Spanish Tech Company Admits It Is A Fraud Following Short-Seller Report

Tyler Durden's picture

There was a time when reports issued by short selling-focused research shops such as Muddy Waters would usually result in disparagement lawsuits by the targeted company (typically a  reverse-merged Chinese fraudcap), seeking to shut said short-sellers and restore confidence in the company (when the best way to restore confidence would have been for the company to simply buy back its shares at severely depressed values).

However, the reputation of such bearish-biased research boutiques is set to soar following the latest fiasco involving Spanish mid-cap tech company Let's Gowex (GOW), a Madrid-based provider of Wi-Fi connections and support services for mobile-phone carriers, which a week ago was the subject of a research report by Gotham City Research (whose work has deservedly appeared in the past on Zero Hedge) and its Twitter frontliner @LongShortTrader.

In the report, Gotham predicted that "Gowex shares are worth €0.00 per share." It added that over 90% of Gowex’s reported revenues do not exist noting that "we estimate GOW’s actual revenues to be <€10 million."

Its conclusion: "the shares will be suspended, just as Pescanova’s shares were suspended." Needless to say at the time Gowex vehemently denied the report saying all its allegations were false.

Gotham was right: after the stock crashed by 50% in the days after the release of the report, on July 3 Gowex SA was suspended from trading, and overnight, the CEO admitted his company is a fraud and, as Bloomberg reports, Let’s Gowex will file for insolvency and said its chief executive officer resigned after admitting he presented false accounts for at least the past four years.

The board of the Madrid-based provider of Wi-Fi connections accepted CEO and founder Jenaro Garcia’s resignation after he took full responsibility for fake accounts, the company said in a regulatory statement today. Gowex shares have dropped 60 percent since July 1, when short-seller Gotham City Research LLC said the start-up was worthless, claiming the company inflated revenue.

Aside from humiliation for an entire sell-side following which ignored the clear warnings signs and pushed the stock to a market cap of some $2 billion before the Gotham report, this is also a hit to the Spanish stock market.

Gowex’s fast growth, with a market value that more than doubled between going public in 2010 and the release of Gotham’s report, was a rare success story in a country that has failed to foster successful technology start-ups with global reach. The company was also one of the best performers in Madrid’s small-cap MAB stock index, an alternative funding source for small companies in line with a government drive to promote financing options for businesses.

It isn't going to be performing that well now that it is worth precisely the €0.00 Gotham predicted. Perhaps what is most shocking is how quickly the company folded and admitted it had been cooking the books - it is almost as if it didn't even bother preserving some value while selling shares to idiot BTFDers.

That said, we are confident that the CEO will surely avoid prison time for defrauding investors and cooking the books for 5 years. After all he apologized: "I made a voluntary confession in court,” Garcia said on Twitter today - voluntary, that is, only after the jig was up. "I want to collaborate with justice. I will face the consequences." The posting followed an earlier message in which he said he was apologizing “to everybody. I am truly sorry."

Below is the full statement released by the company early this morning:

 The Board of Directors of the Company announces that on July 5 2014, at 16’00, at the Company's offices, Mr. Jenaro García Martin, Chief Executive Officer and President of the Board, has declared in the presence of different Board Members that the financial accounts of the Company for the last four years, at least, do not show a full and fair view of the Company’s situation, taking responsibility for this falsity.


The Board, as stated in the minutes of the meeting, signed by the Board Members attending the session (Mrs. Solsona Piera, Martínez Marugán and García (attending the meeting both on his own behalf and representing the Board Member Ms. Maté),has revoked all powers and delegations granted to the Chief Executive Officer and has accepted his resignation.


The Board, anticipating that the Company might not be in a position to face its ongoing debts when they become due, has agreed to file for a declaration of voluntary insolvency, without prejudice of other measure that it may adopt for the best protection of the Company’s interests, regarding which it will immediately inform the market as soon as it might  adopt them.


The Board resolutions shall be notarized by exhibition of the minutes, as it has not been possible to certify their contents, since the Board has accepted the resignation of Mr. Garcia Martin and  has not appointed a new President.


We remain at your disposal for any clarification deemed appropriate.

This latest loss of confidence in a rigged market will likely mean that all other companies trading on Spain's MAB stock index are about to be monkeyhammered:

It looks like an isolated case in the Spanish context, but I do think it is significant in the context of MAB -- it’s a market that’s relatively new and has had some failures and the vigilance of the information about the companies has not always been adequate,” Jose Ramon Pin, a professor at the Barcelona-based IESE business school, said in a phone interview.


The MAB is a “market basically for SMEs and sort of company that quotes there tends to have more aggressive strategies,” he said.


Gowex is one of 23 stocks listed on the Madrid’s MAB index, which includes companies from toy retailer Imaginarium SA (IMG) to carbon fiber manufacturer Carbures Europe SA (CAR), whose stock is up 114 percent this year. Zinkia Entertainment SA (ZNK), which produces a cartoon television series, sought creditor protection last year.

Every bubble eventually bursts. As for Gotham and @longshorttrader congratulations on not only being contrarian and doing another tremendous piece of research, but, more importantly, being right. Curious what other names Gotham Street hates? Here is a sampling: Ebix Inc. (EBIX), The Tile Shop Holdings Inc. (TTS), Blucora Inc (BCOR), and Quindell Plc. (QPP)

Gotham's full research report is below.

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greatbeard's picture

Still waiting for that to happen to The United Corporate States of America, ticker symbol USA.

Future Jim's picture

Speaking of whistleblowers. I am just now learning about all the amazing claims by World Bank insider Karen Hudes in the last few months.

Does anyone think she is one the level or is it disinformation designed to make critics look like fools?

Beam Me Up Scotty's picture

Sounds like the Fed.  Everything they say is a lie, yet lots of people take everything they say as the truth.  They say they are reducing bond purchases, but how do we really know?  Audit the Fed and lets find out!

remain calm's picture

No it really sonds like the bullion banks. They are writing claims when in fact they have NO gold, ZERO, biggest fraud ever perpetuated on the public.

Four chan's picture

anthony@pacific up to it again? lol

Vampyroteuthis infernalis's picture

When are these reports going to hit siliCON valley and all their FB like start up frauds that they are perpetuating?

max2205's picture

Call from Jon Corzine on line 2

flacon's picture

Can't be - Corzine is in jail.  ... oh wait... nevermind..

Manthong's picture

Two billion fraud V. about a quadrillion notional fraud.

At this point, what difference does it make?

(seems I've heard that somewhere before)


SilverIsMoney's picture

Karen Hudes is totally fucking nuts. She makes Bix Wier look sane. Can't believe anyone is still listening to this loon. She's legitimately crazy and I do not believe she ever worked for the World Bank.

Hulk's picture

Bat shit crazy she is...

Winston Churchill's picture

Still getting a World Bank salary cheque according to Jim Wiley.

Prolly a gold disinfo agent.

Her claims ,if true, would certainly screw us stackers.

dogbreath's picture

Thanks Silver,

She makes sensational headlines  World bank whistle blower ba ba blah blah.   I tried to listen to her a few times on KWN and elsewhere and  she doesn't say anything concrete.   Nothing.  She uses a few words that triggers the conspiracy nuts but can't string together a coherant sentence.

Disinfo or just your garden variety attention whoring narcissist


NoDebt's picture

Thanks for the heads up on her (to everyone above).  I haven't had the pleasure, but I'll know to steer clear.

It makes sense.  I suspect a REAL whisteblower on an institution like the World Bank would have been quiety snuffed and disappeared long ago.

Mentalic's picture

Waiting for Twitter and other hyped up Web2.0 companies to come clean !!

Stackers's picture

So what happens when you have shorted a stock and it goes to $0 and gets delisted ? Short positions dont post a P&L until they are closed ... how does that work ??? Obviously you sold the shares long ago and now dont have to buy them back, does the whole position book as a profit automatically ?

NoDebt's picture

Just because it is delisted from an exchange doesn't mean it can't trade.  In the US it would move to an OTC or Pink Sheet market, unless regulatory bodies put a "halt trade" order on it.  Not sure what happens in Europe, but I suspect something similar.

Everybodys All American's picture

Your trading account will show the profit of the trade. What many short sellers will do is hold the position short and trade against it with other positions using their increased margin. Why? Simply because they may not want to pay the taxes on the new found wealthy short position immediately. Over time they may begin to close the short knowing full well they have to eternity in this case to close it out by buying back any shares necessary. Until the shares are bought back no taxable event has occurred.

Rainman's picture

Rest assured China has hundreds ... perhaps thousands .. of GOWs .

Kudos to Gotham.

Haager's picture

Only China? Man, you're an optimist.

nmewn's picture

Sooo, ummm, the board members get to slink off into the sunset with their pockets stuffed.

Same as it ever was.

NoDebt's picture

"And nobody goes to jail".  Battle cry of the 21st century financial markets.

BurningFuld's picture

Nobody goes to jail because at one time the company was worth waaay too much money. So the trick here boys and girls is to lie your way up to over a Billion in notional value and you are home free. (I may have set the bar a bit too high.)

toady's picture

I was a contractor in telecom when the pay checks stopped showing up. Called the contracting company and it was utter chaos.

The owner of the contracting company simply disappeared.he was supposedly a big deal in India, owned a major data center that processed for call centers. They assumed foul play and investigated.

The data center in India, this is unbelievable, ended up being a HOLE IN THE GROUND! the last time he was seen he was closing a offshore account and emptying a box in the canary islands.

They always walk away with the cash.

conscious being's picture

Peak Fraud boys.  What an era to witness!!

kchrisc's picture

Like a Russian matryoshka doll: One ponzi after another nested inside each other.

The outer ponzi being the Rothschild (central) bank cartel.

Boomberg's picture

I'm really getting tired of Russian babushka dolls being associated with financial fraud schemes. I've seen this several times here on ZH. They are tangible assets, about the only ones I have, and they keep me good company. 

razorthin's picture

In USSA, we just change accounting rules so that the fraud is legal.

CPL's picture

FASB rulings changing on how lease terms work so companies that offer leases to poor credit risks are absolved of responsibility and get to claim a full write down on a depreciated asset.  Basically FASB is allowing anyone that uses leasing vehicles as leverage against the tax system to fund a bad business decision to offer leases in the first place or worse download the credit risk to the company under the primary.  A hidden auto bailout in disguise under the table in plain site by changing rules of tax and investment practices.

Auto dealership and sales people should be made aware of this because it effects them all.

June 25th 2014

The Boards decided that an intermediate lessor should not offset lease assets and lease liabilities arising from a head lease and a sublease that do not meet the respective IFRS and GAAP financial instruments requirements for offsetting.

There are other nifty punishments also setup for the people that co-sign leases which parents that co-sign should also be aware of.

Remember, if you are huge multinational auto maker with a financial lease component, then the obvious reaction is to change the rules about how responsible you are with your own products.  So instead of making good cheap cars with high gas mileage, you make death traps that you have no responsibility for once they are out of the factory.

Now there's a hidden problem with the ruling, the language in the term 'lease' is very broad and could also be used against leased rental properties.  Or even leased storage.  Or leased cargo freight delivery.  But since everyone at FASB is cross eyed and so far away from the real world, the term lease has only been defined solely for banks and their credit facilities.  Versus the other 99.9% of where the term 'lease' occurs in day to day business.

They might want to retract the whole bag of shit they've written and do it again because karma kicks in and proves them all the fools we know they are.  Maybe write the accounting rules so they make sense versus the convoluted nonsense they've come up with.

NOZZLE's picture

How bout the so called board of directors, they were wrestling with cluelesness as well.  

Anyone figured out how SheetPotle sources the 250,000lbs of organic beef it goes thru on a daily basis? 

yellowsub's picture

I was wondering the same thing when I read their company motto on their napkin or somewhere in their store.

Go run with it.

NoDebt's picture

They grease somebody's palm and they slap the "organic" label on the same beef everyone else uses, would be my guess.

I don't know what "organic" even means.  I suspect it probably means a lot less in reality than most people think it does.

yellowsub's picture

Funny how the Organic label is how we've always farmed before technology invented pesticides and GMO.

Shouldn't we label the unnatural process of using pesticides, GMO, anti-biotics, growth hormones instead as such as opposed to accepting it as the norm.

deflator's picture

 That would screw up hedonic adjustments to CPI... by "their" thinking, if  GMO, anti-biotics, growth hormone,pesticides, herbicides,food products were labeled as inferior to natural products, then the benefits of producing food products in greater abundances at lower costs with their use would have to be discounted.

yellowsub's picture

When will the TBTF banks admit the same?

Bernanke&#039;sDaddy's picture

Citron Research also publishes informative pieces. There report on VoxelJet is a classic.

bugs_'s picture

Holy capitulation Batman!

buzzsaw99's picture

shocking. this is the third scam this year that i have fallen for. [/sarcasm]

The Most Interesting Frog in the World's picture

False accounts? You mean like Twitter and Facebook? Hell I thought that made your company more valuable, not bankrupt. Somebody needs to step in and come to the CEOs defense.

damicol's picture

I wish,, I wish  I wish so much that Gotham would do one on Societe Generale.

 That French Bank is so fucking fraudulent and insolvent  and that fraud goes back a generation or more.

Thats the kind of thing needed to blow all the fucking crony corrupt stinking socialist lying two faced scammers out of the water and show just what a hideously crony  conniving corrupt bank and a fucking thieving bunch of socialist fuck wits and the lengths they will go to in covering up their ponzi scams.

A bit like BoA or JPM actually thinking about it

RadioactiveRant's picture

I hope Societe Generale goes on forever if only because I enjoy Albert Edwards brand of doom.

Jano's picture

Where is the news?

starman's picture

GS! Helping Sapanish start ups one company at a time.

besnook's picture

they get the bernie madoff award. impressive. either spanish regulators, bankers and auditors are horrible at their jobs or very good at them. someone made a ton of money on this scam.

TabakLover's picture

Drag the rats into the light....and then loose the terriers on them.   Bravo!

pitz's picture

Sounds very similar to some big brand-name tech companies we have here in the USA that consistently report no earnings, or can only manage to report 'earnings' using the most aggressive transfer pricing schemes, H-1B workers, etc. possible and are otherwise minimally economically viable.  Come to think of it, this is most Silicon Valley tech firms.

AUD's picture

Small fish. The tangible assets of central banks amount to next to zero, yet their liabilities trade practically good as gold.

Where's the real Ponzi scheme?

WTFUD's picture

' Spanish Tech ' the Armada of Investing aka Spandex