Health Insurance Innovations Inc HIIQ 0.23%‘s stock plummeted 21 percent Monday after MOX Reports published an article suggesting the company could be facing fraud penalties in excess of $100 million. The short seller claimed there are 42 state investigations into Health Insurance Innovations’ sales practices, noted its inability to obtain licensure in the state of Florida and alleged countless complaints about the company on consumer reporting websites. The report also highlighted more than $50 million of insider stock selling from high-level management.

Ongoing Investigations

On Tuesday, the company fired back with a response to the accusations:

“The Indiana Multi-State examination is an open matter, where the lead regulators have not yet provided any written findings, or a framework for resolution. A third-party report published yesterday referred to a potential estimated combined fine amount of $100 million, which the author based on unstated or inapplicable data points. This amount does not correspond to any estimates, analyses, or communications undertaken or made by the Company, and the Company does not believe that this number has any basis in fact.”

The company added that all its regulatory matters are fully disclosed to the SEC and publicly available for all investors to see.

Licensing Issues

In terms of its Florida Third-Party Administrator licensing issue, the company stressed that it has operated in Florida for years selling products under an Agency License from the Florida Department of Financial Services. The company claims that it is currently engaged with the state of Florida to work through the process of gaining a TPA license.

“Because the Company’s business model does not fall into the category of business activities ordinarily contemplated by state TPA statutes, the need for the Company to become licensed as a TPA in a particular state is not always clear and generally involves an analysis and dialogue with applicable state regulators. As of today, the Company applied for and obtained TPA licenses in approximately 34 states, and applications in 8 states are pending, and in other states the Company confirmed that licensure is not required,” the statement read.

Analyst Backing

On Monday, Cantor Fitzgerald stepped in to defend Health Insurance Innovations, saying that the market sell-off was an overreaction.

Despite acknowledging a letter from the Florida Office of Insurance Regulation to the company “does not read well and highlights several shortcomings by the company during the licensing process,” Cantor Fitzgerald concluded that most of the short seller accusations seem to be unfounded. In particular, company chief financial officer Michael Hesrberger’s insider stock sales were part of a pre-arranged 10b5-1 plan and not timed based on any regulatory matters.

“We believe the weakness in HIIQ shares today is mostly unfounded,” the firm concluded.

Investors Not Convinced

So far, the market isn’t convinced…

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