Shares of healthcare services provider LifeMD (LFMD 0.78%) are plunging on Wednesday and were down by 22.3% as of 3:45 p.m. EDT. The company did not report any news, but these losses are a result of a short-seller report issued by investigative research firm Culper Research.
In its report, Culper Research makes a series of claims concerning LifeMD, its executives, and its operations which, if true, could be devastating to the healthcare company and its shareholders. For instance, Culper Research alleges that LifeMD presents misleading information regarding its network of doctors and even uses unlicensed professionals "to dispense OTC medication."
Further, Culper Research thinks LifeMD is engaged in fraudulent and illegal activities that are similar to those of Redwood Scientific, a company that faced severe legal penalties at the hands of the U.S. Federal Trade Commission (FTC) back in 2018.
These activities include "unlawful autoshipping, abusive telemarketing, and false claims of its products." Culper Research also notes that some of LifeMD's current executives were implicated in the Redwood scandal, either as employees of the company directly involved in these crimes or as major shareholders. If these claims prove accurate, LifeMD could face the wrath of lawmakers and regulators.
What should investors make of the allegations brought forth by Culper Research? It's important to remember that there are two sides to every story. As incriminating as Culper Research's report looks, LifeMD could well have ready and convincing rebuttals to these accusations. However, LifeMD's shares will likely be highly volatile now that this report is out there, and I'd think twice about initiating a position in this healthcare stock anytime soon.