Gotham City Research targets Let’s Gowex

Gotham City Research, the short seller that led attacks on the Quindell insurance group, has launched a bear raid targeting a Spanish company that says it is a world leader in free outdoor wifi.

In a 93-page dossier published yesterday, Gotham argued that Let’s Gowex, whose market value has more than trebled in the past year to €1.4 billion, is in fact worth nothing.

Gowex said the claims were “categorically false” and it “would not hesitate to take legal action” against those responsible. Its shares were down as much as 37 per cent in trading on Madrid’s junior stock market. The group is also listed on NYSE Alternext.

Gotham’s dossier is likely to heighten investor scrutiny of the Spanish company and to accentuate debate about the ethics of short selling.

Circumstantial evidence

The publication, which is based largely on circumstantial evidence, accuses Gowex of overstating sales and operations. Among the claims is that the group offers free wifi in fewer locations than claimed. Gotham said it could find only 5,530 hotspots on Gowex’s online map.

Jenaro García, Gowex chief executive, said such counting would overlook hotspots on buses and elsewhere. He said the group did not disclose how many hotspots it ran, although a spokesman had previously said the figure was just over 30,000.

Gotham criticised the group’s accounting, saying auditors charged less than, and were not as well known as, those of peers.

Gowex paid €52,798 in auditing fees to M&A Auditores in 2012, when the telecoms group declared revenues of €114 million. By comparison, Boingo Wireless, a Nasdaq-traded peer with revenues of $103 million in 2012, paid $1.46million to PwC.

“The absurdly low audit fee is supportive of our thesis, that over 90 per cent of Gowex’s overall revenues simply do not exist,” Gotham said.

M&A Auditores could not be reached for comment. But before the publication of the report, Mr García told the FT Gowex had grown rapidly and continued to use the auditors it had employed as a small company. The size of the auditors’ remuneration was not “a very important issue”, he said.

Gotham, whose analysts include Daniel Yu, has published similar dossiers against four companies since February 2013.

Shares in all of those targets – software company Ebix, retailer Tile Shop, tech company Blucora and insurance claims processor Quindell – remain lower than the day before Gotham’s initial attacks, although they trade above the price targets it set.

Gotham is likely to have profited significantly from the price falls. Critics accuse short sellers of driving down the price of shares by sowing confusion among investors. – Copyright The Financial Times Limited 2014