbled-up and/or fraudulent stocks and searching for long-term Revolutionary companies for us to put our money to work in. One such company that falls into the former category that I have been following for a few months is Clover Health, a company that Chamath Palihapitiya brought public via a SPAC last October. After an eye-opening report on the company from Hindenburg came out in February, I went down the rabbit hole of the shady dealings of its management team. And I did not like what I found. I was on the verge of heavily shorting this company earlier this year, but the price collapsed before I did. I thought I had missed the boat on this being a no-brainer short, but as CLOV has recently become a target of the Wallstreetbets community and is being short-squeezed as I type this, it is peaking my interest once again. I often talk about how I avoid investing in companies that depend on the government for their revenues. This story is an example of why.
I started off by typing into Google, Vivek Garipalli, the CEO’s name along with the word fraud. And then I opened up about 25 tabs on my browser and started printing out the articles I found.
Long story short (pun-intended), it appears to me that the CEO of Clover Health and his cohorts took hundreds of millions of dollars out of three struggling community hospitals in New Jersey, leaving shoddy care for patients and endless layoffs for employees in very questionable and unethical ways. And I think the story isn’t over yet. New Jersey could be likely to prosecute this guy before it’s all said and done.
Some history about the Clover CEO and his past companies then. All items below are from the articles I found this morning in my virtual Clover Health rabbit hole.
The CEO used to run a “sleep diagnostics” chain and was promoting it in sleep magazines in 2007 (who knew there was such a thing as a sleep magazine?). In July 2007: “Since opening its first four-bed center in Old Bridge, NJ, in 2005, ISN has launched a total of nine facilities in four states, and the company plans to double in size over the next 12 months. The secret to ISN’s rapid growth lies in anticipating how the relatively new industry of sleep medicine will mature, and then building a model that can be duplicated anywhere in the country. For example, when ISN founders and partners Vivek Garipalli, Rajesh Grover, and Priti Pandya-Patel decided to open the first center in their home state of New Jersey, they learned that this was also a first for the Garden State, which gave the partners an opportunity to lead the way in the independent sleep center arena. “There are actually no state regulations written for sleep facilities in New Jersey yet,” Garipalli says. “Our Old Bridge lab was one of the first independent labs to be licensed by the state and to be IDTF certified. Our company has been asked to assist in writing the guidelines for the state regulations for independent sleep labs.””
Now in 2021, you can’t find anything on “International Sleep Network” though Ms. Patel has at some point been the President Asian Indian Chamber Of Commerce.
Anyway, some five months after that article about Vivek’s sleep business came out, he was apparently in the hospital business.
On Feb. 1 2008: “Bayonne (N.J.) Medical Center closed a sale to for-profit investors who will continue to operate it as an acute-care hospital, the formerly not-for-profit hospital, became the property of IJKG Opco, an Iselin, N.J., corporation formed by three investors. IJKG Opco agreed to pay $100,000 in cash and assume debt worth about $40 million, according to the sales agreement. The investors include Vivek Garipalli, who owns a chain of diagnostic sleep centers, and James Lawler, former chief financial officer of 479-bed University Hospital in Newark, operated by the University of Medicine and Dentistry of New Jersey.
Through that position, Lawler has some perspective on accounting practices that draw the ire of the federal government. He quit about a week before the hospital signed an agreement with the U.S. attorney’s office to stave off criminal prosecution for alleged willful double billing of Medicaid to the tune of $4.9 million. Lawler later filed a lawsuit against the the University of Medicine and Dentistry saying he was forced out because he’d raised questions and refused to approve cost reports.”
Hmm, pay attention to that UMDNJ fraud story, it will come up again later….
Three years and millions of lobbying dollars later, Vivek and his boys are getting help from the state of NJ to buy more hospitals on more taxpayer dimes. In 2011: “Gov. Chris Christie today said he would pledge $5 million in state funds to jump start bankrupcty negotiations key to the sale of Hoboken University Medical Center to the ownership group of Bayonne Medical Center. It’s the second time Christie has committed state dollars to the deal. He supported an $11 million earmark in the current budget for the city to pay the interest on $52 million of debt that would be retired as part of the sale. Even with the promise of cash, creditors and the hospital failed to reach any agreement today. Christie said unions are to blame, but labor leaders said the governor is trying to set them up as the scapegoat if the hospital closes.
The creditors are owed $34 million, and the hospital initially offered $5 million to settle, along with protection for the city and the authority from future lawsuits. The state money would double the amount.
Christie said the state needed to intervene because if the hospital closes, 1,300 jobs would be lost and the city would be saddled with unbearable payments on $52 million in bonds that it guaranteed when it bought the hospital in 2007.
Since taking control of the Bayonne Medical Center in 2008, the ownership group of Vivek Garipalli, James Lawler and Jeffrey Mandler made numerous political contributions including $100,100 to Democratic lawmakers and the party’s state committee, records show. The group also contributed $25,000 to Reform Jersey Now, a political action committee with close ties to Christie.
The parents of Vivek Garipalli, who reside in Colts Neck, also made maximum contributions to Assemblyman Ruben Ramos (D-Hudson) weeks before the lawmaker sponsored a budget resolution for the $11 million earmark for the hospital sale. Ramos has since contributed the money to charity.
The father, Laxmipathi Garipalli, was charged by then-U.S. Attorney Christie in 2008 for embezzling money through a no-show job at the University of Medicine and Dentistry of New Jersey. He pleaded guilty in February 2008 and is still cooperating with investigators.”
First off, anytime a politician is giving money to a corporation or really rich people in the name of “jobs,” it’s usually safe to assume that there’s some quid pro quo lobbying/donations-in-exhange-for-subsidies and the above is great case in point. The state of NJ helped these guys by a hospital out with millions of taxpayers dollars.
Paying politicians to give you taxpayer money in the name of “jobs” is a good investment when it works. Also in 2011: “The ownership group of Bayonne Medical Center may be as well versed in the art of Trenton politics as it is in medicine.
Facing legislative calls for increased oversight of for-profit hospitals as it pursues a controversial deal at Hoboken University Medical Center, the group has spent more than $350,000 in the past two years on political campaigns and high-powered lobbyists to make their case at the Statehouse, records show. The Bayonne hospital paid Rosemont Associates, a lobbying firm that employs former U.S. Sen. Robert Torricelli (D-N.J.) to help convince the chairmen of the state legislative budget committees to support an $11 million earmark to ease the sale of the Hoboken University Medical Center, records show.
The ownership group of Vivek Garipalli, James Lawler and Jeffrey Mandler want to buy the Hoboken hospital for $65 million and convert it to a for-profit hospital, with the bulk of the proceeds going to retire $52 million in city-guaranteed debt. The $11 million earmark will pay of the interest on the bonds.”
Did you notice the small world way that the UMDNJ came up in a fraud related to these guys again? Coincidence, I’m sure.
Or not, as this article also from 2011 reveals: “Although propelled into office partly by the impact of Bid Rig II, Christie’s fame as a federal prosecutor was secured with the arrests and convictions on corruption charges at University of Medicine and Dentistry of New Jersey in 2006. Christie gave a $3 million no-bid contract to his former mentor Judge Herbert J. Stern to serve as monitor in the aftermath of the investigation. Then, according to published reports, he later arranged for Stern’s son to get a job at the U.S. Attorney’s office. Convicted in this investigation was Laxmipathi Garipalli, thanks to the efforts of whistleblower James Lawler, who worked for Garipalli at the time according to several sources. Lawler was later brought to Bayonne by the Committee to Save Bayonne Medical Center, a group of concerned citizens and workers who were critical of the old owners of the facility. ‘We wanted him because we knew he was a whistleblower and he did a report on the hospital for us,’ said one member of the committee. As the transition team came on board at the hospital, they brought on former U.S. Sen. Robert Torricelli and his chief aide Sean Jackson. Jackson had also worked with Lawler for Garipalli at UMDNJ, and so ironically, the two found themselves on opposite sides. Jackson is said to be Torricelli’s go-to man. As the old Bayonne Medical Center teetered towards bankruptcy in 2007, Lawler desperately attempted to put together a group to purchase the hospital. When this effort fell through, Lawler hooked up with Vivek Garipalli, the son of the man he helped convict, and both became partners in the ownership group of Bayonne Medical center and HUMC Holdco, the group buying the Hoboken hospital. This ironic situation took place under the monitoring of Judge Stern and presumably with the blessing of Christie.
The elder Garipalli, who pleaded guilty to embezzlement but has yet to be sentenced, reportedly has become a cooperating witness in the UMDNJ investigation. ‘Lawler is Mr. Clean,’ said one member of the former transition team at Bayonne Medical Center. “The new owners rolled him out to show that everything is on the up and up. James doesn’t even have an office at the hospital.” Christie, of course, has since gone out of his way to make sure that HUMC Holdco will be able to purchase the hospital in Hoboken. Medical Properties Trust, which is most likely purchasing the Hoboken hospital land, is a prominent Republican contributor, including providing support to a national governor’s conference which Christie heads. HUMC Holdco has also contributed to a Christie political action committee and other groups.”
Does this story get any more outlandish? It does, just wait for it….
In 2012, the dude’s got enough money to Tory Burch’s Hamptons mansion for $11 million: “Garipalli, co-owner of Bayonne Medical Center, plans to rip down Burch’s home, which sits on 4.5 acres. The Post reports he’s planning to build a 7,100-square-foot home in its place.”
Oh, this might help pay for such a house:
Fast-forward to 2019, “The principal owners of CarePoint Health set up shell companies to pull more than $157 million in ‘management fees’ from the three Hudson County hospitals they rescued from insolvency, according to a report from the New Jersey State Commission of Investigation. Between 2013 and 2016, Bayonne Medical Center, Christ Hospital in Jersey City and Hoboken University Medical Center paid annual amounts ranging from $6.3 million to $33.3 million to a pair of entities, IJKG and Sequoia Healthcare Management, that were controlled by the for-profit health system’s three principal owners — Vivek Garipalli, James Lawler and Jeffrey Mandler. The SCI found that neither entity had any employees and had little in the way of operating expenses. But both had been contracted to provide “certain services” related to the management and operation of each of CarePoint’s hospitals.
IJKG collected the bulk of the fees — almost $99 million — from Bayonne Medical Center. Christ Hospital and Hoboken University Medical Center paid more than $58 million combined to Sequoia. Neither entity collected revenue from any other client or source, according to the report. According to SCI, Garipalli, the former Blackstone Group executive who orchestrated CarePoint’s 2013 formation and the acquisition of the three hospitals, testified that the payments were intended as an “incentive” to CarePoint’s owners and operators, and were only made if the hospitals were covering their expenses, loan obligations and covenants. In 2016, when CarePoint laid off about 90 employees, the three hospitals coughed up roughly $30 million to IJKG and Sequoia. A separate LLC linked to Mandler, then CarePoint’s CEO, was also receiving $10,000 a week in compensation during that time, according to the SCI report. Separately, all three hospitals had management services contracts with an LLC called CarePoint Health Management Associates, which labor department records indicate employed more than 350 people and paid out roughly $30 million in salaries. Garipalli holds an 80 percent stake in that LLC through several unique structures, according to the SCI report.
‘Although these three individuals have provided services to the three CarePoint Health hospitals, the extent of the services leading to more than $157 million in management fees and allocations for a four-year period is unclear,’ the SCI report stated, adding that the circumstances of these arrangements ‘do not necessarily establish impropriety.'”
The circumstances of these arrangements might not necessarily establish impropriety, but I’d be hard pressed to find something else they establish! Let me repeat this for you — these guys got paid nearly $200 million in related company transactions that the state of NJ is now investigating. But somehow, they don’t have the money to pay their doctors, nurses and support staff at the hospitals that were able to afford those related company transactions. Ridiculous!! People are losing jobs and are going to die because that money went into the coffers of these related businesses:
In November 2019: “The owners of three hospitals in Hudson County have taken another major step toward getting out of the hospital business. More than 2,100 layoff notices have been issued to employees at Hoboken University Medical Center (HUMC) and Christ Hospital in Jersey City.”
In 2016, Garipalli was revealed to be the source of a $1 million donation to a super PAC with ties to Jersey City Mayor Steven Fulop, who was then weighing a run for governor.
How about the spin from Carepoint on the outrageous finding from NJ’s inspectors:
“This report confirms CarePoint has acted in good faith within the state’s rules and regulations regarding transparency. CarePoint supports the suggestions in this report and has offered its commitment to the Department of Health to share additional information and to help craft supplemental reporting requirements beyond the extensive ones that are already in place. These ongoing discussions will now benefit from the recommendations in the SCI’s report.”
I don’t think that is what the report found at all, quite the opposite actually.
Meanwhile, these guys are still trying to get even more money for these hospitals that are basically bankrupt, just like they were when these guys bought them a decade ago or so. February 2020: “CarePoint Health founder Vivek Garipalli has offered to sell to RWJBarnabas Health roughly a third of the land under Christ Hospital in Jersey City, as well as surrounding facilities, for $75 million, according to four sources with knowledge of the proposal. Separately, three sources said Garipalli’s offer included a provision that would allow him to repurchase a stake in the property should the real estate ever be rezoned to house commercial or residential properties. CarePoint’s ongoing effort to sell its three hospitals has been complicated by its legal battle with Eisenreich, who is also a 25 percent stakeholder in Christ Hospital’s operating company. In November, a little more than two weeks after CarePoint and RWJBarnabas signed their letter of intent, Eisenreich acquired the land under the Bayonne and Hoboken hospitals for $108 million from Medical Properties Trust, an Alabama-based real estate investment trust.”
Does this sound like the kind of people that I like to do business with or invest in? No!
Now, let’s get back to Clover Health. Also February 2020: “New Jersey legislators are calling for state officials to investigate Clover Health, a San Francisco-based insurance startup, as well as other entities created by the owners of CarePoint Health System. The for-profit health system had planned to sell two of its New Jersey hospitals, and was seeking a buyer for the third. But after the New Jersey State Commission of Investigation found CarePoint had funneled $150 million in management fees to companies created by its owners, lawmakers are calling for state authorities to call off the deal and further investigate their businesses. CarePoint Health was created when Vivek Garipalli, James Lawler and Jeffrey Mandler bought its three hospitals out of bankruptcy between 2008 and 2012. Garipalli and Mandler also co-founded insurance startup Clover Health in 2014. So far, bids to find a buyer for the hospitals haven’t been promising. A deal for Prime Healthcare to buy 254-bed Bayonne Medical Center fell through in January. RJWBarnabas Health, a nonprofit health system, signed a letter of intent to acquire 363-bed Christ Hospital and 333-bed Hoboken University Medical Center. But by early February, negotiations hit a standstill, according to the Hudson Reporter.
Concerned about the hospitals’ future, New Jersey legislators representing Hudson County called for state authorities to further investigate the owners’ finances and nullify any sale of land related to the hospitals, according to a Feb. 10 letter first published in the Hudson County View. They specifically called for the Department of Health, Department of Banking and Insurance, and Attorney General to investigate the operations of Clover Health and Alaris Health, a New Jersey-based nursing home company created by a minority owner of Christ Hospital. Alaris Health owner Avery Eisenreich is currently embroiled in a lawsuit with CarePoint.
‘It now appears that Christ Hospital is on the verge of bankruptcy and petitioning for closure and that Bayonne Medical Center is only a few weeks behind. The impact of closing one or more of these facilities on the Hudson County community would result in a devastating loss of health care access for thousands of individuals and families. The near bankruptcy of the CarePoint hospitals is directly related to the decision by ownership to withdraw unreasonably large sums from their operations for personal profit at the detriment to services and the health care available to Hudson County residents.’
Clover Health denied any involvement with CarePoint, in an emailed statement. ‘Clover Health and CarePoint are entirely separate and independent entities, with different management teams, investor structures, and boards of directors. Clover has no influence on CarePoint’s operations, finances, or strategy, and vice versa,’ the company’s president and chief technology officer, Andrew Toy, stated.”
It’s certainly true that Clover and Carepoint are two entirely different companies, but if the CEO/Founder/Fountainhead of Clover is, in my opinion, likely to see a lot more trouble come out of these shady dealings from his old company Carepoint, then I think Clover is going to be in trouble too.
And oh, you want more proof that Clover and Carepoint might be a bit more intertwined than Chamath and Vivek and Andrew all way you to believe? Here you go because there’s this little tidbit that made me decide I should actually buy some puts on Clover:,
From that same February 2020 article: “In past testimony to the State Commission of Investigation, Mandler had said that IJKG is a holding company but that its fee was for the “sweat equity” for work conducted by him, Garipalli and Lawler. Regarding the payments to Sequoia Healthcare Management, Garipalli said they were “incentive payments” that would only be made if the hospitals were successful.
In 2014, Sequoia Healthcare Management obtained a $60 million loan from a financial institution. Between 2013 and 2016, some of the proceeds of that loan were divvied out to LLCs linked to the three owners. According to the report, on July 17, 2014, more than $43.5 million was transferred to an LLC linked to Garipalli, more than $5.4 million to Lawler, and more than $5.4 million to Mandler. Clover Health was incorporated on the same day.
According to the report, ‘Garipalli confirmed that there is a connection between the loan closing and the incorporation of Clover Health Investments. He explained, “[W]e needed to raise outside capital. You cannot raise outside capital as long as the insurance company owed money, so we had to pay off that loan before anyone would want to invest capital into what became Clover.“‘”
The bold there is mine. In other words, Clover sure looks like it was initially started in a fishy manner from fishy money.
It’s not getting better for Carepoint, its hospitals, its employees and I do think the CEO is going find things aren’t going to stay better for him either. In June 2020: “CarePoint Health is dissolving and has been liquidating its assets, including Bayonne Medical Center (BMC), Hoboken University Medical Center (HUMC), and Christ Hospital. Four mayors, including Mayor James Davis of Bayonne, Mayor Ravi Bhalla of Hoboken, Mayor Steven Fulop of Jersey City, and Mayor Brian Stack of Union City, as well as Hudson County Improvement Authority (HCIA) CEO Norman Guerra, have also signed a letter calling for a state solution.
The officials have penned the letter to express their concern regarding the long term viability of the hospitals. According to the letter: ‘This distress and concern has been heightened exponentially in the light of the worldwide pandemic where our county has been a part of the regional epicenter of the COVID-19 pandemic in the United States and the world.'”
Of course, CarePoint’s PR people are amazing: “‘CarePoint wholeheartedly supports the eminent domain efforts of the County Executive, the Mayors of Bayonne, Jersey City, and Hoboken, and Senator Stack,’ according to a spokesperson for CarePoint. ‘CarePoint will continue to provide all information necessary to the Hudson County Improvement Authority and the Department of Health, and stands with officials that the ultimate goal is to ensure the preservation of the hospitals and the services they provide to the communities.’ CarePoint said that its physicians, nurses, employees, and staff echo the concern that the current landowner continues to ‘hijack the process that will ensure the stability and future of these critical acute care hospitals. The focus of our heroic physicians, nurses and employees should be on patient care and preparing for a second wave of the pandemic, not whether greedy landowners and real estate developers are threatening the future of the hospitals,’ according to CarePoint.”
Puke!
I leave you with this last tidbit from an article just eight months ago, while Chamath was supposed to be doing due diligence on this company and their CEO, from a NJ newspaper in June 2020:
“Fearing that the struggling hospital would close for good, the state Department of Health accepted a bid from an unorthodox buyer: Vivek Garipalli, a young investor with a plan to transform the facility into a for-profit hospital. Garipalli was the first to see the potential for massive profits in Hudson County’s hospitals. Now, 12 years later, that potential has attracted an eclectic cast of businessmen, many with controversial pasts: Avery Eisenreich, Yan Moshe, and BMC Hospital, LLC, a group made up of partners in for-profit surgical center chain Surgicore.
Garipalli was an unlikely candidate to take over Bayonne Medical Center. He had no medical background and had never run a hospital before. The son of doctors from India, Garipalli graduated from Emory University with a degree in business administration. After college, he entered the finance industry, working stints at Credit Suisse, J.P. Morgan, and the investment firm Blackstone Group, according to online bios. Prior to buying BMC, he founded a sleep disorder clinic, the International Sleep Network. Under his management, BMC became the most expensive hospital in the country. Garipalli went on to acquire Hoboken University Medical Center in 2011 and Christ Hospital in 2012, adding to his for-profit network CarePoint Health.”
I’m a bit shocked after doing all this homework that this company, Clover Health, with this CEO, with this history, is being valued at billions of dollars. Although you have probably seen what can happen to those who short against meme stocks such as AMC and GME, I am watching and getting ready to begin buying some puts on CLOV every month or so and I might short a few shares of the stock out right in my hedge fund. I’ll tell you that I’m not going to buy another Chamath-related stock again too. I like the economics/geopolitical trends of US-vased rare earth mining enough that I’m going to maintain a small-ish position in MP, another Chamath company. Betting against CLOV while holding onto our MP might turn out to be a good paired hedge. At any rate, let’s stick with doing our own homework, our own due diligence and making safe, measured and sometimes hedged bets.
