Spain’s High Court has launched an investigation into US-based hedge fund Gotham City, accusing it of disseminating "misleading" information about Spanish pharmaceutical firm Grifols, which triggered a sharp decline in the company’s stock price, according to a report by AFP.

The probe centres on a research note released by Gotham City in January 2023, which accused Barcelona-based Grifols of manipulating financial data to artificially lower its debt ratio and financing costs. Grifols, known for its blood plasma-based medicines, saw its shares plummet by nearly 25% following the report. The company has consistently denied the hedge fund’s claims.

According to the court, Gotham City may have violated market and consumer protection laws by distributing "biased and misleading" information to encourage investors to sell Grifols shares. The fund reportedly earned a profit of more than €9.4m ($9.9m) by short-selling Grifols stock after publishing the report.

Gotham City, a prominent short-seller, has targeted several high-profile companies in recent years, with its tactics having previously contributed to corporate collapses. In 2014, Spanish Wi-Fi provider Gowex went bankrupt following Gotham City's damning report on its financial practices.

The court’s investigation into Gotham City follows significant fallout for Grifols, including major management changes. The company appointed a new CEO and CFO earlier this year as it worked to rebuild investor confidence.

In July, the Grifols family — owners of roughly a third of the company — and Canadian investment fund Brookfield began discussions to take the pharmaceutical firm private. On Tuesday, shortly after the court announced its probe into Gotham City, Brookfield proposed a tentative, non-binding €6.45bn bid to acquire Grifols, offering €10.50 per A share, which Grifols swiftly rejected on the basis that it "significantly underestimated" the company’s long-term potential and financial outlook. The firm’s stock last traded at €10.40, down 4.6% on the day.