• by Larissa Faw , May 6, 2016

MDC Partners' stock continues to drop one week after a scathing report from short seller Gotham City Research questioned the advertising holding company’s business operations. MDC’s stock has dropped from $23.01 on Thursday, April 28 to Friday's close at $17.06.  

Pressure on MDC is coming from short sellers circling prey. MDC missed analysts’ revenue expectations when it reported its first-quarter 2016 financial numbers last Tuesday. The company reported a gain of 2.3% to $309 million, while Wall Streeters predicted revenue to fall between $320 million and $323 million for the period. 

Now, some short sellers on Wall Street — including Gotham — are attempting to take advantage of these missed expectations. These financial player's strategies can only make money when they spot weakness or events like the credit crisis, says one analyst.  

"It's like a game of musical chairs, it continues until the song is over," says Albert Fried's Richard Tullo who follows MDC. "Once they are done in the absence of more organically bad news the stock should recover and if management's guidance is right the stock could go to $30 if the shorts wait too long to cover."

Gotham City's report that sparked MDC’s latest stock plunge continues to reverberate among investors. While many analysts dismissed the findings, others remain uncertain about the allegations as evidenced by the declining stock price. In response to a query, Gotham Research stated in an email that it stands by the report, saying "they missed on all counts, that's why the stock is down. They also didn't really answer our questions, nor refute our claims." 

Still, there is mystery surrounding Gotham and founder Daniel Yu -- which some, including Tullo, believe to be a pen name. Tullo says he's "70% sure" he may have come up with Yu’s real identity. While he is not disclosing the name publicly, he has turned over his findings to both MDC and one of the largest investors in the company who he assumes is working with federal authorities, although so far there is no formal indication that Gotham or its principals have run afoul of U.S. regulations.