Investigative Review of Grifols, S.A.

,

,

as needed. – No markdown code fences. – Do not repeat earlier sections. Already written section titles (do not repeat): (none)

Discrepancies in Leverage Ratios: Reported 6.7x vs. Estimated 10x-13x

The use Mirage: 6. 7x Reported vs. 13x Reality

The crux of Gotham City Research’s (GCR) January 2024 offensive against Grifols rests on a single, devastating metric: the use ratio. For the third quarter of 2023, Grifols reported a net debt-to-EBITDA ratio of **6. 7x**, a figure already considered high manageable within the capital-intensive pharmaceutical sector. GCR, yet, calculated the true use to be between **9. 6x and 13. 2x**. This gap is not a difference of opinion; it represents a fundamental in how debt and earnings are defined, centered on the accounting treatment of two specific entities: **Haema AG** and **BPC Plasma Inc.**

The Mechanics of “EBITDA for Free”

The from Grifols’ aggressive application of **IFRS 10**, the international accounting standard governing consolidated financial statements. In 2018, Grifols sold Haema and BPC Plasma to **Scranton Enterprises**, a private investment vehicle linked to the Grifols family, for approximately $538 million. even with selling 100% of the equity in these companies, Grifols continued to fully consolidate their financial results into its own books. Grifols justified this by claiming it retained ” control” over the entities through a call option that allowed it to repurchase the shares at any time, alongside a management agreement that gave it operational oversight. Consequently, Grifols included 100% of Haema and BPC’s EBITDA in its own earnings calculations. This inclusion is serious: GCR estimates that these two entities account for approximately **40% of Grifols’ earnings from non-controlling interests**. By keeping this EBITDA on its income statement while shifting the associated acquisition debt to Scranton’s balance sheet, Grifols artificially inflated the denominator of its use ratio (EBITDA) while suppressing the numerator (Net Debt).

The Double-Consolidation Anomaly

GCR’s investigation revealed a startling accounting anomaly: **both Grifols and Scranton Enterprises appeared to be fully consolidating the same assets.** While Grifols claimed the EBITDA to soothe public market investors, Scranton allegedly consolidated the same earnings to service its own massive debt load. GCR estimated Scranton’s own use at a **27x**, a figure sustainable only if it could claim the cash flows from Haema and BPC. This “double dipping” allowed the Grifols family to borrow against the same assets twice, once through the public company to maintain a palatable use ratio, and again through the private vehicle to fund the buyout. The report highlighted that while Grifols treated the entities as part of its group for earnings purposes, it treated them as third parties for the purpose of the sale, booking the cash proceeds to pay down its own debt. This circular financing created a “use mirage,” where the risk was hidden in the unclear private entity while the rewards (EBITDA) were displayed in the public one.

Undisclosed Financial Ties

Further complicating the use calculation was an undisclosed **$95 million loan** from Grifols to Scranton, tied directly to the BPC/Haema transaction. GCR alleged this loan was not properly disclosed in Grifols’ corporate governance filings. The existence of this loan reinforced the argument that the separation between Grifols and Scranton was cosmetic. If Grifols was financing Scranton’s purchase of its own assets, the “sale” was a loan disguised as a divestiture, meaning the debt incurred by Scranton should technically remain on Grifols’ books. When these off-balance-sheet debts are added back to Grifols’ numerator, and the “borrowed” EBITDA from Haema and BPC is removed from the denominator, the use ratio spikes. GCR’s model removed the EBITDA from entities Grifols did not own and added back the debt associated with them, resulting in the **10x-13x** estimate. Such a ratio would render the company’s equity virtually worthless and likely trigger immediate covenant breaches on its outstanding debt.

Regulatory Validation

Following the report, the Spanish regulator **CNMV** (Comisión Nacional del Mercado de Valores) launched an investigation. While the CNMV did not force Grifols to restate its accounts retrospectively regarding the consolidation method itself, accepting the “control” argument under IFRS 10 as a valid, albeit aggressive, interpretation, it did find “significant deficiencies” in the detail and accuracy of the reports. Crucially, the regulator required Grifols to publish a new use calculation that included the debt from these entities if their EBITDA was to be used. In the aftermath, Grifols was forced to revise its reported use. By the end of 2023, following the CNMV’s intervention, Grifols acknowledged a use ratio of **8. 4x** when adhering to the stricter calculation criteria, a figure far closer to GCR’s “fraud” estimate than the company’s original 6. 7x claim. This concession validated the core of GCR’s thesis: the market had been pricing Grifols based on a financial reality that did not exist.

Impact of Consolidation Adjustments on use Ratio

Metric	Grifols Reported (Q3 2023)	Gotham City Estimate	CNMV Revised Calculation
EBITDA Inclusion	Includes 100% of Haema & BPC	Excludes Haema & BPC	Includes Haema & BPC
Debt Inclusion	Excludes Scranton/Haema Debt	Includes Scranton/Haema Debt	Includes Scranton/Haema Debt
use Ratio	6. 7x	9. 6x, 13. 2x	8. 4x

The 2018 Transaction: A Circular Sale

In 2018, Grifols executed a pair of transactions that would become the focal point of Gotham City Research’s fraud allegations six years later. The company acquired two plasma collection entities, Haema AG (based in Germany) and Biotest US Corporation (BPC Plasma), for a combined total of approximately $538 million. These acquisitions were standard for a company seeking to expand its plasma supply chain. Yet, in December 2018, just months after purchasing them, Grifols sold 100% of the equity in both companies to Scranton Enterprises, the investment vehicle controlled by the Grifols family and key executives. The sale price matched the acquisition cost: $538 million.

On the surface, this divestiture appeared to be a strategic move to deleverage the balance sheet. By selling the assets, Grifols received a cash inflow which it could use to pay down its own debt, ostensibly improving its use ratio. The company stated the sale was intended to “monetize earlier these investments and reinforce its financial structure.” If the transaction had been a clean break, the assets, and their associated earnings, would have left Grifols’ financial statements entirely. They did not.

The Consolidation Paradox and IFRS 10

even with selling 100% of the shares to Scranton, Grifols continued to fully consolidate Haema and BPC Plasma in its financial statements. The company justified this treatment by invoking IFRS 10, the international accounting standard governing consolidated financial statements. Grifols retained an irrevocable and exclusive “call option” to repurchase the shares from Scranton at any time, along with a management agreement that gave Grifols operational oversight of the plasma centers. Under IFRS 10, control is defined not by share ownership by the power to direct relevant activities and exposure to variable returns.

Grifols argued that the call option and management rights granted it control, necessitating full consolidation. This created a highly favorable accounting anomaly: Grifols recorded 100% of the revenue and EBITDA from Haema and BPC Plasma, even with owning 0% of the equity. For the purpose of calculating the use ratio (Net Debt / EBITDA), keeping the EBITDA in the denominator was essential. Had Grifols deconsolidated these entities, its reported EBITDA would have dropped, causing the use ratio to spike, a scenario the company was desperate to avoid given its covenant constraints.

The use Arbitrage method

Gotham City Research identified this structure as a specific form of financial engineering designed to artificially suppress the reported use ratio. The method functioned through a mismatch between where the earnings were recorded and where the acquisition debt resided. When Scranton purchased Haema and BPC, it borrowed funds to finance the $538 million price tag. This debt sat on Scranton’s balance sheet, not Grifols’. Meanwhile, Grifols used the proceeds from the sale to reduce its own corporate debt.

The result was a mathematical. Grifols reduced its numerator (Net Debt) by receiving cash from Scranton, yet it maintained its denominator (EBITDA) by continuing to consolidate the sold entities. Gotham estimated that this treatment alone allowed Grifols to understate its use. If the debt incurred by Scranton to buy the assets were included, or if the EBITDA were removed to reflect the absence of ownership, the use ratio would have been significantly higher, chance breaching covenants. Gotham termed this “having your cake and eating it too”: shedding the debt while keeping the earnings.

Vendor Financing and Circular Cash Flows

The legitimacy of the sale was further complicated by the financing arrangements. Scranton Enterprises did not possess the independent liquidity to purchase Haema and BPC outright. To the transaction, Grifols extended a “vendor financing” loan to Scranton of approximately $95 million. This meant Grifols lent Scranton the money to buy the assets from Grifols. The circular nature of this cash flow raised serious questions about whether a true transfer of risk had occurred.

Gotham City Research highlighted that the $95 million loan was not fully transparent in all governance filings, appearing in footnotes obscured in the broader narrative of the “sale.” By financing the buyer, Grifols assumed the credit risk of the very entity it claimed to have sold. If Scranton defaulted, Grifols would likely be forced to reclaim the assets, rendering the “sale” null. This vendor financing arrangement suggested that the transaction was not an arm’s-length deal with a third party a structured internal transfer designed to manipulate optical use.

The Non-Controlling Interest (NCI) Anomaly

Because Grifols owned 0% of Haema and BPC, 100% of the net profits generated by these entities belonged to the “Non-Controlling Interest”, in this case, Scranton. In standard accounting, NCI is subtracted from net income to show what is attributable to shareholders. EBITDA, yet, is calculated before NCI is deducted. This allowed Grifols to present the full operating profit of Haema and BPC to creditors and investors as part of its “Adjusted EBITDA,” even though not a single cent of that profit was available to Grifols shareholders or to service Grifols’ own debt.

Gotham pointed out that the proportion of Grifols’ net income attributable to NCI had skyrocketed from near zero in 2017 to nearly 100% in recent periods, driven largely by the Haema and BPC arrangement. This signaled that while the top-line numbers (Revenue and EBITDA) looked strong, the actual earnings flowing to the parent company’s equity holders were diminishing. The company was generating profits that legally belonged to Scranton, yet using those profits to justify the debt load of Grifols.

Allegations of Tunneling and Value Extraction

Beyond the use manipulation, Gotham City Research accused the parties of “tunneling”, the practice of extracting assets or value from a public company for the benefit of a controlling shareholder. The report detailed specific financial maneuvers within BPC Plasma. According to Gotham, BPC Plasma had extended loans to Scranton, which were subsequently written off or declared as dividends in kind. Specifically, Gotham alleged that BPC wrote off approximately €266 million in loans to Scranton.

This maneuver transferred €266 million in value from the operating company (BPC) to its shareholder (Scranton) without a cash transaction that would alert Grifols’ auditors or shareholders. Since Grifols consolidated BPC, this write-off should have impacted Grifols’ consolidated equity, yet it benefited Scranton exclusively. This extraction of value, while Grifols continued to bear the operational risks and consolidation responsibilities, painted a picture of a parasitic relationship between the family vehicle and the public corporation.

Regulatory Scrutiny and Auditor Sign-Off

KPMG, Grifols’ auditor, signed off on the full consolidation of Haema and BPC Plasma annually from 2018 through 2023. The auditors accepted the “control” argument based on the call option and management agreement. This technical compliance with IFRS 10 provided Grifols with a shield against immediate regulatory action. Following the Gotham report, the Spanish regulator CNMV reviewed the transactions. While the CNMV concluded that the consolidation was technically permissible under the broad definitions of IFRS 10, it identified serious deficiencies in transparency.

The regulator noted that while the accounting method might follow the letter of the law, the exclusion of the debt associated with these “controlled” entities from the use ratio calculation was misleading. The CNMV eventually required Grifols to publish a new use ratio that either deconsolidated the EBITDA or included the associated debt, forcing the company to admit a use figure significantly higher than the 6. 7x originally reported. This regulatory correction validated Gotham’s core thesis: the accounting structure was designed to obscure the true debt load.

The Scranton Double-Count

A final of the allegation involved the accounting treatment at Scranton Enterprises itself. Gotham asserted that Scranton also fully consolidated Haema and BPC Plasma in its own financial statements. This created a situation where the same assets and earnings were being claimed by two different entities, Grifols and Scranton, to support two different debt piles. Lenders to Scranton looked at the Haema/BPC EBITDA to underwrite Scranton’s debt, while lenders to Grifols looked at the same EBITDA to underwrite Grifols’ debt.

This “double counting” meant that the combined use of the Grifols-Scranton ecosystem was far higher than what appeared when looking at either entity in isolation. The assets were mortgaged twice. When the CNMV and market analysts began to unwind this structure in 2024, it became clear that the Haema and BPC transaction was not a divestiture in any economic sense, a complex accounting partition that hid liabilities while duplicating assets.

Investigation into Alleged ‘Tunneling’ of Assets to Related Parties

Gotham City Research leveled its most damaging accusation against Grifols S. A. by claiming the pharmaceutical giant engaged in tunneling. This financial concept describes a method where a controlling shareholder transfers assets or profits from a public company to a private entity they own. The report alleges that the Grifols family used Scranton Enterprises to extract value from the listed firm while leaving minority shareholders with the debt. These transactions center on the 2018 sale of Haema and BPC Plasma. The deal structure appears to benefit the family vehicle at the expense of the public corporation.

The core of this allegation involves the transfer of two plasma collection entities. Grifols purchased Haema and BPC Plasma in 2018 for approximately five hundred thirty eight million dollars. The company then immediately sold these same assets to Scranton Enterprises for the same price. This sale allowed the pharmaceutical group to remove the assets from its balance sheet while claiming to retain control. Gotham this was not a true sale a parking arrangement. The family holding company acquired the assets using funds that partly originated from Grifols itself. This circular financing raises serious questions about the legitimacy of the transaction.

Scranton Enterprises serves as the primary vessel for these alleged maneuvers. This Dutch entity lists several Grifols family members and executives as shareholders. It maintains its headquarters in the same building as the global plasma giant. The report claims Scranton acts as an off balance sheet extension of the main corporation. By moving assets to this private vehicle the family can theoretically shield specific liabilities while maintaining operational influence. The investigation highlights that Scranton is heavily leveraged and relies on dividends from the very assets it purchased from the public firm to service its own debts.

A serious component of this scheme involves a ninety five million dollar loan. Grifols extended this credit to Scranton to the purchase of Haema and BPC. The short seller report emphasizes that this loan was not properly disclosed in the corporate governance filings. The company later clarified that the financing appeared in the financial notes. yet the existence of vendor financing from the seller to the buyer in a related party transaction suggests the buyer absence sufficient independent capital. This arrangement means Grifols financed the sale of its own assets to its own shareholders.

The accounting treatment of these entities creates a significant. Both Grifols and Scranton fully consolidated Haema and BPC Plasma in their respective financial statements. This double consolidation allowed both companies to claim the earnings from the same assets. The public corporation justified this by citing a call option that gave it the right to repurchase the entities at any time. This accounting maneuver permitted the group to report higher EBITDA and lower use than reality dictated. The family vehicle simultaneously used the same earnings to justify its own solvency to creditors.

Further scrutiny reveals a complex web of cash pooling agreements. Gotham alleges that BPC Plasma lent substantial sums to Scranton over several years. These loans were reportedly written off as a dividend in kind. This action transferred approximately two hundred sixty six million euros from the plasma subsidiary to the family holding company. The public firm’s shareholders received no benefit from this value transfer. The write off suggests that the loans were never intended to be repaid. This specific method fits the classic definition of tunneling where cash exits the public domain and enters private hands without adequate compensation.

The valuation of the call option also draws skepticism. Grifols claims the right to buy back the assets at the higher of the original sale price or the current market value plus costs. This structure protects Scranton from downside risk while capping the upside for the public company. If the assets depreciate the family vehicle can simply default or force a repurchase at the original price. If the assets appreciate the public firm must pay a premium to reclaim them. This asymmetry places the financial load on the minority shareholders while the family enjoys a risk mitigated position.

Regulatory bodies examined these transactions following the report. The Spanish regulator CNMV concluded that while the consolidation was technically permissible under IFRS rules it required better disclosure. The agency noted that the related party nature of the deals demanded higher transparency. They did not force a restatement of the accounts the findings validated the concern that the relationship between the entities was unclear. The market reaction reflected this unease as investors punished the stock for the perceived conflict of interest.

The role of the audit committee faces severe criticism. Transactions of this magnitude between a public company and a vehicle owned by its directors require rigorous oversight. The report suggests that the governance controls failed to protect independent shareholders. The presence of family members on both sides of the deal creates an inherent conflict. The approval of the vendor financing and the subsequent cash pooling arrangements indicates that the board may have prioritized family interests over corporate governance standards.

Analysts point out that the cash leakage to Scranton weakens the main balance sheet. The funds trapped in the family vehicle could have been used to reduce the massive debt load of the pharmaceutical group. Instead the money supported the use of a private entity. This diversion of resources exacerbates the use concerns that plague the listed corporation. The tunneling allegation strikes at the heart of the trust between the management and the investor base. It suggests that the company is run for the benefit of a select few rather than the entire shareholder registry.

The investigation also uncovered that Scranton rents the global headquarters to Grifols. This lease arrangement provides a steady stream of income to the family vehicle. While real estate transactions between related parties are not uncommon the cumulative effect of these deals paints a worrying picture. The combination of asset sales loans leases and dividend waivers creates a pattern of value extraction. Each individual transaction might pass legal muster the aggregate behavior suggests a systematic effort to siphon value.

Gotham City Research compared this situation to other high profile corporate scandals. They argued that the complexity of the structure served to obfuscate the true economic reality. The use of Dutch holding companies and cross border financing arrangements makes it difficult for the average investor to track the flow of funds. The report claims that without these accounting gimmicks the use ratio of the group would be significantly higher. The tunneling narrative provides a unifying theory for why the company utilized such convoluted financial engineering.

The aftermath of these forced the company to simplify its governance. The separation of the family from executive management roles was a direct response to the emergency. yet the assets remain with Scranton and the call option remains on the books. The structural conflict of interest as long as the family vehicle holds key operational assets of the public firm. The tunneling allegations remain a focal point for class action lawsuits and regulatory inquiries. The resolution of these claims depend on whether the courts determine that the value transfer breached fiduciary duties.

Investors must weigh the operational strength of the plasma business against the governance risks. The allegations of tunneling cast a long shadow over the company. The suspicion that profits are leaking to a private entity undermines the valuation of the stock. Until the relationship with Scranton is fully unwound or transparently restructured the fear of further value extraction likely suppress the share price. The case serves as a clear reminder of the dangers inherent in controlled companies with complex related party dealings.

The Dual-Class Disenfranchisement method

The structural foundation of the Grifols governance emergency lies in its dual-class share system. This method separates economic risk from voting control. It allows the founding family to dictate corporate strategy while minority shareholders bear the brunt of capital depreciation. The company splits its equity into Class A and Class B shares. Class A shares hold voting rights. Class B shares hold economic rights possess no voting power. This architecture ensures that the Grifols family and their associated vehicles retain approximately 30% of the voting control. Their actual economic exposure is significantly lower. Institutional investors and retail traders primarily hold Class B shares. They fund the company’s expansion absence the authority to check the board’s decisions.

Gotham City Research identified this gap as a primary risk factor. The firm argued that this structure insulates management from accountability. When a board is irremovable, it faces no consequence for poor capital allocation or aggressive accounting. The family’s control block renders the Annual General Meeting a formality rather than a forum for oversight. Minority shareholders cannot vote out the directors responsible for the Scranton transactions. This disenfranchisement created the environment where related-party deals could flourish without independent scrutiny. The board operated less like the stewards of a publicly traded multinational and more like the managers of a private fiefdom.

Boardroom Insularity and the Scranton Conflict

The composition of the Grifols Board of Directors during the years of alleged manipulation reveals a deep entanglement between the company and its “external” partners. Gotham City Research highlighted the presence of key family members and long-time associates in executive roles. Víctor Grifols Roura served as the architect of the company’s modern structure. His sons, Raimon Grifols and Víctor Grifols Deu, held the roles of Chief Corporate Officer and Chief Operating Officer respectively. This dynastic succession plan prioritized bloodline over independent merit. The most worrying overlap involved Scranton Enterprises. This entity is not a random third party. It is an investment vehicle owned by members of the Grifols family and key executives. Tomás Dagá Gelabert served as a director for Grifols while simultaneously holding a leadership position at Scranton. He acted as the legal architect for of the company’s complex transactions.

This overlap creates a direct conflict of interest. The board approved the sale of Haema and BPC Plasma to Scranton in 2018. They claimed this was a divestiture to lower use. In reality, the buyers were the sellers. The family sat on both sides of the negotiation table. They moved assets from the public company to their private vehicle. Grifols S. A. continued to consolidate the EBITDA from these entities. Scranton consolidated the same EBITDA. This “double-counting” was only possible because the Audit Committee failed to enforce strict independence. The governance checks that should have flagged this circular transaction were nonexistent. The individuals responsible for policing the conflict were the beneficiaries of the conflict.

Regulatory and the “Truthfulness” Sanction

The Spanish regulator CNMV (Comisión Nacional del Mercado de Valores) validated the core of these governance concerns in 2024. Their investigation went beyond mathematical errors. It targeted the integrity of the board’s reporting. The CNMV sanctioned Grifols for providing “inaccurate and untruthful data” regarding its financial relations. They specifically defects in the reporting of related-party transactions. The regulator imposed fines totaling nearly €1. 4 million. This figure is financially negligible for a corporation of this size. The reputational verdict is absolute. The regulator confirmed that the governance apparatus had failed to provide a “true and fair view” of the company’s health.

The CNMV report forced Grifols to admit that its governance required an overhaul. The regulator demanded that the company correct its use calculations. They also required the company to disclose the true nature of its ties to Scranton. This regulatory intervention proved that the internal audit functions were broken. The Audit Committee had signed off on years of reports that obscured the reality of the company’s debt. The board had prioritized the appearance of stability over the transparency required by law. This regulatory censure stripped away the “family business” defense. It exposed a deliberate systematic failure to inform the market.

The 2024-2026 Leadership Shuffle and Takeover Attempt

Grifols responded to the scandal with a series of cosmetic leadership changes intended to appease the market. The company announced the removal of Raimon Grifols and Víctor Grifols Deu from their executive functions. They remained on the board as “proprietary directors.” This move was designed to signal a separation between ownership and management. The board hired Nacho Abia as the new CEO. He was the external executive to lead the company in its history. This appointment aimed to project an image of professionalization. Critics noted that the family retained their voting block. The power behind the throne remained unchanged.

The governance betrayal occurred in mid-2024 and extended into 2025. The Grifols family partnered with Brookfield Asset Management to launch a takeover bid. They sought to take the company private. This move capitalized on the depressed share price that their own governance failures had caused. The family tried to buy out minority shareholders at a discount created by their own scandal. This strategy demonstrates the final danger of the dual-class structure. The controllers can crash the plane and then buy the wreckage for pennies. Minority holders of Class B shares were left with a choice between a low-ball buyout or remaining trapped in an uninvestable equity. The bid faced resistance from institutional holders proceeded through due diligence. It solidified the narrative that Grifols was never truly a public company. It was a private estate that used public money for use.

The Verdict: Significant Deficiencies Without Fraud

The Spanish National Securities Market Commission (CNMV) released its final report on Grifols in March 2024. This document served as the regulatory capstone to the emergency ignited by Gotham City Research. The regulator concluded that Grifols’ financial reports contained “significant deficiencies.” These errors the ability of investors to understand the true financial health of the pharmaceutical giant. The CNMV explicitly stated it did not find evidence of accounting fraud or fictitious transactions. This distinction prevented an immediate delisting or criminal charges. Yet the findings validated the core mathematical critique leveled by the short sellers: Grifols had systematically understated its use.

The investigation focused on the between the company’s reported use ratio and the reality of its balance sheet. Grifols had long reported a use ratio calculated according to its “Credit Agreement” with lenders. This private contract allowed the company to add back “expected synergies” and “cost savings” to its EBITDA. These adjustments artificially inflated the denominator in the debt-to-EBITDA calculation. By doing so, Grifols presented a use ratio of 6. 3x at the end of 2023. The CNMV rejected this metric as a standard for equity investors. When the regulator removed these hypothetical add-backs and included lease obligations under IFRS 16, the use ratio surged to 8. 4x. This recalculation confirmed that the company carried a debt load significantly heavier than its public presentations suggested.

The EBITDA Add-Back Controversy

The between the 6. 3x and 8. 4x ratios exposed the aggressive nature of Grifols’ financial engineering. The CNMV criticized the company for prioritizing a contractual definition of EBITDA over a standard accounting view. The “Credit Agreement” EBITDA included millions of euros in savings that had not yet materialized. Grifols treated these future projections as current earnings for the purpose of debt covenants. The regulator mandated that future financial reports must prioritize the standard ratio based on the actual Profit and Loss statement. This directive forced Grifols to strip away the “magic” adjustments that had kept its reported use artificially low for years.

The regulator also identified specific accounting errors regarding the ImmunoTek collaboration. Grifols had recorded this partnership as a simple financial investment. The CNMV determined that the terms of the agreement constituted a “joint arrangement” under IFRS 11. This finding required Grifols to integrate its share of the assets, liabilities, and results of the joint venture directly into its accounts. The correction forced a restatement of comparative figures for 2022 and 2023. While the absolute impact on equity was manageable, the error demonstrated a pattern of choosing accounting methods that minimized the appearance of operational complexity and debt.

Consolidation of Haema and BPC Plasma

A central pillar of the Gotham City Research report was the allegation that Grifols improperly consolidated Haema and BPC Plasma. Gotham argued that because Grifols did not own the shares, having sold them to Scranton Enterprises, it should not consolidate their earnings. The CNMV’s ruling on this matter was detailed. The regulator accepted Grifols’ consolidation of these entities as “reasonable” under IFRS 10. The decision hinged on the existence of call options. Grifols retained the right to buy back these companies at any time. This “chance voting right” gave Grifols control, even without direct share ownership.

Although the CNMV accepted the consolidation, it severely criticized the absence of disclosure. The company had failed to explain the “significant judgments and assumptions” used to justify this accounting treatment. Investors were left in the dark about why entities owned by a third party (Scranton) were appearing on Grifols’ balance sheet. The regulator demanded that future annual reports explicitly detail the nature of this control. This finding vindicated the accounting technicality used by Grifols condemned the opacity that made the Gotham report possible. The company avoided a catastrophic deconsolidation of EBITDA lost its veil of secrecy regarding the Scranton link.

Related Party opacity and Scranton Enterprises

The investigation shed light on the murky relationship between Grifols and Scranton Enterprises. The CNMV found that Grifols had not provided sufficient detail regarding related-party transactions. The regulator required a “look-through” method to disclose the links between the Grifols family and the Scranton vehicle. The report noted that while the transactions were technically “arm’s length,” the absence of granular detail prevented shareholders from assessing conflicts of interest. The undisclosed $95 million loan, a focal point of the short seller’s attack, became a symbol of this governance failure. The CNMV ordered Grifols to publish a complete breakdown of all balances and transactions with Scranton, ending the era of off-balance-sheet privacy.

Sanctions and Disciplinary Proceedings

In September 2024, the CNMV escalated its response by opening disciplinary proceedings against Grifols. The regulator “very serious” infringements regarding the communication of financial information. These proceedings concluded in July 2025 with fines totaling approximately €1. 4 million. The penalties targeted the company as a legal entity and specific executives responsible for the financial reports. The fines were levied for providing inaccurate data and for the misleading presentation of Alternative Performance Measures (APMs), specifically the adjusted EBITDA.

Grifols responded to the sanctions by categorizing the fines as “immaterial” to its financial position. This response, while mathematically accurate relative to the company’s billions in revenue, missed the reputational point. The fines served as a formal government confirmation that the company had misled the market. The CNMV also sanctioned Gotham City Research for market manipulation, acknowledging that the short seller had used “aggressive” tactics. Yet the dual sanctions created a grim reality for Grifols: the messenger was punished for how they shouted, the message itself, that the use was understated, was ratified by the state.

Regulatory Aftermath and Governance Changes

The CNMV’s intervention forced a permanent change in how Grifols reports its debt. The company can no longer hide behind the “Credit Agreement” ratio without simultaneously displaying the much higher balance sheet use. This transparency stripped away the premium valuation the stock once enjoyed. The confirmation of the 8. 4x use ratio terrified credit rating agencies, leading to the downgrades discussed in previous sections. The regulatory findings dismantled the narrative of a deleveraging company, revealing instead a firm struggling under the weight of debt it had tried to define out of existence.

The SEC’s Verdict: Investigation Closed Without Sanctions

On October 1, 2024, the United States Securities and Exchange Commission (SEC) formally concluded its investigation into Grifols, S. A., delivering a rare regulatory reprieve to the embattled pharmaceutical giant. Unlike its Spanish counterpart, the CNMV, which levied fines against the company and its executives, the U. S. regulator closed its inquiry without recommending enforcement action or imposing financial penalties. This decision, reported on November 6, 2024, signaled that the SEC accepted Grifols’ explanations regarding its accounting practices, specifically those challenged by Gotham City Research in January 2024. The closure of the probe removed the immediate threat of a U. S. federal lawsuit or massive regulatory fines, a scenario that had weighed heavily on the company’s NASDAQ-listed American Depositary Receipts (ADRs).

The SEC’s decision to stand down came after months of scrutiny where the regulator demanded an “accounting analysis to support the correctness of its financial statements.” Grifols maintained throughout the process that its consolidation methods, while aggressive, adhered to International Financial Reporting Standards (IFRS). The regulator’s retreat suggests that while Grifols’ financial engineering pushed the boundaries of standard practice, it did not cross the threshold of criminal securities fraud under U. S. law. This outcome provided a temporary floor for the stock price, yet it did not absolve the company of the accounting errors it was forced to admit during the intervening months.

Admissions of Error: The July 2024 Restatements

While the SEC declined to prosecute, Grifols could not escape the need of correcting its financial records. In a Form 6-K filing submitted to the SEC on July 30, 2024, the company disclosed significant “accounting adjustments” that validated several concerns raised by analysts and short sellers. The most damaging admission involved the incorrect treatment of its stake in Shanghai RAAS Blood Products Co. Ltd. (SRAAS). Grifols acknowledged it had wrongly classified its interest as a non-controlling interest rather than using the equity method. This error necessitated a retrospective restatement, resulting in a massive €457 million writedown of consolidated reserves for the years 2020 through 2023.

The restatements extended beyond the Chinese subsidiary. Grifols also corrected its accounting for Biotek America LLC (ITK JV), a joint venture previously treated as a financial investment. Under pressure to align with proper accounting standards, Grifols reclassified the agreement as a joint operation. This shift forced the company to recognize assets, liabilities, and losses it had previously kept off its primary books. The adjustment resulted in a €38 million negative hit to reserves, reflecting accumulated losses from 2021 to 2023. also, the corrections reduced reported net income by €17 million for 2023 and €23 million for 2022. These filings served as a tacit admission that the company’s prior financial statements, those relied upon by U. S. investors, contained material inaccuracies.

The Civil Litigation Battleground

The SEC’s decision to close its file did not extinguish the legal firestorm facing Grifols in U. S. courts. The admission of accounting errors in the July 2024 filings provided fresh ammunition for shareholder class action lawsuits. Legal firms such as The Rosen Law Firm, Kessler Topaz Meltzer & Check, and The Schall Law Firm continued to pursue claims on behalf of investors who purchased Grifols securities between 2019 and 2024. These complaints allege that the company issued materially misleading business information, artificially inflating the stock price before the Gotham City Research report caused it to collapse.

Plaintiffs that the subsequent restatements prove the original financial statements were false. The disconnect between the SEC’s “no action” letter and the ongoing civil liability highlights a distinct feature of the U. S. legal system: a regulator may choose not to spend resources on a complex prosecution, yet private shareholders can still sue for damages based on the same facts. The €457 million equity writedown remains a central piece of evidence in these civil cases, as it directly contradicts the asset values Grifols touted to investors for years. As of early 2026, these lawsuits remain active, representing a lingering financial liability that the SEC’s departure did not resolve.

Gotham City Research: No Enforcement Action

The regulatory scrutiny applied to Grifols also extended to its accuser. The SEC launched a parallel investigation into General Industrial Partners LLP, the parent company of Gotham City Research, to determine if the short seller engaged in market manipulation. In December 2024, the SEC concluded this probe as well, stating it did not intend to recommend enforcement action against the hedge fund. This dual clearance created a regulatory stalemate: Grifols was not guilty of fraud, Gotham was not guilty of manipulation. The outcome legitimized the short seller’s role in the ecosystem, as their report, though aggressive, precipitated valid accounting corrections without triggering regulatory punishment for the authors.

in Regulatory Standards

The outcome of the U. S. investigation stands in sharp contrast to the findings of the Spanish regulator, CNMV. While the SEC closed its case without penalty, the CNMV imposed fines totaling approximately €1. 4 million on Grifols and its executives for “very serious” and “serious” infractions related to the same financial reports. This from the different mandates and materiality thresholds of the two bodies. The CNMV focused on the technical accuracy of reports filed in Spain, finding specific faults in the transparency of EBITDA calculations and debt ratios. The SEC, regulating a foreign private issuer, likely focused on whether the errors constituted intentional fraud designed to deceive U. S. investors. The absence of a “scienter”, or intent to defraud, frequently allows companies to settle or see investigations closed with restatements rather than criminal charges. For Grifols, the U. S. outcome was a survival victory, the restatements filed with the SEC remain a permanent mark on its financial history.

The End of a Dynasty: Removal of Family Executives

The release of the Gotham City Research report in January 2024 triggered an immediate and forced evolution of Grifols’ corporate structure, ending over a century of direct executive control by the founding family. On February 5, 2024, less than a month after the short-seller’s allegations surfaced, the company announced a sweeping leadership overhaul designed to separate ownership from management. Raimon Grifols Roura, the Chief Corporate Officer, and Víctor Grifols Deu, the Chief Operating Officer, resigned from their executive functions. While they retained their seats on the Board of Directors, their classification shifted to “proprietary directors,” stripping them of day-to-day operational authority. This move marked the time in the company’s 115-year history that a member of the Grifols lineage did not hold a top executive post.

Investors and regulators viewed this exodus as a necessary purge to restore credibility. The Gotham report had explicitly targeted the family’s entangled financial dealings, specifically the “tunneling” of assets through Scranton Enterprises. By removing the family from the C-suite, the Board sought to signal a commitment to transparency and professional governance. Yet, the transition was not an admission of guilt framed as the acceleration of a “long-planned” succession roadmap initiated in 2022. Market skeptics noted the timing, suggesting the “planned” exit was hastily expedited to appease a plummeting stock price and a wary CNMV.

The Outsider: Nacho Abia’s Appointment

To fill the power vacuum, Grifols appointed Nacho Abia as Chief Executive Officer, April 1, 2024. Abia, a seasoned executive with 25 years of experience at Tokyo-based Olympus Corporation, arrived with a mandate to professionalize operations and execute a rigorous deleveraging strategy. His background in the medical technology sector and his distance from the Grifols family circle were central to his selection. The Board wagered that an external leader could the unclear financial structures that had plagued the company’s reputation without the emotional attachment of a family heir.

Abia’s compensation and authority were structured to ensure autonomy. Unlike previous “co-CEO” arrangements that diluted accountability, Abia was granted sole executive power, reporting to the Executive Chairman. His immediate priorities included the sale of the Shanghai RAAS stake to generate liquidity and the simplification of the company’s balance sheet. The market reacted cautiously to his appointment, acknowledging his credentials while questioning whether he could navigate a boardroom still dominated by the family’s significant voting rights.

Thomas Glanzmann: The and the Exit

Thomas Glanzmann served as the linchpin of this transition. elevated to Executive Chairman in February 2023 and briefly holding the CEO title, Glanzmann was tasked with stabilizing the ship during the initial post-Gotham storm. He played a dual role: defending the company against the short-seller’s claims while simultaneously orchestrating the removal of the very family members who had appointed him. In September 2024, Glanzmann transitioned to a non-executive Chairman role, further severing the Board’s link to daily operations.

By early 2025, the governance overhaul reached its final phase. Glanzmann announced he would not stand for reelection at the 2025 Annual General Meeting, clearing the route for a fully independent Chair. Anne-Catherine Berner, an independent director appointed in May 2024, was selected to succeed him. This succession plan was designed to satisfy international investors who demanded a Board Chair with no historical ties to the family’s expansionist era. Glanzmann’s departure signaled the closure of the transition period, leaving the company under the oversight of independent directors for the time.

The Failed Privatization Bid and Governance Stress

The leadership transition faced a severe test in mid-2024 when the Grifols family, in alliance with Brookfield Capital Partners, launched a bid to take the company private. This move created a clear conflict of interest: the family, removed from management, sought to buy out minority shareholders at a depressed valuation. The Board responded by forming a “Transaction Committee” composed exclusively of independent directors, including Íñigo Sánchez-Asiaín Mardones and Montserrat Muñoz Abellana, to evaluate the offer.

In November 2024, the Board unanimously rejected Brookfield’s non-binding offer of €6. 45 billion (€10. 50 per share), declaring it significantly undervalued the company’s fundamental prospects. The rejection demonstrated the newfound independence of the Board. In previous years, a family-led proposal might have faced little resistance. The collapse of the deal in late 2024, and the subsequent withdrawal of Brookfield, forced the family to accept their new reality: they were major shareholders, they could no longer dictate the company’s destiny or valuation.

Current Governance Structure (2026)

As of March 2026, the governance of Grifols has shifted permanently. The Board comprises a majority of independent directors, with the Audit and Control Committee entirely free of family representation. The “proprietary directors”, Raimon and Víctor, retain their seats possess limited influence over strategic execution. The company has also implemented stricter controls on related-party transactions, shutting down the pipeline of undisclosed loans and asset swaps with Scranton Enterprises that Gotham City Research had exposed.

The separation of the CEO and Chairman roles, combined with the installation of independent leadership at the Board level, has aligned Grifols with international corporate governance standards. While the family retains a controlling stake through their Class A shares, the method of power have moved to professional managers and independent overseers. This structure aims to prevent the recurrence of the financial engineering that nearly destroyed the company, placing the load of proof on Abia and Berner to deliver transparency and operational recovery.

The collapse of the Brookfield bid left Grifols. Without the capital injection or the privatization shield, the company was forced back into the, having to defend its accounting practices to a market that had just seen a sophisticated buyer walk away. The event marked the end of the “easy fix” narrative and the beginning of a more grueling phase of survival, characterized by asset divestitures and aggressive cost-cutting measures that would define the company’s strategy through 2025.

The Counter-Strike: Grifols Takes the Battle to Manhattan

On January 26, 2024, Grifols, S. A. escalated its defense against Gotham City Research from regulatory filings to federal litigation. The Spanish pharmaceutical giant filed a lawsuit in the United States District Court for the Southern District of New York (SDNY), formally accusing the short-seller of orchestrating a “short-and-distort” scheme. The complaint, assigned to Judge Lewis J. Liman under case number 1: 24-cv-00576, named a specific roster of defendants: Gotham City Research LLC, its founder Daniel Yu, General Industrial Partners LLP, and Cyrus de Weck. This legal maneuver marked a shift from defensive public relations to offensive judicial action. Grifols sought not only monetary damages also injunctive relief, aiming to legally bar the defendants from disseminating what the company characterized as “malicious falsehoods.” The choice of venue was strategic; the SDNY is the premier jurisdiction for complex financial litigation, sitting at the heart of the global financial system where the alleged reputational damage to Grifols’ NASDAQ-listed ADRs occurred.

The Anatomy of the Complaint

The initial filing was aggressive, utilizing language rarely seen in dry corporate litigation. Grifols’ legal counsel, Proskauer Rose LLP, drafted a complaint that painted the defendants not as market analysts as “predatory short sellers” and “criminals.” The text explicitly referenced Daniel Yu’s past legal troubles, labeling him a “convicted felon” to undermine his credibility before the court. The core of Grifols’ legal argument rested on the distinction between protected financial opinion and verifiable factual fabrication. While U. S. courts grant wide latitude to negative opinions under the Amendment, especially regarding public companies, Grifols argued that Gotham crossed the line into defamation by publishing objectively false data points. The centerpiece of this argument was the $95 million loan to Scranton Enterprises. Gotham’s January 9 report alleged that Grifols had failed to disclose this loan, using it as a primary example of the company’s “unclear” accounting. Grifols countered that this specific allegation was a demonstrably false statement of fact, not an opinion. The company pointed to its audited financial statements from 2018 through 2022, which they argued contained explicit disclosures of the loan. The complaint highlighted that Gotham had “surreptitiously” edited its report on January 10, one day after the initial release and subsequent stock plunge, to correct this error without alerting readers, an action Grifols as evidence of “actual malice” and consciousness of guilt.

The Defendants’ Amendment Shield

Gotham City Research and its co-defendants moved to dismiss the case, deploying a defense grounded in the Amendment and the “opinion” doctrine. Their legal team argued that the report was a work of financial analysis and commentary, protected speech that contributes to market efficiency. They contended that the term “undisclosed” was a matter of interpretation regarding the *adequacy* and *transparency* of the disclosure, rather than a literal claim that the numbers were missing from the footnotes. The defense further argued that Grifols, as a large public entity, was a “public figure” for defamation purposes. This legal standard requires the plaintiff to prove “actual malice”, that the defendants knew the statements were false or acted with reckless disregard for the truth. Gotham asserted that their analysis, even if disputed, was a good-faith interpretation of complex and confusing financial structures that Grifols itself had created. They characterized the lawsuit as a “SLAPP” (Strategic Lawsuit Against Public Participation) tactic intended to silence critics and chill valid market research.

The May 2025 Ruling: A Split Decision

The legal battle culminated in a significant ruling on May 30, 2025. Judge Lewis J. Liman issued a decision that offered a partial victory to both sides, though it kept Grifols’ core defamation claim alive. The court rejected Gotham’s motion to dismiss the lawsuit in its entirety, finding that Grifols had plausibly alleged that the specific statement regarding the “undisclosed” $95 million loan was false and defamatory. Judge Liman’s ruling noted that the accusation of hiding a loan is a factual assertion capable of being proven true or false. If the loan was indeed listed in the filings, as Grifols claimed, describing it as “undisclosed” could not be shielded as a mere difference of opinion. The court found that the alleged “stealth edit” of the report by Gotham on January 10 provided sufficient grounds to infer that the defendants might have harbored doubts about the truth of their statement, thus satisfying the pleading stage requirement for actual malice. yet, the ruling was not a total vindication for Grifols. The court dismissed several other counts in the complaint, including claims for unjust enrichment and tortious interference with business relations. Crucially, Judge Liman ruled that of the other “stingers” in the Gotham report, such as the characterization of Grifols’ shares as “uninvestable” or the estimates of “true” use being 10x-13x, were protected opinions. These statements, the judge reasoned, were based on the defendants’ own calculations and methodologies, which were disclosed in the report, allowing investors to decide for themselves whether to agree with the analysis.

The Narrowed Scope of Litigation

By July 2025, the contours of the case had shifted. The litigation moved forward, on a much narrower track. The sprawling narrative of a “criminal enterprise” destroying a company was legally pared down to a dispute over specific factual inaccuracies. This narrowing was significant; it meant Grifols could not sue Gotham simply for having a negative view of its accounting or for predicting its stock would go to zero. They had to win on the specific lie: the $95 million loan. This procedural posture placed a heavy load of proof on Grifols as the case entered the discovery phase in late 2025. The company needed to demonstrate not just that the loan was disclosed, that Gotham *knew* it was disclosed and lied about it to crash the stock. Discovery promised to be invasive for both sides. Grifols would likely seek internal communications from Daniel Yu and Cyrus de Weck to find a “smoking gun” email proving malicious intent. Conversely, Gotham gained the right to depose Grifols’ executives and demand internal documents regarding the Scranton transaction, chance uncovering the very details the company had fought to keep private.

Strategic for 2026

As of early 2026, the lawsuit remains active, serving as a lingering cloud over the company’s recovery efforts. While the market initially cheered the survival of the lawsuit as a sign of Grifols’ confidence, the dismissal of the broader claims served as a reminder of the difficulty in silencing short-sellers in U. S. courts. The legal fees for such high- SDNY litigation are immense, estimated in the millions of dollars per month, adding another line item to Grifols’ already expenses. For the broader market, the case established a serious precedent regarding the liability of activist short-sellers. It reinforced the boundary that while analysts are free to publish harsh, even destructive, opinions about a company’s valuation and use, they cannot fabricate the absence of data that is present in public filings. The “Scranton Loan” became a case study in the difference between “analysis” and “defamation.” The lawsuit also functioned as a holding action for Grifols’ reputation. By keeping the case alive, management could point to the ongoing litigation as proof that they were fighting back against “lies,” a necessary narrative to maintain the support of key institutional investors and banks during their refinancing negotiations. yet, the resolution, whether a settlement, a trial verdict, or a summary judgment, remained uncertain, with the chance for a public trial in late 2026 or 2027 that could air more of the company’s dirty laundry than the original Gotham report ever did.

The Shanghai RAAS Liquidity Injection

The pivot point for Grifols’ credit stability arrived in June 2024 with the closure of the sale of a 20% stake in Shanghai RAAS (SRAAS) to the Haier Group. This transaction, which had been under negotiation prior to the short-seller attack, became the of the company’s survival strategy. The deal generated approximately $1. 8 billion (€1. 6 billion) in cash proceeds, a capital infusion that was contractually ring-fenced for debt reduction. Grifols management applied these funds with aggressive precision to the “maturity wall” that Gotham City Research had identified as a chance solvency trigger. The proceeds were used to redeem the outstanding balance of the 2025 senior secured notes and to pay down of the 2027 Term Loan B. This maneuver did not reduce gross debt; it demonstrated to the market that the company’s assets held verifiable value, countering the narrative that the corporate structure consisted solely of “tunneling” vehicles and worthless equity.

Refinancing the 2025 Maturity Wall

With the immediate SRAAS proceeds deployed, Grifols executed a serious refinancing operation in December 2024 to clear the remaining short-term blocks. The company successfully placed €1. 3 billion in senior secured notes due in 2030, carrying a coupon of 7. 125%. While this rate represented a steep increase in the cost of capital compared to the 1. 625% coupon of the retired 2025 bonds, a direct “corruption tax” imposed by the market following the governance scandals, the issuance was oversubscribed. This successful placement allowed Grifols to fully repay the remaining 2025 maturities and clear its Revolving Credit Facility (RCF), which was subsequently extended to May 2027. By the end of 2024, the company reported a liquidity position of approximately €1. 9 billion, comprised of cash on hand and undrawn credit lines. This neutralized the short-term liquidity thesis presented by the short sellers, who had bet on a credit freeze forcing a restructuring or bankruptcy event before the end of the fiscal year.

Credit Rating Trajectory and use Metrics

The rating agencies acknowledged this stabilization with a series of upgrades that tracked the company’s deleveraging progress. In December 2024, S&P Global Ratings raised Grifols’ issuer credit rating to ‘B+’ from ‘B’, removing the negative watch. The agency the removal of refinancing risks and a stronger-than-expected operating performance as primary drivers. Throughout 2025, the company’s focus shifted from survival to metric restoration. The use ratio, which Gotham City Research alleged was between 10x and 13x, was reported by Grifols to have declined from 6. 8x in the quarter of 2024 to 4. 6x by year-end 2024. By late 2025, further operational improvements and debt repayments pushed this ratio down to 4. 2x. Moody’s Investors Service, which had withdrawn a specific foreign currency rating in mid-2024 amidst the volatility, re-engaged with a positive trajectory in 2025. By May 2025, Moody’s upgraded Grifols’ Corporate Family Rating to B2, and subsequently to B1 later in the year, validating the company’s ability to generate organic cash flow. S&P followed suit in December 2025, upgrading the company to ‘BB-‘, a significant step back toward investment-grade territory, though still firmly within the speculative bracket.

Free Cash Flow and Operational Reality

A central pillar of the Gotham report was the allegation that Grifols’ free cash flow (FCF) was artificially suppressed or non-existent due to undisclosed cash leakage to Scranton Enterprises. Post-allegation financial reporting for 2024 and 2025 showed a concerted effort to prove otherwise. In the fourth quarter of 2024, Grifols reported positive free cash flow of €335 million, earlier analyst skepticism. For the full year 2025, the company delivered pre-M&A free cash flow of €468 million, driven by a normalization of capital expenditures and improved working capital management. This resurgence in cash generation was serious in disproving the “equity is zero” thesis. It demonstrated that the core plasma business, even with the governance noise, retained strong unit economics and the ability to service its restructured debt load.

Market Bifurcation and Long-Term Outlook

even with the credit repairs, a clear bifurcation remained between Grifols’ debt and equity markets through early 2026. While bondholders were largely made whole and new issuances traded well, the equity remained depressed, trading at multiples significantly historical averages (10x forward P/E vs. historical>20x). The failed takeover bid by Brookfield Capital Partners in November 2024, which valued the company at €6. 45 billion, further cemented the floor for the stock failed to ignite a full recovery. The credit market’s acceptance of Grifols’ rehabilitation suggests that the risk of imminent insolvency has passed. The company enters 2026 with no significant funded maturities until November 2027. yet, the cost of this stability has been high: the company is load with significantly more expensive debt, and its governance structure remains under the microscope of the Spanish High Court, which opened an investigation into Gotham City Research for “misleading information” in November 2024.

The trajectory from 2024 to 2026 illustrates a “force majeure” deleveraging event. The Gotham allegations, while damaging to the equity value and reputation of the Grifols family, forced a financial discipline that had been absent for the previous decade. The company successfully monetized its crown jewel asset in China and accepted higher interest costs to survive, trading growth for solvency. By 2026, the “uninvestable” label applied by Gotham had been rejected by the credit markets, even as the equity markets continued to apply a governance discount.