Viceroy Research, in a report published on Oct. 6, said Adler Group's "balance sheet has been artificially inflated to a significant degree, its shares are not investible", causing the group's shares to tumble.

"This is evidently false," said Adler in a statement.

"The real estate value set forth in Adler's balance sheet has been determined by independent market leading real estate property appraisers and confirmed independently by financing banks," it added.

Adler, which is listed on Germany's smallcap index SDAX, said it was currently preparing a detailed response to the allegations and would comment on them shortly.

Germany's financial regulator, BaFin, said it was taking the report seriously and was reviewing the allegations made in it.

"If this results in suspicions of criminal activity, we will report it to the relevant public prosecutor's office," a spokesperson said.

Shares in Adler closed 26% lower.

Rumours about a short-seller attack targeting Adler first surfaced in June and came after Viceroy Research issued a critical report on German financial services firm Grenke last year.

Aggregate Holdings - Adler's top shareholder with a 26.6% stake - said it was absolutely convinced of the value of its investment in Adler.

"The current share price does not reflect the value in any way," Aggregate Holdings' Chief Financial Officer Benjamin Lee told Reuters.

Earlier this week, Adler's Chief Executive Maximilian Rienecker had told Reuters that the firm plans to sell a major part of its residential portfolio in a bid to reduce debt, adding it could even divest its subsidiary Westgrund.

(Reporting by Matthias Inverardi and Danilo Masoni; Writing by Madeline Chambers and Christoph Steitz; Editing by Elaine Hardcastle, Kirsten Donovan)