MAX: Our Investigation Reveals MAX Is Participating in Consumer Fraud

We are short the insurance lead generator, MediaAlpha, Inc. (NYSE: MAX) following our research into the company’s Health Insurance (Health) segment, which accounts for 47% of the company’s TTM revenue. We believe MAX uses dishonest and sometimes outright fraudulent ads along with deceptive websites to trick consumers into providing their personal information in exchange for a health insurance “quote.” MAX then sells this information as raw lead data or uses it to generate clicks or calls for its lead-buying partners. Our investigation indicates as much as 78% of MAX’s Health lead-buying partners are running boiler room health insurance scams or are flagrantly violating laws concerning telemarketing.

Our investigation indicates that the deceptive business practices prompted the FTC’s ongoing investigation into MAX’s Health segment, which has already cost MAX $5 million in legal fees, are systemic and ongoing.

MAX appears to have become an object of interest to the FTC because of its role facilitating the sale of sham health insurance policies by Simple Health and Benefytt Technologies, Inc. (formerly Health Insurance Innovations, Inc). In both actions, the FTC stated that consumers were drawn into these scams by deceptive websites and provided examples, and which are both owned by MAX through its subsidiary QuoteLab, LLC (QuoteLab). The State of Washington also went after MAX for the use of deceptive website names and identified specifically as an example.

The FTC has been ruthless with the perpetrators of health insurance scams, fining Simple Health $195 million and Benefytt $100 million. Simple Health’s CEO was convicted of fraud and Benefytt declared bankruptcy. We would not be shocked if the FTC was looking at MAX for its next scalp in its crusade against health insurance scams.

Alternatively, the FTC has set precedent with other deceptive lead generating companies. Response Tree LLC was banned from lead generation altogether after it allegedly duped consumers into providing personal information with deceptive websites. (Sound familiar? The FTC already has characterized MAX’s websites as deceptive.)

ITMedia Solutions was required to screen the recipients of its leads because it duped consumers into giving personal information for a loan quote, but then sold the info indiscriminately (our investigation reveals that MAX is selling leads to outright fraudsters). MAX cannot afford a large fine as it has just ~$14.5 million in cash, a tangible book value of negative $162.5 million, and $172 million in debt. Operating cash flows in Q1 2024 were just $1.7 million. MAX’s disclosures indicate its Health segment accounts for most of its gross profits. Fine or no fine, when the FTC imposes a similar restriction as it did with ITMedia, our research indicates MAX is going to lose nearly all of its Health customers.

MAX’s founder and CEO, Steve Yi, sits on the board of MAX’s largest shareholder, White Mountains Insurance Group (which also has two other board members). While Yi has downplayed the potential impact of the FTC investigation on an earnings call, the actions of him and other insiders indicate that enforcement may be imminent:

1.	Yi and his cofounder/CTO Eugene Nonko, along with White Mountains have been dumping hundreds of thousands of shares– most recently in a secondary offering on May 7th priced at a 13.2% discount to MAX's closing price on the same day.
2.	On May 20th, MAX disclosed that it had amended its articles of incorporation to eliminate the personal liability of executives and directors stemming from breaches of fiduciary duties to the fullest extent permitted by law (why would they need that?). 
3.	On May 20th, MAX revealed that Yi and Nonko no longer would be taking MAX stock for base salary compensation and would be getting paid in cash. 

How worried is the CEO, Yi about this FTC enforcement action? For him and the other insiders to dump shares or opt for more cash compensation at this time is telling. But rewriting the rules of the company to try to eliminate all personal liability for breaches of fiduciary duty is absurd and we think it tells you everything you need to know about how the executives and other insiders (like White Mountains) feel about their chances with the FTC.

Our investigation into MAX’s Health segment included reviewing thousands of ads, hundreds of websites, and speaking with dozens of MAX’s lead-buying partners. Our research indicates that MAX leans heavily, if not entirely, on deceptive practices that have played a key role in defrauding thousands of people.

We have shared the results of our investigation with the appropriate state and federal agencies, including the FTC, through our legal counsel.

• We investigated MAX’s current lead-buying partners by setting up several aliases which cumulatively were bombarded with over 400 calls, answering over 50 of them. We were shocked that even with an ongoing FTC investigation, MAX still appears to be largely selling its leads to scammers. Out of the 40 calls we recorded with different telemarketers:

o 20% fraudulently claimed to be working on behalf of a state government. You can listen to clips of these here.

o 45% either gave fake license numbers or hung up when we asked for one.

o 0% provided us with a Summary of Benefits when asked, and most violated the Telemarketing Sales Rule (TSR) by pushing to get our billing info and create a negative option feature without providing material information for the transaction, like who they were working for, and who the billing company would be.

o Only 15% revealed the legal entity they worked for, and half who made that disclosure worked for Assurance IQ, which was shuttered by Prudential on May 1st, 2024, (reportedly due to heavy losses and compliance issues).

o Only one telemarketer revealed the billing company for the “comprehensive” plan they were trying to sell, but we learned the insurer does not even offer ACA-compliant plans and has been hit with enforcement actions in several states.

• Making false or deceptive advertisements is a federal crime. The Federal Trade Commission Act, which establishes the authority of the FTC, clearly states that deceptive acts or practices in or affecting commerce are unlawful.

• MAX ran a fraudulent ad claiming there was a new government initiative granting Free Health Insurance to every single American Citizen earning less than $122k per year. If you’re reading this report and earn under $122k per year as an American Citizen, MAX is telling you you’re eligible for free health insurance (but call now because funding for the program is limited!). We spoke to a employee who informed us we’d have to look online to see if our tax credits would qualify us for a free health plan. For example, a single 26-year-old living in Columbus Ohio earning $55,000 annually who doesn’t have health coverage through his employer would receive no tax credits, meaning they would not get free health insurance. We view this as obvious consumer fraud.

• These ads often target young minorities with ads by rappers, athletes, and other celebrities promising huge “stimulus” payments as paid actors wave wads of cash and promote “free money.” Some of the abovementioned ads even reference “FREE Health Insurance Tokens,” a program or benefit does not exist per another employee we spoke with.

• MAX’s website uses many of these deceptive ads to drive traffic to its website. A third-party web traffic tool shows this website was the top driver of Health traffic to in 1Q24, the subdomain which receives inbound web leads for MAX. This website is almost the exact same as when it was called out as deceptive in the FTC’s Complaint against Benefytt. See Appendix A of this report.

• Making deceptive websites like appears to be a core part of management’s strategy. MAX’s CEO, Steve Yi, apparently used to register deceptive domains like himself, but appears to have stopped using his name in 2017. A Whois search reveals that MAX’s subsidiary QuoteLab registered a host of deceptively named websites which often made consumers think they were looking at official websites. MAX’s websites are deceptive as consumers input their information into these sites, such as, to shop for Affordable Care Act (ACA) insurance. Instead, their phone is blitzed with telemarketers who lie to them to make a sale.

• With all this false and misleading advertising, MAX is filling its Health segment lead pipeline with desperate people who are calling to collect all sorts of benefits along with their free health insurance. In one FTC complaint we obtained via FOIA, an employee of one of MAX’s lead-buying partners stated:

“Our company is paying Media Alpha for each lead they send to us, despite all of these being false leads.” MAX’s low-quality leads may be a turnoff for companies that are trying to sell real insurance, but unscrupulous scammers selling sham insurance appear eager to speak with these vulnerable people as demonstrated by the practices of Simple Health and Benefytt.

• If making deceptive advertisements and selling its leads to telemarketers running scams does not kill MAX’s Health segment, then we believe the FCC’s new 1:1 consent rule will cripple it. This rule will take effect in January 2025 and requires lead generators to obtain specific written consent for each individual seller who contacts the consumer via robocall or robotext. Our investigation indicates many lead-buying partners rely on robocalls for efficiency, or exclusively use robocalls or robotexts for less promising leads.

• MAX’s largest shareholder (34.62%), White Mountains Insurance, claims to be committed to ethical conduct:

“We are committed to the ethical conduct of our business. This commitment is reflected in our corporate governance and in our corporate values and culture.”

How do these “corporate values” square with MAX’s targeting of vulnerable minorities and seniors with deceptive advertisements and sale of their information to scammers? Considering that Christopher Delehanty and Jennifer Moyer of White Mountains Capital are sitting on the board at MAX, perhaps they could look into it. Or the CEO of White Mountains could ask MAX’s CEO Steven Yi since he sits on the board of White Mountains.

The FTC is already investigating MAX. They have already been hit with an enforcement action in Washinton State. In our opinion, it is not a matter of if MAX will be subject to enforcement action by the FTC, it is a matter of when. But how soon? CEO Steve Yi’s family office (OBF Investments, LLC) registered to sell nearly $13.5 million in stock in a secondary offering on May 7th. White Mountains, where Yi is on the board, registered to sell more than $57 million in stock as part of the same offering. We think if any insider knows how the FTC investigation is going, it is the CEO. Make of that what you will.