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Clover Health’s outlook continues to darken as the company settles the first of several shareholder class-action lawsuits and struggles to remain listed on the Nasdaq Stock Exchange.
The health insurance startup agreed to pay $22 million to resolve shareholder allegations that it committed securities fraud by failing to disclose a Justice Department investigation and other important information about its operations prior to its initial public offering through a special purpose acquisition company in 2021, Clover Health announced Monday.
The insurtech faces similar federal class-action lawsuits in Delaware, New York and Tennessee.
The settlement, subject to approval by the U.S. District Court for the Middle District of Tennessee, does not constitute an admission of guilt, Clover Health said in a news release. The company’s liability insurers would pay all but $2.5 million of the payout, Clover Health said. The company is suing some of its insurers in Delaware state court to compel them to cover the full amount.
Clover Health did not immediately respond to an interview request.
Digital health companies have faced a spate of lawsuits from shareholders as once high-flying firms’ share prices have fallen
“It’s interesting to see Clover being the first one to settle,” said Ari Gottlieb, an independent healthcare analyst at A2 Strategy Group. “This may reflect an interest in management in moving forward. But it also reflects the challenges that were present when Clover did their SPAC deal, which are coming out now and becoming more real.”
Additionally, Clover Health notified investors on Friday that it must raise its share price to $1 and hold that value for 10 consecutive days by Oct. 17, or it will lose its place on the Nasdaq. The Medicare Advantage carrier will consider all options to remain listed, including a reverse stock split, according to a Securities and Exchange Commission filing. Clover Health announced a restructuring plan and layoffs last week.
Following a $3.7 billion merger with Social Capital Hedosophia Holdings, Clover Health shares debuted at $15.30 in January 2021. The company’s stock opened at 78 cents on Monday.