Well researched article by Reuters:
"Special Report - Web of lies: How a Spanish tech star fooled the world"
The tech industry (in which I have been involved for a long time) is unfortunately overrepresented in fraud cases. Malaysia had its fair share of cases related to companies listed on the Mesdaq and ACE market.
Some snippets of the Reuters article:
"Basically, we started with three companies and what we do is: One company bills to Gowex, Gowex bills to another company and the third company bills to the previous one. It is a triangle," Garcia Martin told the court. “Basically, the structure enabled us to make capital increases."
.... Some investors and analysts later expressed skepticism about the company’s performance. In a note in March 2013, NFinance Securities analyst Pierre Schang said he was “disturbed” that Gowex was turning big profits while competitors were registering losses or much smaller profits. Schang did not answer a request to comment further.
Others questioned the firm’s amateurish corporate structure, with a board composed of Garcia Martin, his wife, Florencia Mate, and CFO Marugan.
.... At his court hearing, former CFO Marugan said only about 10 percent of the company’s revenues were real.
.... In the end, it was not Spanish regulators who uncovered the deception, but activist U.S. investor Gotham City Research LLC. On July 1, Gotham City said Gowex accounts were false and set a target price of zero on the stock.
In two days, the company’s market value dropped 870 million euros.
Showing posts with label Let's Gowex. Show all posts
Showing posts with label Let's Gowex. Show all posts
Friday, 15 August 2014
Monday, 14 July 2014
Got ’em, Gotham
Good article in The Economist about the Gowex fraud, some snippets:
Gowex’s dramatic collapse marks one of the biggest victories for a relatively new breed of company-accounts “detectives”: small, independent research-and-investment outfits that revel in unearthing alleged book-cooking. Having focused largely on China’s fraud-filled market until now, they are branching out.
Gotham’s approach is to short and shout: it takes a negative investment position, then noisily publicises its findings. It is cut from the same cloth as Muddy Waters, which is run by Carson Block, a former self-storage entrepreneur. His biggest scalp to date is Sino-Forest, which went bust in 2012 after Muddy Waters accused it of overstating its forest holdings in China. Another such outfit is Citron Research, whose leader, Andrew Left, prides himself on never having been successfully sued for defamation.
Gotham spent eight months studying Gowex, amassing far better information than investment-bank analysts, most of whom were still recommending the shares when it buckled. Gotham spotted that Gowex used a little-known auditor (a classic red flag: see the Bernard Madoff case), whose fees were unusually low, as if they were based on revenue far smaller than Gowex’s books stated. Often, the sleuths comb the books for ratios that are hard to manipulate. Gotham also noted, for instance, that Gowex’s revenue per employee was implausible compared with rivals’—while the revenue could be inflated, it was harder to fake the headcount.
..... market regulators often eye them [short sellers] with suspicion: Spain’s at first reacted to Gotham’s report by investigating its publisher, not Gowex. China has cracked down on shorts, even imprisoning the writer of one negative report.
.... perhaps two-thirds of cases involve improper revenue recognition. New global accounting rules announced in May seek to curb one common ruse, booking sales prematurely, for instance on long-term contracts. But sometimes the revenues are simply invented, often by getting a related party to pose as a customer. Sometimes very closely related: Gotham said in its report on Gowex that it had evidence the firm’s biggest customer “was really itself.”
In the Malaysian context, no case of short sellers "attacking" a company has happened, nor do I expect that in the near future, despite Malaysia having its fair share of accounting frauds. It would be interesting though if something like the above would happen, given the "shoot the messenger" mentality. How would the company, the regulators and the press react?
Gowex’s dramatic collapse marks one of the biggest victories for a relatively new breed of company-accounts “detectives”: small, independent research-and-investment outfits that revel in unearthing alleged book-cooking. Having focused largely on China’s fraud-filled market until now, they are branching out.
Gotham’s approach is to short and shout: it takes a negative investment position, then noisily publicises its findings. It is cut from the same cloth as Muddy Waters, which is run by Carson Block, a former self-storage entrepreneur. His biggest scalp to date is Sino-Forest, which went bust in 2012 after Muddy Waters accused it of overstating its forest holdings in China. Another such outfit is Citron Research, whose leader, Andrew Left, prides himself on never having been successfully sued for defamation.
Gotham spent eight months studying Gowex, amassing far better information than investment-bank analysts, most of whom were still recommending the shares when it buckled. Gotham spotted that Gowex used a little-known auditor (a classic red flag: see the Bernard Madoff case), whose fees were unusually low, as if they were based on revenue far smaller than Gowex’s books stated. Often, the sleuths comb the books for ratios that are hard to manipulate. Gotham also noted, for instance, that Gowex’s revenue per employee was implausible compared with rivals’—while the revenue could be inflated, it was harder to fake the headcount.
..... market regulators often eye them [short sellers] with suspicion: Spain’s at first reacted to Gotham’s report by investigating its publisher, not Gowex. China has cracked down on shorts, even imprisoning the writer of one negative report.
.... perhaps two-thirds of cases involve improper revenue recognition. New global accounting rules announced in May seek to curb one common ruse, booking sales prematurely, for instance on long-term contracts. But sometimes the revenues are simply invented, often by getting a related party to pose as a customer. Sometimes very closely related: Gotham said in its report on Gowex that it had evidence the firm’s biggest customer “was really itself.”
In the Malaysian context, no case of short sellers "attacking" a company has happened, nor do I expect that in the near future, despite Malaysia having its fair share of accounting frauds. It would be interesting though if something like the above would happen, given the "shoot the messenger" mentality. How would the company, the regulators and the press react?
Thursday, 10 July 2014
Gowex and Bloomberg
I have written twice about Gowex's fraud.
Bloomberg, the financial news powerhouse (normally a pretty good source of information) also entered the fray:
"How Gowex CEO Went From Defiant to Disgraced in Five Days"
An interesting and informative article with lots of good stuff in it.
But one "tiny detail" was left out, that in the past Bloomberg also fell for the fraud. Only one year ago it wrote the following article:
"How the Founder of Spain's Gowex Bet the Farm (Twice) and Won"
Some snippets:
One company that has managed to stand out and become a global brand is Let's Gowex SA, a Madrid-based provider of free outdoor Wi-Fi services. Its growth, largely from increasing smartphone and tablet usage, has also been fueled by founder Jenaro Garcia's willingness to bet the farm.
The company makes money from selling roaming, advertising, e-commerce and other services to local governments and mobile carriers. Garcia said business was slow until the iPhone arrived almost six years ago. Last year, Gowex's revenue climbed 71 percent to 114 million euros ($146 million). Profit rose 136 percent to 17 million euros ($22 million).
(the company has admitted it cooked the books over at least the last four years, so the above numbers are extremely unlikely to have been realistic)
To finance that growth, Garcia, who is now renting a 150-square-meter apartment in downtown Madrid, recently turned again to his significant other. He said his wife "went nuts" when he suggested putting all of their savings for a new house into the company once more. As it turns out, the investment has almost doubled in value. "She is very, very happy, even if we still don't have our own house," he said.
Is she still very, very happy?
I noticed the older Bloomberg article in this link:
"Gowex Shows Why Lending is the Best Venue for Accounting Control Fraud"
A classic accounting control fraud, Gowex, has collapsed in Spain. Gowex was a wi-fi firm. It was able to run its scam for at least four years. It was a crude scam that involved simply making up contracts and borrowing to grow rapidly.
“The US firm Gotham City Research had described Gowex as a ‘charade’ and said that its revenues were ‘at most’ 10% of those reported.”
As soon as Gotham City Research blew the whistle on Gowex it made it impossible for Gowex to borrow additional funds and avoid collapse.
The whole article is pretty interesting, for instance that Gowex received several awards. It is written by William Black, about whom I blogged before.
Bloomberg, the financial news powerhouse (normally a pretty good source of information) also entered the fray:
"How Gowex CEO Went From Defiant to Disgraced in Five Days"
An interesting and informative article with lots of good stuff in it.
But one "tiny detail" was left out, that in the past Bloomberg also fell for the fraud. Only one year ago it wrote the following article:
"How the Founder of Spain's Gowex Bet the Farm (Twice) and Won"
Some snippets:
One company that has managed to stand out and become a global brand is Let's Gowex SA, a Madrid-based provider of free outdoor Wi-Fi services. Its growth, largely from increasing smartphone and tablet usage, has also been fueled by founder Jenaro Garcia's willingness to bet the farm.
The company makes money from selling roaming, advertising, e-commerce and other services to local governments and mobile carriers. Garcia said business was slow until the iPhone arrived almost six years ago. Last year, Gowex's revenue climbed 71 percent to 114 million euros ($146 million). Profit rose 136 percent to 17 million euros ($22 million).
(the company has admitted it cooked the books over at least the last four years, so the above numbers are extremely unlikely to have been realistic)
To finance that growth, Garcia, who is now renting a 150-square-meter apartment in downtown Madrid, recently turned again to his significant other. He said his wife "went nuts" when he suggested putting all of their savings for a new house into the company once more. As it turns out, the investment has almost doubled in value. "She is very, very happy, even if we still don't have our own house," he said.
Is she still very, very happy?
I noticed the older Bloomberg article in this link:
"Gowex Shows Why Lending is the Best Venue for Accounting Control Fraud"
A classic accounting control fraud, Gowex, has collapsed in Spain. Gowex was a wi-fi firm. It was able to run its scam for at least four years. It was a crude scam that involved simply making up contracts and borrowing to grow rapidly.
“The US firm Gotham City Research had described Gowex as a ‘charade’ and said that its revenues were ‘at most’ 10% of those reported.”
As soon as Gotham City Research blew the whistle on Gowex it made it impossible for Gowex to borrow additional funds and avoid collapse.
The whole article is pretty interesting, for instance that Gowex received several awards. It is written by William Black, about whom I blogged before.
Monday, 7 July 2014
And Gowex admits it had indeed cooked the books
Yesterday Gowex admitted that is had indeed cooked the books, as alleged by Gotham City Research. In an official announcement it stated:
"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."
More information about this matter:
Forbes
ZeroHedge
Bloomberg
"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."
More information about this matter:
Forbes
ZeroHedge
Bloomberg
Thursday, 3 July 2014
Gotham strikes Gowex
Let’s Gowex SA trading was suspended in Madrid as Spain’s regulator investigates potential “market abuse” after a report by Gotham City Research LLC wiped about 870 million euros ($1.2 billion) off the company’s market value.
Today’s suspension came after the regulator said in a statement last night that it asked the U.S. Securities and Exchange Commission and the U.K.’s Financial Conduct Authority to provide information on short-seller Gotham City and its managers. The regulator is also investigating trading in Gowex shares in recent days to “determine if there have been illegal operations,” according to the statement.
Gowex announced yesterday that it will seek tenders to hire “a prestigious” auditor after Gotham City published a report on July 1 criticizing its use of an “unknown” auditor. The Gotham report also claimed that Gowex’s real value is “zero,” that some of the company’s units have revenues that are 10 percent of that reported and that Gowex declares clients it doesn’t have. Gowex has said the report is “false.”
Gowex shares fell 60 percent in two days after the report to 7.92 euros yesterday in Madrid. Trading is suspended until Gowex responds to a request “to present a plan, as detailed as possible, with the actions it considers necessary regarding the Gotham City Research LLC report,” specifying the reach and duration of each action, the regulator said in a statement today.
The above comes from Bloomberg.
The report by Gotham City Research can be found here.
More from FT AlphaVille (comments are also interesting).
And the official response (in Spanish) and here (in English).
The logo of Gowex is:
Gotham gave it a spin:
Unfortunately (for Gowex and its shareholders), there seems to be quite a lot of substance in the allegations, at least, that is my first impression.
If the allegations are indeed (substantially) true, then the Spanish exchange also has some explanation to do. Why did they not notice the below:
Today’s suspension came after the regulator said in a statement last night that it asked the U.S. Securities and Exchange Commission and the U.K.’s Financial Conduct Authority to provide information on short-seller Gotham City and its managers. The regulator is also investigating trading in Gowex shares in recent days to “determine if there have been illegal operations,” according to the statement.
Gowex announced yesterday that it will seek tenders to hire “a prestigious” auditor after Gotham City published a report on July 1 criticizing its use of an “unknown” auditor. The Gotham report also claimed that Gowex’s real value is “zero,” that some of the company’s units have revenues that are 10 percent of that reported and that Gowex declares clients it doesn’t have. Gowex has said the report is “false.”
Gowex shares fell 60 percent in two days after the report to 7.92 euros yesterday in Madrid. Trading is suspended until Gowex responds to a request “to present a plan, as detailed as possible, with the actions it considers necessary regarding the Gotham City Research LLC report,” specifying the reach and duration of each action, the regulator said in a statement today.
The above comes from Bloomberg.
The report by Gotham City Research can be found here.
More from FT AlphaVille (comments are also interesting).
And the official response (in Spanish) and here (in English).
The logo of Gowex is:
Gotham gave it a spin:
Unfortunately (for Gowex and its shareholders), there seems to be quite a lot of substance in the allegations, at least, that is my first impression.
If the allegations are indeed (substantially) true, then the Spanish exchange also has some explanation to do. Why did they not notice the below:
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