Gowex to file for bankruptcy, CEO admits wrongdoing

6th Jul 2014 20:04

Spanish broadband telecommunications specialist firm Gowex has announced the resignation of its Chief Executive Officer, Jenaro Garcia, and that it is to file for bankruptcy protection. The company, which was chiefly a provider of free WiFi connections in urban areas, lost approximately 60% of its €1.4bn market capitalisation after being targeted in a research piece issued by short-seller Gotham City Research on July 1st. The New York based analysts, about whose identity little is known, alleged that the company had grossly inflated its revenues, over 90% of which simply did not exist, and made very significant misrepresentations in its annual accounts. Recent events will come as a serious blow to the credibility of the Mercado Alternativo Bursatil (MAB), Spain's junior market for small and medium-sized enterprises. Many of the ingredients which one typically finds in the history of financial accounting scandals - such as occurred in the better known episodes of Enron or with the likes of Global Crossing - were present in the case of Gowex: a long period of financial excess, the company's presence in a new business segment and lax regulatory oversight.The latter may have been particularly important this time around, as supervision for those companies listed on the MAB is split between the MAB, the operator of the Madrid Stock Exchange (BME) and the main national financial sector regulator (CNMV).Precisely one of the main points made by Gotham City Research in its report was that there were considerable questions marks surrounding the Gowex's auditors, M&A.Spain's investor lobby group Asinver has filed charges against Gowex, its President, its auditor and the company's adviser, Ernst&Young. Acting as a backdrop, The Sunday Times reports that the Financial Conduct Authority may launch an inquiry into the role of independent "float advisers" after recent complaints that they could be "bending the rules on stock market listings."In a related matter, The Sunday Telegraph writes that BlackRock has banned its London office from lending out its shares after a short-selling attack on Blinkx, an online advertising company in which BlackRock is the biggest shareholder. That company's shares have plummeted since Harvard Business School professor Benjamin Edelman called the company's business model into question in his online blog last January. Despite Garcia having admitted to falsifying the company's accounts the CNMV will continue to pursue its investigation into a possible instance of 'market abuse' by Gotham City Research. A trading halt in shares of Gowex has been maintained by the MAB.Alex Bueso Editor-in-Chief