For nearly 10 years, Spanish internet company Let’s Gowex SA said it was making money by providing public Wi-Fi in cities around the world. Most of the contracts, it now emerges, never existed.
Instead Gowex chief Jenaro Garcia Martin used a series of tricks to fool company employees, investors and regulators. The discovery of the deceit last month crippled the company and undermined credibility in Spain’s stock market just as the country recovers from a four-year recession.
The 46-year old entrepreneur has been charged with financial crimes, including false accounting. Spain’s judicial system does not require a formal plea and Garcia Martin has not given one. But testifying before Spain’s High Court on July 14, he admitted manipulating the company’s accounts and explained how he used a network of about 20 shell companies to generate a paper trail of fake business and fake contracts that he used to raise capital.
Interviews with the former tech star, Gowex employees and regulators, as well as court documents, show how some of the dodges behind his deception were surprisingly basic.
To help cover his tracks, Garcia Martin reported fake revenues from shell companies owned by relatives and his housekeeper among others, he told the court. Former Gowex staff told Reuters that he paid taxes on profits the company never made. Once, one ex-worker said, Spanish officials wanted to check a project where Gowex claimed to have provided public Wi-Fi using four-wheel drive cars. Garcia Martin used the Internet in his own car to make the project seem real.
“My goal was that within two or three years, when we could make the jump to the Nasdaq, that it would all come together,” Garcia Martin told the court, according to audio and video recordings reviewed by Reuters. Garcia Martin said his falsifications were initially aimed at trying to cover up for losses incurred after making overdue payments to another firm that had sued Gowex for unpaid bills.
Now Gowex, once valued at more than $2-billion, has filed for bankruptcy; an investigating judge is examining if it has moved funds abroad.
The rise and collapse of what was once one of Spain’s most celebrated startups is an exceptional chapter in Europe’s faltering attempts to claim a share of a global technology industry largely in the hands of the United States and Asia.
Gowex isn’t the biggest corporate collapse of late in Spain, a country hard-hit by Europe’s debt crisis. Several big firms have gone bust, and former executives of Pescanova SA, a fishing firm, are under investigation after the company said it had faked its accounts for years. But Gowex resonates because it had so many international investors and clients.
In addition to the criminal investigations into Garcia Martin and his wife and cousin, the court is investigating Gowex’s former chief financial officer and an external auditor who oversaw the accounts for years. Investor groups are considering class action suits to claw back some of their lost money. Stock market regulator CNMV said it had properly conducted its oversight, which does not include assessing a company’s audited accounts.
The story is also one of ambition and personal loss. Garcia Martin says his youth was marked by family tragedy which fuelled his dreams. Even now, though the judge told him he could face 10 years in jail, he believes he can become a successful global entrepreneur.
“I regret the damage that I have caused pursuing my dream,” Garcia Martin told Reuters at the end of July.
He knew he would be spending the next few years in jail, he said, but the experience of confinement would help him bounce back. “I know I have to pay for it in prison and I seek no clemency. I continue to be the master of my destiny and for this my priority is to repair this damage and this is my next great project.”
Garcia Martin’s professional resume is peppered with inconsistencies. A slim, energetic father of two, he wrote – on his LinkedIn page, in biographies used at conferences and in financial documents used for Gowex’s public listing and capital raising rounds – that he took a Masters in Law at Madrid’s Complutense University in 1992. Records from Madrid’s Autonoma University, however, show Garcia Martin studied a law degree there until 1993. He says he worked in “import-export” for Smith Barney in 1993 to 1995, and almost concurrently (1992 to 1996) as a financial analyst for Prudential Securities. He also says he was a strategic consultant at Spain’s telecom firm Telefonica from 1995 to 1998. The companies all declined to comment.
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