Carson Block’s Muddy Waters takes short position in eHealth

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Carson Block

Anjali Sundaram | CNBC

Carson Block’s Muddy Waters Research announced Wednesday it has taken a short position in eHealth Inc., which owns a digital health insurance exchange. 

Block, who disclosed the short on CNBC’s “Squawk Box,” said he does not believe the company is a “fraud,” but it is “in our view a massive stock promotion.” Shorting a stock is a bet that it will go down.

“It’s a perfect storm of a new management that really wanted, in our view, to pump the stock,” Block said. “From a legal perspective it’s not a fraud. Intellectually, it’s fraudulent.”

CNBC reached out to eHealth for comment but didn’t hear back.

Shares of eHealth fell more than 15% in Wednesday’s premarket trading after Block’s disclosure.

Santa Clara-based eHealth fell 10.5% on Tuesday to $116.90 each. But the stock has held up well so far this year, rising 21.7% in 2020 as of Tuesday’s close. The S&P 500 is down 17.7% in that same period.

Muddy Waters argues eHealth, with a stock market value of $3 billion as of Tuesday’s close, uses aggressive accounting techniques to obscure what is actually an unprofitable business. 

Block also casts doubt on eHealth’s growth since 2018, saying it’s been driven largely by direct response TV advertising. That strategy has resulted in acquiring customers with high churn rates, Muddy Waters adds.

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