Gowex Shares Plunge After Gotham City’s Critical Report

Let’s Gowex SA, a Spanish provider of Wi-Fi connections, fell 46 percent after short-seller Gotham City Research LLC issued a report saying the company inflated revenue.

“They are mixing facts with lies. We will look into the legal consequences of this,” Gowex Chief Executive Officer Jenaro Garcia told Bloomberg News in a phone interview today. “We are preparing a report because this is defamatory. We don’t have any information that they have called us.”

Gowex was down 9.20 euros at 10.71 euros at the close of trading in Madrid, reducing the company’s market value to about 775 million euros ($1.1 billion). The shares rose more than 50 percent this year through yesterday.

Gotham said Gowex’s “actual” wireless revenue is at most 10 percent of what the company reported, and about 90 percent of its telecommunications revenue “originated from undisclosed related parties.” Gotham “stands to profit in the event the issuer’s stock declines,” it said.

“Gotham City Research does not trust Gowex’s reported revenues, and believes Gowex is too good to be true,” the researcher said in its report. Gowex’s reported revenues, which reached 183 million euros in 2013, are “far above nearly all other businesses in history” on a per-employee basis, Gotham said. Gowex has about 200 employees, according to Garcia.

Global Business

“From a non-signed document, the only objective sought by Gotham City Research LLC is deliberate damage both to the share price and to Gowex’s image for its sole benefit,” Gowex said in a statement.

Trading in Gowex stock was restricted in Madrid for more than an hour today after the shares’ initial plunge. Restrictions may be imposed when trading in a stock has an abnormal performance based on its record. During this period a stock auction is held before trading resumes as usual.

Gowex issued two press statements today, the first saying it requested a temporary suspension of stock trading, and another 40 minutes later saying it wouldn’t request a suspension.

Gowex provides Wi-Fi in public spaces through agreements with city governments as well as support for mobile-phone companies through so-called offloading services. The company has agreements with 91 cities worldwide and aims to reach 600 by 2018, Garcia said in a June 25 interview.

Cisco Relationship

Gowex announced June 18 that it will become a global strategic partner for Cisco Systems Inc.

Gotham City Research is an investment-research firm that focuses “on due-diligence” and “special situation investing,” according to its website. New York-based Gotham has published critical reports of companies including Quindell Plc and Ebix Inc.

“I’m surprised by this report,” Luis Benguerel, a Barcelona-based portfolio manager at Interbrokers Espanola de Valores, said in a phone interview. “To me it seems as if it’s somebody trying to buy on the cheap. Saying that Gowex is worth zero sounds too harsh.” Benguerel said he doesn’t hold any Gowex stock in his portfolio.

(An earlier version of this story corrected the market value of Gowex to 930 million euros.)

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