(Bloomberg) -- US short seller Gotham City Research asked a judge in New York to dismiss a lawsuit accusing it of conspiring to drive down shares in Grifols SA.
The drug maker’s market capitalization has fallen by more than €3 billion ($3.15 billion) since Gotham published a report accusing the company of overstating its profits and understating its debt. Grifols, which has denied any wrongdoing, sued the short seller for defamation in January in Manhattan federal court.
Gotham, run by Daniel Yu and Cyrus de Weck, said in a Friday court filing that its report was based on their opinion and that they enjoy the same First Amendment freedom of speech rights as journalists.
The report “is simply a part of the ever-contentious debate between those who are long versus short on a company’s prospects,” Gotham said, adding that this “social context” makes it obvious that the short seller was merely expression an opinion.
Grifols said in its own Friday filing that Gotham’s report showed malicious intent and sought only to protect its short position. The company urged the judge not to dismiss the case.
“The day that defendants published the Gotham Report, a panic sell-off ensued that erased almost half of Grifols’ market value, the company said. Though its share price had partially recovered, “there is still lasting damage to Grifols’ reputation from defendants’ short-and-distort scheme,” Grifols said.
The company claims Gotham made a false statement when it said Grifols had failed to disclose a $95 million loan in its accounts, a line it corrected in a later version of the report without notifying readers of the update.
Gotham’s attempt to dismiss the case comes at the end of a horrible year for Grifols. The stock is still trading nearly a third lower than it was before the short seller report despite management changes and other measures that sought to regain investor confidence.
The firm raised €1.3 billion in a private debt placement earlier this month, in an attempt to reassure investors that it can control its leverage ratios.
The firm’s woes were compounded by Brookfield Asset Management’s decision last month to walk away from a potential takeover, citing differences with the board around valuation.
Grifols is the most shorted stock in the 55-member Stoxx 600 Health Care Index, according to latest data from S&P Global Market Intelligence.
Market regulators in the US and Spain launched investigations into Gotham following the January report. The US dropped its probe earlier this month, saying it did not “intend to recommend an enforcement action” against the short seller.
Meanwhile Spain’s regulator opened disciplinary proceedings against Gotham and said it would fine Grifols for publishing “untrue and misleading information” in several annual accounts.
Gotham will be probed by Spain’s National Court for allegedly releasing “biased and deceptive” information.
The case is Grifols SA v. Yu, 24-cv-576, US District Court, Southern District of New York.
--With assistance from Lisa Pham.
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