Chamath Palihapitiya

Olivia Michael | CNBC

Chamath Palihapitiya-sponsored Clover Health Investments announced Friday that they have received an investigation from the Securities and Exchange Commission and that they intend to cooperate.

However, Clover backed out of a critical report by the short seller Hindenburg Research, saying some of the claims in the report were “totally false”.

On Thursday, Hindenburg released a damning report calling Clover Health a “broken business”. The insurance company’s stocks fell more than 12%, the largest daily percentage decline in four months. Clover’s shares rose more than 3.5% on the Friday leading up to trading after the company released its response. Hindenburg, which has posted short selling in the past, said Thursday it had no position in Clover.

Hindenburg also said that Clover has been investigated by the Justice Department and that the investigation has not been disclosed to investors. In his response to the Hindenburg report, Clover said he had received inquiries from the DOJ, but didn’t believe the inquiries were material to his investors. The company characterized the DOJ inquiries as standard practice because Clover works with the Medicare system.

Clover said it decided not to disclose the DOJ’s inquiries after consulting with its attorneys. The company didn’t say what the DOJ’s inquiries were about. On the SEC side, Clover said he received the agency’s letter Thursday after the Hindenburg report was released. The company said it was unaware of any investigation outside of the SEC’s letter it received Thursday.

The DOJ on Thursday declined to comment on any possible investigation or investigation related to Clover. The SEC declined to comment on Friday.

Clover responded to Hindenburg’s criticism of a separate company, Seek Insurance, that shares investors and governance with Clover. Hindenburg claims that Seek Insurance, a website designed to help people find Medicare plans, does not disclose their relationship with Clover, despite the fact that their website stands out as an unbiased platform for choosing a health plan. Clover said in his response that Seek Insurance is a subsidiary of Clover but is still an independent start-up.

Clover also said that Seek’s website would be updated with more information soon, and released a breakdown of the plans Seek customers are choosing. According to Clover, 13.5% of Seek customers chose a Clover plan, behind CVS / Aetna (17%), Humana (20%) and Cigna (20%).

Finally, Clover responded to Hindenburg’s claims that the company’s software was causing doctors to charge the Medicare system more than necessary, a practice called “upcoding.” According to Hindenburg, Clover’s software encourages up-coding with “irrelevant diagnoses” to “deceive” and charge the Medicare system more. Clover denied these allegations in his response, saying that doctors receive a flat fee for an office visit and that it is up to the doctor to choose the diagnosis.

Hindenburg is known for his short selling research. In particular, a report on electric car company Nikola was released last year, just days after General Motors announced an investment in the company.

Among the allegations made against the company, Hindenburg said Nikola staged a demo video of his electric vehicle, which was not powered by its own but instead rolled down a hill. Nikola denied many of Hindenburg’s claims, but not those about the truck’s demo video. GM eventually gave up its stake in Nikola.

Also of note is Palihapitiya’s commitment to Clover. The VC has built a reputation for supporting several high profile SPAC deals, including Clover and Virgin Galactic. However, Hindenburg’s report raised questions about whether or not Palihapitiya knew about the DOJ’s investigation into Clover, and whether this should have been disclosed when the company went public through the SPAC deal.

You can read all of Clover’s in-depth point-by-point answers on Hindenburg here.

–Reuters contributed to this report.