Daniel Yu, the founder of Gotham City Research LLC, went to the National Court this Thursday. The investigating judge José Luis Calama has summoned him to explain why the bearish fund he directs published a report on Grifols on January 9, 2024 in which, allegedly, he incorporated misleading information about the pharmaceutical company with the aim of lowering the price of its shares. Due to these facts, the Anti-Corruption Prosecutor’s Office attributes a crime related to the market to him.
Wearing a suit and tie and carrying a briefcase, Yu arrived at the court headquarters, accompanied by one of his lawyers, shortly before nine in the morning, the time at which he was scheduled to begin the interrogation, which was carried out with simultaneous translation specialized in the economic-financial field due to the complexity of the matter. For around five hours – with a short break in between – the leader of the American firm has answered the questions of his lawyers, those of the prosecutor and those of the judge, while he has declined to answer the questions posed by the representation of the particular accusations.
During the statement he defended his performance as Gotham’s highest representative, as well as what was stated in the report, about which he said that his estimates are correct. In this regard, he pointed out that the document did not discuss the accounting legality of Grifols, but rather criticized the lack of explanation of why the pharmaceutical company consolidated BPC and Haema, two companies that Grifols bought in 2018 and in that same year sold to one of the companies with which the founding family controls the company, Scranton Enterprises, if it does not have a stake in it, according to legal sources present at the hearing. After 2:00 p.m., he left the National Court accompanied by the entire legal team that defends him in this procedure, made up of the law firms SLJ Abogados and RRBS Legal.
In the financial sector there was a lot of expectation about whether Yu was going to testify in person before the investigating judge. The uncertainty has its origins in the case being analyzed in the New York courts for a defamation lawsuit filed by Grifols, in which at the beginning, in January 2024 (a few days after the questioned report was published), to notify them of the judicial action. The doubts were somewhat cleared up a few days ago when the court had not received any request to carry out the procedure by videoconference.
Yu’s statement takes place once the magistrate has reviewed the various documentation that he requested from the National Securities Market Commission (CNMV) and conducted a round of testimonies to listen to the directors of the markets supervisor who prepared several reports on this fact, as well as the . For next March 5, the head of the Central Investigative Court number 4 of the National Court has also summoned his Cyrus de Weck, administrator of General Industrial Partners LLC.
Last to review the report on Grifols
This company is considered the parent company of Gotham, although the director of Gotham has clarified that his firm is not a subsidiary of any other company. He explained that he reached an agreement in 2023 with his friend and colleague Cyrus de Weck to combine the assets of their businesses and become the same entity. Likewise, he has stated that he is the last person to review and approve the report on Grifols, which was done jointly with his colleagues and received legal advice.
10 months after the dissemination of the report that caused Grifols to collapse on the stock market. Gotham pointed out that the pharmaceutical company had inflated the ebitda (gross operating profit), and artificially reduced its debt, while posing a scenario in which the shares could become “zero.” As a result of these events, he warned her that the document about the Spanish company contained “biased and misleading information” and that it induced its investors to sell the shares of the company dedicated to the blood plasma business. Thus, the magistrate admitted the complaint to be processed and pointed out that this operation meant for General Industrial Partners a capital gain of more than 9.4 million euros.
He hedge fund maintained a short position in Grifols of more than 0.5% of the share capital and after the publication of the controversial report, said position was reduced to 0.06%. This bearish strategy is different from buying stocks. It allows you to borrow shares for a certain period and, when the time comes to return them, you can buy them on the market at a much lower price (caused by your shares), deliver them to the lenders and keep the difference. Hence, the high profit that Gotham’s parent company obtained, due to the difference between the sale price and the purchase price of the shares (or repurchase of what was sold).
In this regard, Yu explained that the publication of the report made the blood products company’s shares unstable and that, as a matter of risk management and prudence, they were forced to close their position at the time when Grifols’ shares were in the range they had estimated.
Reports on twenty companies
Daniel Yu has highlighted that Gotham has published compromising information about about 20 companies, of which it has considered that there was evidence of deception or signs of possible bankruptcy, as indicated by legal sources present in the statement. In his opinion, the Spanish pharmaceutical company fulfilled these scenarios. The bearish fund is known as , whose founder, Jenaro García, is pending trial in the National Court for five crimes, including falsification of commercial documents, investor fraud or misappropriation. Likewise, last January, the bearish fund noted that automobile e-commerce platform Carvana’s earnings in fiscal 2023 and 2024.
One of the most highlighted points of the report that is being analyzed in the National Court was, Grifols’ reference law firm, whose partner is Tomá Dagá, who was removed from the pharmaceutical company’s audit committee, but remains on the board of directors. Daniel Yu has stated that this was what really put them on alert due to the conflict of interest, because a legal firm cannot be a company and a creditor at the same time.
Throughout the year of investigation, the American firm has alleged that the case is unfounded because it was initiated following a complaint based on a first reasoned report, prepared by the Secondary Markets Department of the CNMV, on September 10, 2024, which, among other things, “equates” the accounting debt and the leverage ratio. It also attributes negligence to the fund for not having consulted Grifols’ accounts for the years 2019 and 2020, despite the fact that they are expressly cited in the controversial document.
For its part, the private prosecution considers that those investigated are trying to divert attention so as not to focus on what in their opinion is the key evidence of market manipulation: the messages from
Regarding the announcements on the social network, Yu has pointed out that the first message was made at night because both the Spanish and North American markets were closed, something that, as he stressed, is important, since Grifols is listed on both, the legal sources consulted have indicated. Along these lines, he highlighted that the second message was also released before the Spanish stock market opened, but with enough time for investors to have time to read it and draw their own conclusions.
