July 14 (Bloomberg) -- Jenaro Garcia, the disgraced former chief executive officer of Let’s Gowex SA, told a Madrid judge that he had falsified financial accounts at the Wi-Fi hotspot provider since at least 2005.
Garcia said he used front-men to create companies that acted as fictitious clients, according to a court official, who asked not to be identified citing policy. Gowex, founded in 1999, has so far said the fake accounts date back “at least” four years.
Gowex today filed voluntary insolvency proceedings, more than a week after its board accepted Garcia’s resignation as he took full responsibility for the scandal. The shares dropped 60 percent over two days after short-seller Gotham City Research LLC said July 1 Gowex was worthless because it inflated revenue. The stock has been suspended since July 3.
“The potential applicable sentence could reach at least 10 years in prison,” Judge Santiago Pedraz said in a statement. Possible charges based on Garcia’s confession could include falsifying accounts and the improper use of insider information, according to the statement.
Pedraz and Garcia left today’s meeting without addressing two dozen reporters waiting outside the national court.
Gowex’s fast growth -- a sevenfold increase in revenue over three years and a 10-times surge in its stock in 15 months -- is an anomaly in Spain, which has failed to foster successful technology startups with global reach. The Madrid-based company was one of the best performers in the MAB stock exchange, an alternative funding source for small companies promoted by Prime Minister Mariano Rajoy’s government.
Garcia, 46, has 15 days to put up a bail of 600,000 euros ($820,000) and must hand over his passport and report to authorities once a week, according to the judge. Garcia told Spain’s national court he has a bank account in Luxembourg with at least 3 million euros.
Garcia remains Gowex’s biggest shareholder, even after paring his holding to 47 percent during the first half of 2013, according to a July 9 filing. He holds the stock through two companies, Cash Devices SL and Biotelgy SA.
Prior to the Gotham report, Gowex said it had contracts with 91 cities to provide public Wi-Fi connections and aimed to increase the number to 600 by 2018. The company also said it provided support services for phone carriers.
New York City and Deutsche Telekom AG are among Gowex clients that have said they are looking at ways to avoid disruptions after Gowex said it faces “imminent” insolvency.
Gowex filed a preliminary creditor protection application to the Madrid commercial court last week. That would shield the company for up to four months.
Under Spanish law, when a company declares voluntary insolvency, a judge would name an overseer for the process. The judge can decide whether the administrator assumes control and runs the company or only takes a supervisory role.
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