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Grifols, Spain’s most successful global healthcare group, has been rocked by fraud allegations from a UK-based short seller that sent its share price plunging by more than 40 per cent and wiped billions off its market value.
Gotham City Research released a report on Tuesday accusing the Nasdaq-listed medicine manufacturer of artificially manipulating its debt and earnings through transactions with a company related to the Grifols family that founded and controls the group.
The attack on Grifols, which makes medicines derived from blood plasma, is a bombshell for corporate Spain, where full-frontal assaults from short sellers have been rare.
Grifols shares were initially suspended before trading commenced on the Madrid stock exchange, then opened down 42 per cent from their closing price on Monday. By early afternoon they had recovered slightly and were off nearly 30 per cent, slashing the company’s market value to just over €6bn from roughly €9bn.
Gotham City’s allegations centre on the sale of two businesses to Scranton Enterprises, a family vehicle. In its report, Gotham City said Grifols continued to report profits from the units, BPC Plasma and Haema, within its consolidated accounts, calling the accounting treatment “materially deceptive and incorrect”.
The Barcelona-based company, which moved its tax residence to low-rate Ireland in 2015, dismissed the allegations from Gotham City as “false information and speculations”.
“As a company committed to transparency, integrity, and ethical conduct, we categorically deny and reject any allegations of wrongful accounting or reporting practices of our consolidated financial statements,” it said.
Gotham City said Scranton also consolidated all profits from the two companies in its own accounts, and asked whether lenders to Grifols were aware of the arrangements. Grifols’ disclosed net debt at the end of June last year was €9.4bn.
The short seller alleged that ratios of debt to profits at both Grifols and Scranton were significantly understated when viewed on a consolidated basis.
It likened the situation to French supermarket chain Casino, which fell into an insolvency process last year that largely wiped out shareholders. Casino was targeted in 2015 by US short seller Muddy Waters, which argued that it carried more debt in its corporate structure than many investors realised.
Gotham City, founded by Dan Yu, in 2014 exposed accounting problems at Spanish WiFi provider Gowex, which filed for bankruptcy soon afterwards.
Last year Yu teamed up with short seller Cyrus de Weck to form a new hedge fund, General Industrial partners, which is now associated with Gotham City.
Grifols, which traces its origins to 1909, has been steered for the past 30 years by Victor Grifols Roura, grandson of its founder, who was chief executive from 1987 to 2017 and masterminded its international expansion. At the end of last year the company said Grifols Roura was relinquishing his board seat, which has been filled by another family member, Albert Grifols Coma-Cros.
Gotham City’s allegations have implications in the US, which has become Grifols’ most important market, accounting for three-fifths of sales and roughly two-thirds of its 26,000 employees.
The company said that “the related party transactions and disclosures reported by Gotham City Research have been fully disclosed and audited since 2018 and reported to the Spanish regulator”.
Grifols is audited by KPMG, which the company said “has consistently released unqualified audit reports”.
KPMG did not immediately respond to a request for comment.
