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(Bloomberg) -- Drugmaker Grifols SA and US short seller Gotham City Research are counting on two different reports from a Spanish regulator to bolster their cases as they prepare to face off in court.
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Watchdog CNMV has concluded that Gotham City’s attacks on Grifols could be considered a form of market manipulation. But it’s also said the short seller was right about some accounting deficiencies at the pharma company, according to drafts of the two reports seen by Bloomberg.
The reports come as a Spanish court weighs whether Gotham released biased and deceptive information about Grifols to induce investors to sell its stock.
The court battle is the latest twist in the standoff that started in January 2024, when Gotham published a report accusing Grifols of misleading accounting and poor governance. Grifols has denied any wrongdoing, but has been struggling to recover from the attack and has shed billions in market value.
Convictions in the case could lead to prison sentences of as long as six years and fines as much as three times the benefit obtained from releasing the information, the court said in November.
The first of the two reports, which was seen exclusively by Bloomberg and is the only one thus far confirmed to be handed to judicial authorities, focuses on Gotham. It concludes that there were signs of market abuse linked to the spread of misleading information.
That includes an assertion that Grifols’ value was likely zero, and a claim that a $95 million loan had not been disclosed, a contention Gotham later retracted.
CNMV also said in that report that the short seller’s writing about the firm constituted an investment recommendation and therefore failed to comply with applicable rules.
The regulator’s report goes on to state that Gotham “defied” the body and auditors with claims on the state of the drugmaker’s accounts. CNMV subsequently opened a proceeding against Gotham and associated company General Industrial Partners.
Second Report
The second report, which is linked to a sanction leveled on Grifols last year, examined the company’s financial information. It found that the firm’s debt-to-Ebitda ratio was not “representative” of its ability to repay debt. The regulator also agreed with Gotham that Grifols did not disclose sufficient information about accounting for certain businesses in 2021 and 2022.