UPDATE: Citigroup Downgrades Tile Shop Holdings Following Fraud Allegations

In a report published Friday, Citigroup analyst Kate McShane downgraded

from a Buy rating to a Neutral rating and lowered the price target from $32.00 to $14.75. In the report, Citigroup says "Shares of TTS shed 39% following accounting fraud allegations by Gotham City Research. The report states TTS's gross margin is inflated as the company purchases its products from Beijing Pingxiu at cost which allows TTS to understate costs and overstate inventories. Further, the report alleges Pingxiu's CEO, Fumitake Nishi, is the brother-in-law of TTS' CEO Robert Rucker as well as an employee of TTS; thereby allowing Pingxiu to be secretly controlled by TTS and provide products at cost. TTS, in turn, pays Pingxiu with capital gains from rise in the shares, according to the report." Tile Shop closed on Thursday at $12.95.