Pharmaceutical company Grifols (GRFS) faced a significant setback following the release of a report by Gotham City Research. The report accused the firm of serious accounting manipulations, raising concerns about its stock value.
Gotham City Research founded by Daniel Yu, known for its "due diligence-based investigations", started investigating about Grifols since last spring and found some troublesome "pattern of behaviour" in the company financials. The report concluded that, "We believe shares are uninvestable, likely zero."
The report accused the Spanish-based firm of inflating its EBITDA, engaging in illegal transfers of assets and profits to insiders, and manipulating the level of debt. The report also alleged undisclosed loans and share pledges involving Grifols and Scranton Enterprises NV.
Further, the report suggested that Grifols has been understating its debt while its actual debt could be closer to 8.9 billion euros, higher than the reported debt of 8 billion euros.
In response to the announcement, Grifols market value dropped by $2.5 billion. The firm denied the allegations by saying that the report was based on "false information" and "speculation." The company will conduct a conference call on Thursday with investors to discuss about this matter.
Board member of Grifols audit committee, Tomas Daga commented that it was in Gotham's interest for the company's share price to fall since it holds short positions of more than 0.5% in Grifols, which means that Gotham will gain in the event the stock declines. Earlier, Gotham had targeted advertising company Criteo, Apple-supplier AAC Technologies, smart labels maker SES Imagotag and Let's Gowex, which filed for bankruptcy after the report. The short seller firm holds short and long positions in the companies it reports on.
In a similar case, short-seller Hindenburg Research's report wiped off about $150 billion worth market valuation of Adani Group last year.
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