Fears over markets in Spain after Gowex folds

The spectacular collapse of Spanish Wi-Fi provider Let's Gowex has led to fears that a perception of poorly regulated markets in Spain will see foreign investment dry up just as the country begins to fight its way out of recession.

Fears over markets in Spain after Gowex folds
Photo: Gerard Julien/AFP

With contracts to provide free Wi-Fi in major cities, including Madrid and Paris, Let’s Gowex’s flamboyant CEO Jenaro García had seen the company’s share price balloon on Spain’s Alternative Stock Market (MAB), the country’s secondary exchange where a number of tech firms are floated.

That all changed with the July 1st publication of a damning report by the US investment firm Gotham City Research, claiming that Let’s Gowex’s results were largely fabricated and its stock absolutely worthless.

MAB overseers suspended trading in Let’s Gowex stock after its value fell by 60 percent in the two days after the Gotham report had surfaced.    

In the past week, Let’s Gowex has filed for creditor protection and García turned up at a Madrid court to confess that the company’s results for at least the past four years had been fraudulent. The MAB has seen stock prices tumble all round and at the beginning of this week four companies said they would be delisting from that market. García has resigned from his post.

"I feel ashamed as a Spaniard and as a professor of corporate finance because I know that American investors will say 'Oh, be careful before you invest in smaller companies in Spain,' " Robert Tornabell, a professor at ESADE business school in Barcelona, told The Wall Street Journal on Tuesday.

"This scandal must lead to stronger regulations, and the companies must have real auditors," Tornabell added.

The US financial daily pointed out that government officials and groups that had showered Gowex with awards attempted to dissociate themselves from its disgraced leader.

"When you give a prize, you listen to what the analysts say, what the market says, what investors say and everyone at that point thought they were good and worthy," a spokesman at Ernst & Young LLP, which had given Mr García an award for innovation as part of its 2011 Spanish Entrepreneur of the Year program, told The Wall Street Journal. "He has cheated the whole country and not just this country but France, the US, all of the world."

The newspaper also quoted a strongly worded editorial in the Spanish business daily El Economista:  "Gowex had discovered a toy market with few powers to function correctly.”

Meanwhile, the Spanish daily ABC has reported this week that investors are considering whether and whom to sue over the company’s collapse.

Asinver, a European investors’ association estimates that around 5,000 people have been affected as stockholders by Gowex’s “financial fraud”.  Asinver has taken complaints against Gowex, M&B auditors and Spain’s BME stock exchange holding company to public prosecutors, stating that most of those set to lose money are “small investors”.

The association says they have no chance of selling their shares while trading is suspended and, given that Let’s Gowex has entered bankruptcy proceedings, can never expect to see any decent return on their investment.    

“We are working with our legal and technical team to find the way to pursue the damage caused by those [who] may have responsibility for what happened,” Asinver told the newspaper. 

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Spain’s ‘2,000-tumour man’ sentenced for scamming donors

A Spaniard known as "the man with 2,000 tumours" who lied about having terminal cancer was handed a two-year jail term Monday for scamming donations from thousands, including celebrities.

Spain's '2,000-tumour man' sentenced for scamming donors
De Cedecejj - Trabajo propio, CC BY-SA 4.0,

Paco Sanz, 50, appeared regularly on television and social media between 2010 and 2017, claiming to have nearly 2,000 tumours as a result of Cowden syndrome.

Saying he had only months to live, he appealed for donations via his web page, through text messages and even a charity gala.   

Although he did suffer from the syndrome, all his tumours were benign and posed no threat to his life.

Prosecutors say the former security guard collected just under €265,000 ($319,000) before being arrested in March 2017 in the eastern Valencia region.   

Among those who sent him money were popular television presenter Jorge Javier Vazquez and Spanish footballer Alvaro Negredo.    

Prosecutors accused Sanz of “taking advantage of his illness” to “obtain illegal funding”.

They said he presented the disease as being “much more serious than it really was” and of falsely claiming he could only be saved if he got experimental treatment in the United States.   

In reality, he travelled to the US to take part in a free clinical trial and “all his costs were covered” by the firm running it, prosecutors added.    

In video obtained by Spanish media at the time of his arrest, Sanz could be seen joking with his girlfriend and family members about the lies he was telling.

As his trial opened in Madrid on Monday, Sanz pleaded guilty to fraud, receiving a two-year jail sentence, while his girlfriend was sentenced to a year and nine months for being his accomplice.

But they are not likely to serve time behind bars, as sentences below two years are usually suspended in Spain for first-time offenders convicted of non-violent crimes.

The trial will continue so the court can determine how much money the pair owe in damages.

READ ALSO: Fraudster parents of sick girl jailed for charity scam