Greenberg: A Reminder That Fraud Is Alive and Well
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.
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