Shares of Health Insurance Innovations (HIIQ) are under pressure after Aurelius Value said it is short the stock as it believes the company's business model relies on a "classic boiler room scam". The short-seller argued that previously sealed documents gathered by the Federal Trade Commission "prove that a large boiler room operation recently shuttered by the government for a massive alleged fraud" was responsible for roughly half of the company's sales.

'CLASSIC BOILER ROOM SCAM': In a report, Aurelius Value said it is short Health Insurance Innovations as it believes the company's business model relies on a "classic boiler room scam". "Previously sealed documents gathered by the FTC directly undermine management's claims and prove that a large boiler room operation recently shuttered by the government for a massive alleged fraud was responsible for roughly half of HIIQ's sales. Evidence also suggests that HIIQ policies have been contaminated by insurance fraud and reveal that other HIIQ brokers prey on consumers with falsehoods. Now that multiple state and federal agencies have begun moving against HIIQ's broker network, we believe it is now a question of when, not if, HIIQ's business will implode", the report reads.

The short-seller pointed out that earlier this month the FTC "shut down boiler rooms selling HIIQ policies run by Steve Dorfman", alleging they were "permeated by fraud" and selling "worthless plans that left tens of thousands of people uninsured". Soon afterward, Aurelius Value said, Health Insurance Innovations put out "a misleading press release" suggesting that Dorfman was responsible for less than 10% of the company's business. However, the short-seller believes previously unpublished bank records reveal that Health Insurance Innovations has paid "at least $145M in cash to Dorfman's companies, representing about half of the third-party commissions paid out by HIIQ over this approximate period." "We, therefore, conclude that Dorfman's alleged fraud has been responsible for as much as half of HIIQ's revenues", the report added. Overall, Aurelius Value sees "enormous downside potential" in the shares.

PRICE ACTION: In late morning trading, shares of Health Insurance Innovations have slipped over 5% to $31.33.