Grifols sues Gotham City over fraud allegations

Grifols via LinkedIn

Spanish drugmaker Grifols has hit back at hedge fund Gotham City Research, which claimed it had fraudulently manipulated its financial reporting, with a lawsuit filed in New York.

The complaint has been brought against Gotham City and co-founders Daniel Yu and Cyrus de Weck, along with other defendants, and accuses them of being “predatory short sellers […] who illicitly profit from their rigged short-and-distort schemes.”

It says the defendants “crossed the line” with the attack on Grifols by “knowingly making false and misleading statements in furtherance of a single illegal purpose: to manipulate the value of Grifols’ stock for their own monetary gain.”

Shares in family-owned Grifols plummeted by nearly a third in the wake of Gotham City’s report – which claimed the pharma company had carried out “materially deceptive” accounting practices by not disclosing debt – wiping around €3 billion ($3.25 billion) off its share price.

The lawsuit accuses Gotham City of taking a large short position in Grifols, so it would profit if the company’s share price fell. Its report was then published to cause a market panic and to drive down Grifols’ stock.

It claims that the report initially included a statement that the drugmaker had not disclosed a $95 million loan, but the day after their short position “surreptitiously changed their report to concede the opposite – that Grifols had in fact disclosed this loan.”

The lawsuit also mounts a direct attack on Gotham Research’s principal Yu, referring to “multiple stints” in jail, including a term imposed after he was charged with “theft, identity theft, and other financial crimes.”

First formed in 1909 and headquartered in Barcelona, Grifols is a manufacturer of plasma-based pharmaceuticals and other products like blood transfusion diagnostics, which is tax-domiciled in Ireland and has a significant presence in the US.

After the shock of the fraud allegations, S&P Global Ratings reaffirmed its credit rating on Grifols with a B+ score for a stable outlook, endorsing a prediction of group profitability of 22% for full-year 2023 and the likelihood that it will close a $1.8 billion sale of a large portion of its interests in Chinese blood products unit Shanghai RAAS to Haier, a deal first announced in 2020.

The drugmaker has been involved in a series of acquisitions in recent years to rebuild its business after it was hit hard by plasma shortages during the pandemic.

The lawsuit, filed in the US District Court for the Southern District of New York, is numbered 1:24-cv-00576. Grifols is seeking a permanent injunction on the claims made in the report, a retraction, clawback of "unjust profits", and compensatory damages determined by a jury trial.