The SEC asks Grifols for explanations for the Gotham accusations | National and international economy

The hangover from the bearish attack by the firm Gotham City Research against Grifols continues. The United States Securities and Exchange Commission (SEC) has sent two information requests to the Spanish company following the accusations of the mysterious analysis and investment firm. Grifols has responded to the supervisor, according to the company, but “the interactions” continue. The company’s share price has fallen more than 40% since January 8, the session before the release of the Gotham report.

The company has filed its annual report with the SEC and has included express warnings about the possibility of new bearish attacks and the risk derived from conflicts of interest due to linked operations, one of the targets that Gotham was targeting. Grifols points out that these attacks can damage its reputation and affect its business.

“We have been the subject of negative publicity from a short seller,” Grifols acknowledges. “It is unclear what long-term effect such negative publicity might have on us and/or whether we will continue to be targeted by short sellers from time to time in the future. If we were the subject of any other unfavorable accusations, even where such accusations were not true, we could have to spend a significant amount of resources to investigate such accusations and / or defend ourselves, ”he explains in the document.

The company admits that in response to the Gotham attack it has invested significant resources and time, including conducting internal and external reviews. He also notes that sometimes regulatory or commercial confidentiality issues prevent him from fully responding to allegations.

Next is when he reveals that not only the National Securities Market Commission (CNMV) has focused on the company, but so has the American supervisor. “These allegations have led to, and may continue to lead to, increased scrutiny and investigations by the SEC or CNMV. “Any future responses to negative publicity from short sellers or responses to regulators’ requests for information could be costly and time-consuming, and could divert management’s attention from our daily operations.”

Later, Grifols specifies that it has received two requests. “We have also voluntarily provided information and responded to questions posed by the SEC informally to provide clarification. Our interactions with the SEC regarding the aforementioned reports remain ongoing. As of the date of this annual report, the SEC has made two requests for information to which we have responded promptly,” she states.

New risks

Furthermore, Gotham’s bearish attack has forced Grifols to reformulate the risk chapter of the annual report it files with the US supervisor. These warnings try to prevent lawsuits from investors like those the company has already received after the collapse of its shares that greeted the publication of the Gotham report. The two big news are those related to bearish attacks and conflicts of interest due to linked operations.

Grifols did not warn of the risk of bearish attacks in its annual report for fiscal year 2022, but now it does so extensively. “Techniques employed by short sellers or other market disruptors may depress the market price of our shares, adversely affect our business operations and/or lead to unsubstantiated litigation,” he says. He warns that its share price may be affected by the “dissemination of false or maliciously distorted information” regarding its “business operations, financial or corporate disclosures.”

“Even unfounded or totally false accusations against us could seriously affect the market price of our shares and our business operations.” The company introduces the effect on the business that reputational damage may have. “Due to the nature of our business in plasma collection and manufacturing and selling plasma-derived therapies, we rely heavily on our brand and customer trust in our services. Consequently, such accusations can affect our revenue by damaging our reputation, trust in our services and relationships with our current and potential clients,” he states.

Possibility of lawsuits

Grifols also warns, precisely, of the risk of lawsuits being filed against the company as a result of the negative publicity of a short seller, both due to the possibility that it will have to face damages and the expenses it would have to incur. incur for his defense. In the legal action against Gotham that the company took, he claimed that the bearish attack had caused 13 law firms to prepare class action lawsuits against Grifols in the United States.

The risk chapter of Grifols’ annual report registered with the SEC also incorporates warnings on related-party transactions as a novelty. A good part of the Gotham report pointed to them, given the business relationships between Grifols and its shareholders. “We carry out operations with related parties and these operations present possible conflicts of interest that could have an adverse effect on us,” the company now admits in the new section.

Grifols explains that it acquires goods and services from related parties, sells products to them and carries out other operations with them. “These conflicts can cause a person in our management to try to promote his or her economic interests or the economic interests of certain related parties above our own,” says Grifols. Not only that. Furthermore, “the appearance of conflicts of interest created by transactions with related parties could undermine confidence” among investors, as has apparently already happened in the wake of the Gotham report.

Raimon Grifols and Víctor Grifols Deu, until recently directors with executive functions of the blood products manufacturer, left the company’s management in February in response to concerns about the company’s corporate governance.

The CNMV investigation

In its report to the SEC, Grifols also gives its explanation of the result of the investigation opened by the CNMV: “Most importantly, the CNMV concluded that it had not identified any need for Grifols to restate its financial statements and that all operations with related parties analyzed had been carried out under market conditions. The CNMV also concluded that it had found no evidence that Grifols’ financial debt reflected in its financial statements was not in accordance with the facts. These conclusions constitute a rejection of the allegations made by the short-seller company on these points,” he states.

Grifols “has responded to the requests received and the National Securities Market Commission has shared its analysis of the group’s financial information, concluding that no significant errors have been identified,” it says elsewhere. Although Grifols does not mention it, the CNMV did appreciate “relevant deficiencies” in the explanations of certain matters in the annual accounts and in the calculation of the so-called alternative performance measures.

The Gotham report highlighted some aspects of Grifols’ accounts to which many investors had paid little attention, but the firm also made forced interpretations, made wrong estimates and made major errors.

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