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Free Wi-Fi Supplier, Gowex, Files For Bankruptcy

Posted by samzenpus on from the creative-accounting dept.

PuceBaboon writes "The BBC is reporting that a Spanish firm, Gowex, which provides free Wi-Fi services in major cities world-wide, has filed for bankruptcy, following revelations that financial accounts filed over the past four years were "false". The company supplies services in London, Shanghai, New York and Buenos Aires, as well as Madrid. Other sources report that up to 90% of the company's reported revenue came from "undisclosed related parties" (in other words, from Gowex itself) and that the value of the company's share price was now effectively zero.

39 comments

  1. free, you say by Anonymous Coward · · Score: 0

    Did they even have a business plan? Smells like these idiots heard about the dot-com bubble and wanted to try it for themselves.

    1. Re:free, you say by x0ra · · Score: 1

      They still managed to make 10% of the reported revenue, which by their figures should be around 18 millions.

  2. "Fake it till you make it" by Anonymous Coward · · Score: 2, Insightful

    That's what people are told when they want to build a startup. It is legendary that a famous auction site started with an inventory of items that had been highly inflated by employees. Giving new customers a free ride while pretending that they're full paying customers to others seems to be a common strategy. So what do you expect to happen when you "don't make it"? This happens.

    1. Re:"Fake it till you make it" by rmdingler · · Score: 1
      It's cute when a struggling start-up does it to improve its survival rate,

      but somehow completely distasteful,

      when a large corporation falsifies data on the order of Enronian proportions.

      --
      Happiness in intelligent people is the rarest thing I know.

      Ernest Hemingway

  3. Nothing unusual by ledow · · Score: 5, Insightful

    This isn't at all unusual. However, what really gets my goat is how were they allowed to do what they did for four years?

    That's four years of some accountant falsifying accounts. Four years of tax not paid or properly checked (if they were earning what they claim, a lot of tax would be due - if they were lying about it, they'd not want to pay that tax). Four years of operating without anyone questioning.

    And, most importantly I feel, what's happened to the directors and accountants of the company now ( I highly doubt just one person was in knowledge of this)? My guess is that they've already fled with a nice bundle somewhere.

    Happened like mad to the software houses in the 80's, still going on. Why is it compulsory that I have to be sat down like a child when I want to take out a £1000 loan but nobody questions businesses or enforces them to give enhanced accounts or audits in their first few years of operation. It would stop an awful lot of such outright fraud as this if someone from government was poking through their accounts, and they wouldn't even be able to set up a "new" company, transfer the assets and then declare bankruptcy as is also common.

    1. Re:Nothing unusual by Anonymous Coward · · Score: 1

      ... how were they allowed to do what they did for four years ...

      That's why there are external audits. Although we've seen auditors (see Arther Anderson) choose taking a piece of the fraudulent profits over reporting dodgy practices. Unfortunately, the quest for profits is becoming more of "you didn't see what I did and I didn't see what you did" deal where risk and compliance are irrelevant. In a sector like insurance and finance, which totally depends on everyone using the same rulebook, this behaviour will always lead to disaster. And it already has (see GFC).

      ... awful lot of such outright fraud ...

      A corporation is expected to lose money in its first few years: Look at how many internet-thingy businesses reported a loss for 5 or 7 years straight. What a corporation reports to wall street is a lot more optimistic than what they have to tell the tax office. But the shit hits the economic fan because the fraud was protected by everyone until the cheques started bouncing. The Enron corporation essentially got a government license to invent profits, thereby eliminating the measurable and prudent characteristics from their book-keeping. This is why government inquiries don't ask the important questions.

    2. Re:Nothing unusual by Darinbob · · Score: 1

      But how did they get money, if it was "free" wifi?

    3. Re:Nothing unusual by FireFury03 · · Score: 5, Interesting

      Why is it compulsory that I have to be sat down like a child when I want to take out a £1000 loan but nobody questions businesses or enforces them to give enhanced accounts or audits in their first few years of operation.

      Well, to some extent I think people who run businesses are probably expected to have a bit more of a clue to managing finances than the average man-on-the-street. (And I guess you only have to look at the number of "pay day loan" companies that charge several thousands percent APR to realise that there are a *lot* of members of the public who really don't understand how to manage their finances). So the whole being sat down like a child thing is basically to stop people who don't know what they're doing ending up with mountains of debt _by mistake_, it's not to stop people intentionally cooking the books.

      A company cooking the books is serious, but arguably, a privately held company cooking the books is probably not _that_ bad - yes they avoid paying a bit of tax, but auditing costs the government money so you have to weigh up this cost against the amount of extra tax revenues they're going to get (and certainly, my privately held limited company has never been audited by the inland revenue, not that I have any reason to believe that such an audit would raise any warnings).

      Things are a bit more serious with a publicly held company though, since cooking the books will artificially raise the share price and then risk a crash (as has happened here) so innocent third party investors are going to get screwed over. Its hard to decide who should be paying the costs of an independent audit in this case though. Maybe investors should value a company's shares more highly if a independent audit has been published for that company since investing in that company should presumably be a lower risk.

      --
      http://blog.nexusuk.org
    4. Re:Nothing unusual by Anonymous Coward · · Score: 1

      In The Netherlands we have had major accountancy companies play along with the fraud of the companies that had the discrepancies. So yeah, their reliability is questionable at best.

    5. Re:Nothing unusual by Anonymous Coward · · Score: 0

      the people that force them o do these things are the shareholders

      some are dumb, some see it as a semi ponzi scheme and just trying to cash out at the correct time.

    6. Re:Nothing unusual by nukenerd · · Score: 1

      Why is it compulsory that I have to be sat down like a child when I want to take out a £1000 loan but nobody questions businesses .... .

      Well, to some extent I think people who run businesses are probably expected to have a bit more of a clue to managing finances than the average man-on-the-street.

      I think the question is, not why "ordinary" people are required to sit down like a child, but why "business" people are not.

      And I think the answer is that bank managers and people generally have an unfounded admiration of anyone calling themselves "business" people. There is the enduring urban myth of the "hard- headed", all-seeing business man. We see it here even on /. with many posters saying things along the lines of "business knows best etc". Having known some businessmen myself, they mostly have been idiots, doing crazy things on impulse because they think that is what "geniuses" do - they all fancy themselves as geniuses. My wife has worked as a book keeper for several small firms and it is really people like her, the unseen aides, who behind the scenes keep these outfits afloat - that and the fact that their competitors were even more incompetent. But my wife would never get a bank to invest in a company because she is not good at bullshitting like her bosses were.

      The apocryphal story of a boss receiving job applications and throwing half of them at random into the waste bin - because he wanted "lucky" people and he had just "proved" that they were not - is one I can actually believe, knowing those bosses.

    7. Re:Nothing unusual by alexander_686 · · Score: 1

      No, business are sat down and are interrogated like ordinary people. For some loans they just hit the credit bureau, just like ordinary people. Sometimes they go over the documents with a fine tooth comb, just like ordinary people. And just like ordinary people sometimes business enhance, fudge, or outright lie.

      By the way, did they take out any business loans? I did not see any references in the articles to business loans. If it is stockholders money than one should be asking why the shareholders did not sit down and talk to the business like a little child.

    8. Re:Nothing unusual by nukenerd · · Score: 1

      No, business are sat down and are interrogated like ordinary people

      Some are, no doubt, but it will depend on whether you are already in the Old Boy network or not. In the UK, we call it the "Rotary Club" mentality.

    9. Re:Nothing unusual by Sarten-X · · Score: 1

      So the whole being sat down like a child thing is basically to stop people who don't know what they're doing ending up with mountains of debt _by mistake_, it's not to stop people intentionally cooking the books.

      I think this is exactly right. The lenders are not doing credit reviews for the purpose of stopping crime. They're checking for the purpose of minimizing their own risk. Sure, there's a risk that a loan applicant is going to do something criminal that results in the lender losing their money, but there is a much greater risk that an otherwise-honest individual is simply unable to manage their own finances.

      Then, of course, there's the cost/benefit analysis of the investigation itself. If criminal fraud is rare, it may not be worth the cost to investigate every applicant deeply enough to find the crime.

      I'm not ambitious enough to do the calculations myself, but I would expect to find that the most profitable course of action is to do a cursory examination of individual applicants, and just to consider intentional fraud to be a part of the cost of doing business.

      --
      You do not have a moral or legal right to do absolutely anything you want.
    10. Re:Nothing unusual by afidel · · Score: 1

      Four years of tax not paid or properly checked (if they were earning what they claim, a lot of tax would be due - if they were lying about it, they'd not want to pay that tax).

      They were based in Spain, tax dodging is the second national sport after football.

      --
      There are 4 boxes to use in the defense of liberty: soap, ballot, jury, ammo. Use in that order. Starting now.
    11. Re:Nothing unusual by FireFury03 · · Score: 1

      No, business are sat down and are interrogated like ordinary people. For some loans they just hit the credit bureau, just like ordinary people. Sometimes they go over the documents with a fine tooth comb, just like ordinary people. And just like ordinary people sometimes business enhance, fudge, or outright lie.

      Also, even if your business is a limited company, you'll usually find that small business investments are often secured against the directors' themselves, so frequently it is _not_ the case that you can just move the money out of the company and declare it insolvant, coz if you do that you'll lose your home too. Where this tends to fall down is bigger companies, where the bank perceives the company itself to be worth enough to secure the loan... which is a problem if the company's value is fictional.

      --
      http://blog.nexusuk.org
    12. Re:Nothing unusual by Anonymous Coward · · Score: 0

      Things are a bit more serious with a publicly held company though, since cooking the books will artificially raise the share price and then risk a crash (as has happened here) so innocent third party investors are going to get screwed over. Its hard to decide who should be paying the costs of an independent audit in this case though. Maybe investors should value a company's shares more highly if a independent audit has been published for that company since investing in that company should presumably be a lower risk.

      We have a normal audit performed by a namebrand third party auditor, but our most stringent audits come from one of our large institutional partners (in our case a large public retirement fund). What I can't believe is the number of other large partners that require no additional audits, if you're going to invest hundreds of millions, or billions into or with a company you'd think you'd require an audit since it would be less than a hundredth of a percent of the money at risk to perform the audit. I'm frankly surprised that there's so much confidence in initial 3rd party audits despite the obviousness of the regulatory capture type scenario they represent, having your own audit performed seems like such cheap insurance that it amazes me we don't undergo an extensive audit with every major transaction.

      /posted AC for obvious reasons

    13. Re:Nothing unusual by CadentOrange · · Score: 1

      In addition to that mimino says, you get advertising revenue from the landing page that a lot of these free wifi providers take you to the moment you log on.

  4. Could be NSA by penguinoid · · Score: 2, Insightful

    Other sources report that up to 90% of the company's reported revenue came from "undisclosed related parties" (in other words, from Gowex itself)

    I hear the NSA likes to invest in internet infrastructure and technology, and not even take the credit. Maybe they're the undisclosed party.

    --
    Don't waste your vote! Vote for whoever you want, unless you live in a swing state it won't matter anyways
  5. How was this to work ? by Anonymous Coward · · Score: 1

    Theres no such thing as free.

    Was their product saturated with advertisemenst to 'pay the freight' ?

    What kind of service was provided (if it is more trouble to use than not use it did anyone ever use it?)

    Someones idea just to sell it on to someone else before things fell apart ??

    1. Re:How was this to work ? by Anonymous Coward · · Score: 0

      They had a ton of contracts from public organisms here in Spain to give free wi-fi in public spaces.

    2. Re:How was this to work ? by Anonymous Coward · · Score: 0

      At first I was thinking that it was probably a kind of "city pays company with local tax dollars to give its residents free Wi-Fi everywhere" deal, but then I looked at their website and they are even advertising no financial cost to the local government either.

    3. Re:How was this to work ? by Anonymous Coward · · Score: 0

      There certainly is business in "free". Google is the most profitable on-line business largely operating this way, Facebook, Yahoo, Free-to-air TV and radio et. all all follow the same principle: Sell advertising. The problem though, is that you either need a massive volume in eyeballs or a very dedicated niche with higher conversion rates to make it profitable.

      Other ways to make money with free wifi is by simply selling the service and maintenance to someone willing to pay for it as an additional service to their guests. Airports, shopping malls, concert venues and maybe even whole cities.

      Both ways have been tried many times over and not one venture has been really successful. Most of the publicly funded WiFi projects die off after the initial maintenance contract runs out. One of the very few WiFi ventures that's reasonably successful is Fon (coincidentally also headquartered in Madrid) and I even doubt they're making much profit.

      Advertising and wifi don't work well together. Someone using your wifi access point is most likely in a hurry, he will not "click" on your ad. Also, the only place to reasonably deliver advertising is on the landing page, once you pass this, there is really no way to deliver advertising in an efficient manner.

      Furthermore, dropping roaming rates and increasing mobile broadband connection speeds will in the end, be the nail in the coffin for public wifi anyway, so why bother to invest in a technology that will be totally dead in a few years anyway?

      I do actually travel a lot, I've encountered Boingo hotspots, FON hotspots and numerous others, but I have yet to encounter a "Let's Gowex" hotspot. Actually, I even never heard of the name until now...

      This whole thing sounds like a big scam, it wouldn't be the first. It's still rather hard to believe people fall for this kind of shit, even with a fraction of the "due diligence" Gotham City Research LLC has put in it's research, I would not have trusted one dime to this bunch of ass-hats.

    4. Re:How was this to work ? by Immerman · · Score: 2

      >Also, the only place to reasonably deliver advertising is on the landing page, once you pass this, there is really no way to deliver advertising in an efficient manner.

      Come now - there's always the page of ads randomly inserted as a response to every tenth HTTP request. Wildly popular among users and generates much good will for the companies advertising.

      --
      --- Most topics have many sides worth arguing, allow me to take one opposite you.
  6. Oblig by Anonymous Coward · · Score: 0, Offtopic

    1. Free Wi-Fi
    2. ???
    3. Profit !

    It seems that failed for some odd reason.

    1. Re:Oblig by Anonymous Coward · · Score: 0

      1. Free Wi-Fi
      2. sell coffee
      3. Profit !

      No refills!

    2. Re:Oblig by x0ra · · Score: 1
      cf http://wifiworldsummit.com/lui.... I'm not sure of when the interview was made, but the following is interesting (emphasis mine):

      What are the biggest technical challenges you have faced in launching a WiFi network?

      The technological challenges that we have faced in launching our WiFi networks are not mainly centered in the deployment of networks itself, but rather on the construction of the associated innovative, profitable and sustainable business model. Apart from the difficultness of defining the model, on the technological side both our Roaming system and our Geo-located advertising platforms had to be built using what in the time of developing were yet emerging technologies

  7. From businesses who needed free internet around em by mimino · · Score: 2

    Imagine you're a coffee shop and you want to provide free wifi for your customers. Some businesses buy equipment and the internet connection and hire an IT guy to hook it all up together. This all costs.

    Now imagine a company like Gowex comes and tells that they could do it all for you, all you need to do is pay them installation and monthly fees. They tell you they are professionals and they will handle everything - from simply configuring and maintaining everything including repairs; to handling all the scary stories they'll tell you about viruses, hackers, police enquires and so on. You, as a business owner will likely accept some 100-200-500 eur monthly fees to not to have to worry about all this IT stuff.

  8. Aptonym by McGruber · · Score: 1

    Gowex appears to be short for "Goto Wex", since Wex is the name of a community-built, freely available legal dictionary and legal encyclopedia hosted by the Legal Information Institute at the Cornell Law School: Wex, LII's community-built, freely available legal dictionary and legal encyclopedia

    1. Re:Aptonym by Anonymous Coward · · Score: 0

      Gowex appears to be short for "Goto Wex"

      No, it really does stand for "Go Wex"- life is peaceful there.

      "Go Wex", in the open air. "Go Wex" where the skies are blue. "Go Wex", that is what they were gonna do, but then they went bankrupt, so whatever.

  9. Gotham City Research LLC's Report on Gowex by McGruber · · Score: 3, Insightful
    The broker's report that exposed the fraud is worth reading: Gotham City Research LLC's Report on Gowex: Let’s Gowex: La Charada Pescanova (a Pescanovan Charade)

    The report includes this tidbit:

    CEO Jenaro Garcia was a Director of Advanced Refractive Technologies, a penny stock fraud whose shares were revoked by the US Securities and Exchange Commission.

  10. Fraud! by Anonymous Coward · · Score: 2, Interesting

    It's a $1 billion stock fraud.

    Gowex claimed 100k Wifi hotspots, selling advertising to the users, and collecting fees to provide the wifi on behalf of cities.
    Gowex biggest declared income comes from another company.
    Gowex's biggest supplier is that other company, so the money is being cycled.
    Other company is connected to Gowex management, so indicator of fraud.

    I lost some money in their stock, only a few $$$ thousand. I read the report 15 hours late, share price had already dropped to 10. I did a quick sanity check on Gowex website, looked at their map, saw Barcelona hotspots, there were only a few, only 1 in Taragona. I saw 'Burger King' was one of their hotspots in Barcelona, this is supposed to be their home country FFS. How many times have you see people used free wifi in a burger place? How many adverts do they click on? If the wifi has a range of 30 metres how many people does that reach? So 1 hotspot in Taragona on the map, and only 30 metre circle covered??? No way. It wouldn't even be worth sending out a repairman.

    If you wanted roaming access, you wouldn't use wifi these days you'd use 3G or 4G.

    I decided this was in no way a billion dollar company, and sold out immediately. Kicked myself for not digging deeper into them before this report.

    Sorry, but company is worthless, and not 10% of the revenue, it's completely worthless. There's no way to make a profit with a spread of equipment so thin, that it could never be maintained.

    1. Re:Fraud! by swb · · Score: 1

      It's funny what you say about Burger King, but one thing I notice commonly in McDonalds is people hanging out for a long time with their laptops.

      A local coffee shop I used to frequent because it had decent wifi, good coffee and a lot of tables with outlets recently eliminated about 2/3s of their tables and replaced them with lounge chairs and couches. And this was long after you had to have the daily password from your receipt to even use the wifi.

      I suspect this was done to minimize people using it as something of an office. You can casually use a laptop or a tablet on a couch, but doing anything serious is much harder without a table.

      I'd bet fast food places with free wifi are getting some of the cheaper punters who would have normally camped in coffee shops. Most fast food employees around here are immigrants who don't care to enforce any kind of time limit and they won't soon eliminate tables in a restaurant.

  11. But, But, But by Anonymous Coward · · Score: 2, Funny

    It was FREE! How can this happen? Not enough volume?

  12. So much for free. by Anonymous Coward · · Score: 0

    Providing something for free generally end up with no profits. Somehow this simple truth is lost with current generation.

  13. Well it was a great business model by mtthwbrnd · · Score: 1

    Buy something and give it away for free then falsify the accounts to show a profit.

    Seriously though they probably thought that they could make money from advertising. They did not work out yet that Facebook and Google must be heavily subsidised by a government black ops program to gather a massive database. There is *no way* that they can make all of that money from people clicking on the adverts in facebook and google, no way. I do not know a single person who clicks on them - let alone buys something after being tricked into clicking.

  14. Our profits will come from market share by sandbagger · · Score: 1

    Surely this got discredited in April of 2001 when the Dot Com period came to a crashing end?

    --
    ---- The above post was generated by the Turing Institute. Maybe.
  15. Nothing unusual by Anonymous Coward · · Score: 0

    When companies are given loans it is often contingent that they keep financial ratios close to industry standards. They aren't given a free ride. Furthermore when auditors know that a loan is on the line for a company they perform a lot more extensive audits. That said, ultimately there is simply too much to check and auditors are manipulated by management. Having yet another person 'from the government' check their work probably won't help much. External audits actually uncover less than 4% of all fraud, while whistle-blowing ends almost all careers but consistently uncovers over 40% of all Fraud. The responsibility for finding and preventing fraud lays mainly on management. If anyone is to blame, it's the accountants, management, and ultimately the culture of abusing whistle-blowers that led their shareholders to lose everything.