US Law Firms Target Grifols Over Alleged Market Misrepresentation
A group of twelve United States law firms is preparing to file a class-action lawsuit against Grifols, alleging that the company disseminated false information to the market. Grifols, a Catalan pharmaceutical group, was recently criticized by Gotham City Research for maintaining debt levels that appear higher than the company’s EBITDA would suggest. The accusation implied that Grifols shares were effectively worth zero, a claim that contributed to a sharp decline in Grifols’ stock price after prior declines. If the allegations prove true, retail investors in the United States may have recourse under federal securities laws to seek compensation. Given the market losses, several firms have submitted forms inviting investors to participate in potential legal action and have sought cooperation to gather information that could demonstrate U.S. securities law violations within the pharmaceutical sector, including relevant financial values.
In postings on their websites, the firms state that Grifols may face investigations for possible securities law violations and encourage shareholders to come forward to pursue damages. One firm, Wohl & Fruchter, notes, “If you have suffered losses from the decline in Grifols’ share price and have questions about your legal rights, please contact us to discuss your options free of charge by submitting the form.” The message also indicates that the firm is examining whether Grifols violated federal securities laws based on allegations in a Gotham City report.
Class-action lawsuits are common in the United States, and several law firms have sought to recruit as many clients as possible to pursue action against Grifols. In contrast, Spanish lawsuits are typically pursued on an individual basis, with each investor acting separately. It is anticipated that at least forty American attorneys could be affected; once the U.S. justice system accepts the case, others who wish to join can be added.
Last year, Grifols faced a U.S. collective action related to the handling of plasma donor confidentiality in the United States. The Catalan company agreed to pay 16 million euros to 66,000 affected individuals to settle that case. The crucial question in U.S. litigation remains whether law firms can identify a provable issue that constitutes grounds for indictment. Because of this, several firms preparing the case also indicate openness to information submitted through online forms. A representative message asks: “If you purchased Grifols securities, are knowledgeable or would like to learn more about these lawsuits, or have questions about this announcement regarding your rights, contact Frank R. Cruz.” The firm’s offices are cited here. Another firm, Hagens Berman, highlights on its site that whistleblowers who provide nonpublic information to Grifols’ investigation may be protected by the Securities and Exchange Commission (SEC).
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In Spain, firms Zunzunegui and Cremades & Calvo Sotelo have considered acting on behalf of minority investors through the Spanish Association of Minority Shareholders (Aemec). The National Securities Market Commission (CNMV) is currently examining Grifols’ links to Scranton, a holding company connected to the Grifols family. The Gotham report uses the term tunnel operations to describe arrangements where assets and profits appear to be moved to a control-owned entity. The report suggests that Grifols and Scranton are connected in a way that could benefit Grifols while inflating reported profits. The implication is that funds are moved to related entities, potentially affecting reported debt and earnings.
Related commentary from Gotham defines the described transfers as the “transfer of assets and profits outside companies for the benefit of those who control them.” Critics argue that Grifols consolidated the Biotest and Haema businesses in its accounts despite selling them to Scranton, while maintaining a buy option on those assets. The analysis contends that combining Biotest and Haema would allow Grifols to reduce debt by a substantial margin and simultaneously report higher profits, leading Gotham to conclude that Grifols’ leverage is not the six times EBITDA claimed by the company but closer to ten or thirteen times. The net effect, according to Gotham, is a perceived zero value for the shares, which is reflected in the market sentiment and trading dynamics. Prior to the report, Grifols traded above 14 euros; following the analysis, shares hovered below 9 euros, with an estimated four billion euros of market capitalization in flux.