UPDATE: 4:30 p.m. EDT: Valeant ended the day down more than 19 percent. The stock staged a rally following a mid-afternoon trading halt and a company statement rebutting allegations of impropriety. Hedge fund investor Bill Ackman, whose fund Pershing Square Capital holds a 5.7 percent stake in Valeant, doubled down on his long position with a 2 million share purchase, CNBC reported. 

In a subsequent statement, a Valeant spokesperson said, "Citron’s false and misleading statements about Valeant appear to be an attempt to manipulate the market in an effort to drive down Valeant’s stock price." The stock lost 19.37 percent, or $28.42, Wednesday to end the regular trading session at $118.32.

Original story:

Valeant Pharmaceuticals International Inc. took a beating in the markets early Wednesday after a short-selling firm released a report raising questions about the company's reported revenue and its ties to specialty pharmacies that sell its products. The firm, Citron, alleges that Valeant's supposed improprieties reach the level of "Enron Part Deux." As a short-seller, Citron has a financial interest in seeing Valeant's shares drop.

Trading of Valeant's stock was halted on the New York Stock Exchange after it fell nearly 40 percent Wednesday afternoon. Valeant issued a rebuttal to Citron, calling the accusations "erroneous."

The company, a darling to hedge fund investors like Bill Ackman, has come under withering scrutiny in recent months as politicians, including Hillary Clinton, have railed against skyrocketing drug prices. Last week, federal investigators subpoenaed the company over its distribution practices. 

At the heart of the recent allegations is the company's use of specialty pharmacies, which maintain distribution relationships with pharmaceuticals and streamline the process of charging high-priced drugs to insurance plans. Patients who are prescribed certain Valeant dermatological products, for instance, are directed to Philidor RX, a Philadelphia specialty pharmacy.

In a surprise to investors, Valeant CEO J. Michael Pearson revealed Monday that the company purchased an option to acquire Philidor last year. 

Citron found that Philidor shares nearly identical company documents with R&O, a pharmacy based in California. R&O recently sued Valeant over a $70 million invoice it received from the pharmaceutical giant. R&O claimed it had done no direct business with Valeant and that the company was "conspiring with other persons or entities to perpetuate a massive fraud against R&O and others."

In its report, Citron claimed the evidence indicated that Philidor RX owns R&O, both of which allegedly serve as "captive" companies in "a fraud to create invoices to deceive the auditors and book revenue."

In its statement, Valeant denied that it was using the companies to prop up its revenue. "Sales are recorded only when the product is dispensed to the patient," the statement read. "There is no sales benefit" from storing inventory at specialty pharmacies, the statement continued.

Among the irregularities raised by the Citron report were the nearly identical company privacy notices used by Philidor, R&O, and several other pharmacies. The companies also list the same telephone number for their respective privacy officers, and their websites were all created on May 12, 2015. 

The Citron allegations follow a report from journalist Roddy Boyd of the Southern Investigative Research Foundation, outlining the previously undisclosed relationship between Philidor and Valeant. The link between Valeant and R&O, the report asserted, was in fact Philidor. 

Citron's description of the alleged arrangement resembles the illegal practice of channel-stuffing, in which a corporations uses shell companies to receive shipments and book revenues, even if no real sales are occurring. On Wednesday, Valeant competitor Allergan --  issued a press release affirming that it "does not rely on specialty pharmacies."