A U.S-based short seller is now under investigation for hammering a pharmaceutical company’s shares by a Spanish court in Madrid.
An investigating magistrate at Spain’s High Court has initiated an inquiry into the actions of US-based short seller Gotham City Research, which significantly impacted the stock prices of Spanish pharmaceutical company Grifols back in January.
In a statement released on Tuesday, the court announced that Judge Jose Luis Calama had uncovered sufficient evidence to warrant an investigation into potential violations of market and consumer protection laws.
These violations may involve the “dissemination of news or rumors that could contain entirely or partially false information.”
The judge noted that the spread of such information resulted in profits for certain parties, particularly Gotham City Research, while causing losses for others.
Neither Grifols nor Gotham City Research responded immediately to requests for comments on the situation.
Under the relevant laws, violations can result in prison sentences ranging from six months to six years, along with fines that could amount to three times the profit gained, according to the court’s statement.
Judge Calama has instructed the police to locate the addresses of Daniel Yu, the founder of Gotham, as well as four other executives associated with the fund.
He also inquired whether Grifols wished to participate in the investigation as an aggrieved party and requested that the company provide a copy of the lawsuit it filed in New York against Gotham, Yu, and other executives in late January.
On January 8, Gotham published a report alleging that Grifols had overstated its earnings while understating its debt.
Following the release of this report, Grifols experienced a dramatic loss, with its market value plummeting by a third.
The company has consistently denied Gotham’s allegations.
Short selling, the practice employed by Gotham, involves borrowing shares to sell them, with the intention of repurchasing them at a lower price for profit.
According to the court, Gotham earned a profit of €9.4 million as a result of its information release and short selling activities.
In September, Spain’s stock market regulator, CNMV, penalized Gotham City Research for allegedly manipulating Grifols’s share price, while also sanctioning the pharmaceutical company for issues related to financial reporting.
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