This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Greenberg: A Reminder That Fraud Is Alive and Well

By: Herb Greenberg | 07/07/14 - 01:39 PM EDT

SAN DIEGO (TheStreet) -- It's rare that a company confesses that what it has been saying is made up, but that's exactly what has happened in recent days in the bizarre tale of Let's Gowex.

This hasn't been a big story in the U.S. because Gowex, which provides wireless hot spots, is a Spanish company that doesn't trade in the U.S.

But it's a good story because of the events that have transpired over the past week as a reminder that, yes, under fire some companies do lie.

Greenberg: CBI's 'The Shorts Are Conflicted' Strategy

Greenberg: The Tesla-izing of SolarCity?

The story got its start last Tuesday when Gotham City Research, run Daniel Yu -- who is short Gowex -- issued a report that said, in effect, that Gowex is a fraud and that its stock is headed to zero.

The company's immediate response was that Gotham's report was "flatly false" and that Gowex "will not hesitate to take legal action that will assist law against those responsible for the publication and any others that may have been involved."

The next day Gowex issued a press release headlined, "Gowex ratifies the whole of its business figures."

The release said that Gowex "confirms" its 2013 revenue, that "these figures have been verified by a chartered account auditor" and that the company "intends to expand its level of job creation."

The following day, on Thursday, Gowex issued two press releases:

One said that Gowex would suspend trading while it "is working on the preparation of an action plan and a response report to the one published by Gotham

City Research LLC, to refute its unfounded accusations. This report, along with supporting documentary evidences, will be presented to NYSE Alternext market on Monday, July 7th, before the opening of the trading session."

The other said, "As agreed with the relevant regulatory bodies, trading in the Company's shares will remain suspended while GOWEX prepares relevant facts for publication which will seek to clarify the Company's position following the unfounded and defamatory claims made earlier this week by Gotham City Research. The Company will make available to the market clear information on key facts without delay."

Then came Sunday, and this bombshell of a press release, which, in effect said that CEO Jenaro Garcia Martin conceded to directors that the company's books "for at least the last four years do not reflect the true picture, attributing the authorship of this falsehood."

But wait, there's more: The board also said that Gowex "is unable to meet its debts" and would file for voluntary bankruptcy.

Reality: In all of my years, I can't recall any company that reversed course and conceded it was a fraud as quickly as Gowex. It's common for companies to say critical reports are "false" and to claim they'll take legal action. But usually it takes months, if not years, for the truth to come out.

In retrospect, the dead giveaway that Gowex had something to hide was when it said, in its second press release, that its numbers had been verified by an outside auditor and that it is creating jobs. Enron proved the former is meaningless; and the latter was used back in the '90s by the CEO of Media Vision, a hot Silicon Valley company, in a letter to my editor in an effort to discredit my critical pieces. He wound up going to jail and like Enron, Media Vision no longer exists.

Moral of the story: Fraud is alive and well. They just seem the fess up faster in Spain.

-- Written by Herb Greenberg in San Diego

Follow @herbgreenberg

Herb Greenberg, editor of Herb Greenberg's Reality Check, is a contributor to CNBC. He does not own shares, short or trade shares in an individual corporate security. He can be reached at herbonthestreet@thestreet.com.

Other Posts In Herb's A Dose of Reality:

Get More Investment Ideas:

Melvin: Buying Brazilian Bargains

07/30/14 - 08:41 AM EDT

Cramer: Not So Loco

07/29/14 - 11:17 AM EDT

Norman: Predicting Market Crashes Is Folly

07/29/14 - 09:24 AM EDT

Williams: No Gas for EU!

07/28/14 - 14:30 PM EDT

Cramer: Navigating the Twitter Minefield

07/28/14 - 12:37 PM EDT

To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.

Markets

DOW 16,912.11 -70.48 -0.42%
S&P 500 1,969.95 -8.96 -0.45%
NASDAQ 4,442.6980 -2.2110 -0.05%

Herb's Tweets

Brokerage Partners

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
Real Money Pro

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Trifecta Stocks

Trifecta Stocks analyzes over 4,000 equities weekly to find the elite 1% of stocks that pass rigorous quantitative, fundamental and technical tests.

Product Features:
  • Model portfolio
  • Trade alerts
  • Recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
Stocks Under $10

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Dividend Stock Advisor

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Breakout Stocks

Bryan Ashenberg, using sophisticated stock screening and fundamental research, identifies potentially explosive small and mid-cap stocks.

Product Features:
  • Model portfolio
  • Small-cap and mid-cap focus
  • Intraday trade alerts
  • Weekly roundups
Options Profits

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
Top Rated Stocks Top Rated Funds Top Rated ETFs