US short seller Gotham City Research has requested a New York judge dismiss a lawsuit accusing it of conspiring to lower the stock price of Spanish multinational pharmaceutical and chemical manufacturer Grifols, according to a report by BNN Bloomberg.
Since Gotham City published a report in January alleging that Grifols had overstated its profits and understated its debt, the drug maker’s market value has dropped by over €3bn ($3.15bn). Grifols, denying any wrongdoing, filed a defamation lawsuit against Gotham City in Manhattan federal court.
In a filing made Friday, Gotham City, led by Daniel Yu and Cyrus de Weck, argued that the report was an expression of opinion, protected by the First Amendment, similar to the rights of journalists. Gotham City described the report as part of an ongoing debate between investors who are bullish and bearish on a company’s future, emphasising that it was merely expressing an opinion within a “social context.”
Grifols, in its own Friday filing, countered that Gotham City’s report was motivated by malicious intent and was designed to protect the short seller’s position. The company urged the judge to reject Gotham City’s dismissal request, highlighting the significant market impact following the publication of the report. Grifols said the release triggered a panic sell-off, wiping out nearly half of its market value. While some of the stock price was recovered, the company argued that lasting reputational damage had been done.
One of Grifols’ main allegations is that Gotham City falsely claimed the company had failed to disclose a $95m loan in its accounts. This error was later corrected in an updated version of the report, but Gotham City did not inform readers of the revision.
The motion to dismiss comes at the end of a challenging year for Grifols, whose stock remains about a third lower than before Gotham City’s report, despite efforts to restore investor confidence through management changes. The company raised €1.3bn in a private debt placement earlier this month to address its leverage ratios.
Grifols’ troubles deepened last month when Brookfield Asset Management pulled out of a potential takeover, citing valuation disagreements with the board. The company is also the most shorted stock in the Stoxx 600 Health Care Index, according to S&P Global Market Intelligence.
Following the publication of Gotham City’s report, market regulators in both the US and Spain launched investigations. The US dropped its probe earlier this month, announcing it would not take enforcement action. In Spain, regulators initiated disciplinary proceedings against Gotham City, including a fine against Grifols for publishing misleading information in several annual reports. Gotham City is also under investigation by Spain’s National Court for allegedly releasing biased and deceptive information.
The lawsuit is Grifols SA v. Yu, case number 24-cv-576, in the US District Court, Southern District of New York.
