The €2bn WiFi company that wasn’t

Financial Events


Gowex Jul14Blog readers often travel a lot.  And they certainly use WiFi.  So here’s a question:

Q.  Do you ever remember using a WiFi service called Gowex?

A.  Lots of puzzled looks in response

Q.   Not sure?  You think it might be vaguely familiar, but maybe not.  Well this is what the company’s website says:

“Your city is a WiFi city  With loads of projects, GOWEX leads the development, creation & exploitation of WiFi Cities in the World. Learn how GOWEX takes WiFi to every corner of your city and how you can be part of the greater network of WiFi cities in the world.”

A.  Now you’re looking puzzled.  You’re sure you should have heard of something this big, but it really doesn’t ring any bells for you.

Gowex had a €2bn ($2.75bn) market capitalisation as recently as April.  Last November, it was named one of Europe’s “Best New Listed Companies” by the Federation of European Stock Exchanges and the European Commission.

Its founder, Jenaro Garcia, won Spain’s top marketing prize in May, and a Spanish government prize for export achievement in March.  He was the 39th-richest person in Spain last year as his personal wealth soared to a peak of €177m, due to investors bidding the stock up from €2 in late 2012 to a peak of €26.

But on 1 July, US investment firm Gotham City Research LLC published a report suggesting that up to 90% of its reported revenues did not exist.  This week, Garcia admitted the results had been fabricated for 4 years.  Gowex has since filed for bankruptcy.

So there is just one final question.  Why did this happen?  Why did a G20 government, a reputable financial firm such as Ernst & Young and large numbers of professional investors fail to ask the obvious questions about Gowex’s business?

And there is only one answer.  Investors wanted desperately to believe that it was a solid business, that could make them money.  The policies of the central banks had very deliberately forced them to take on more and more risk, for less and less reward.  So anything that looked as though it might have a pulse was a possible investment, as long as it had momentum.

Everyone else was buying Gowex, just as everyone else was buying WorldCom in the dot-com bubble.  Investors didn’t want to ask too many questions, for fear of finding out the truth.  Nor did the Spanish government, desperate to show as its current advertising campaign states, “Its the moment of Spain”.

RingOfFire Jun14

The Gowex bankruptcy connects, of course, to current events in Qingdao, on the opposite side of the world.  That started in April with a possible $160m scandal.  By last week, an alleged $15bn scandal related to gold was uncovered.  Last year there was the fall of OGX in Brazil, where the one-time 8th-richest person in the world saw his company file for bankruptcy protection.

The connection as the chart shows, is the debt-fuelled fault-lines created by stimulus and quantitative easing.

The blog thus continues to fear that Gowex and Qingdao and OGX are, like Bear Stearns in 2007,  just the early warning tremors of the potential earthquakes that are developing.

Gowex founder Garcia confessed to a judge yesterday that the accounts had been fraudulent since 2005.  Bloomberg clearly have the same view as the blog of the whole affair:

In the end, the most shocking part of Let’s Gowex SA (GOW)’s implosion this month wasn’t that the Wi-Fi company, worth €1.9bn ($2.6bn just 3 months ago, was a fraud. Its that it wasn’t spotted sooner.  Gowex founder Jenaro Garcia fabricated clients and contracts, listed a defunct company as a holding company for his stake in Gowex, and put numbers in reports that didn’t make any sense, even as matters of basic arithmetic.”

Clearly, the only possible answer is that ‘nobody wanted to know’.


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