Pain in Spain: Tech firm’s collapse rattles faith

AppId is over the quota
AppId is over the quota
Gowex's collapse rattles faith in Spain var mps = {}; mps.pagevars = {"instance":"cnbc.com-relaunch","cat":"World Markets","id":"101822269","hierarchy":"Markets|World Markets","type":"cnbcnewsstory","subtype":"section","keywords":"This is my meta keywords append.","description":"This is my meta descriptions override.","slug":"Gowex Faith in Spain 140709 EU Bishop","hline":"World Markets","modified":"2014-07-09 12:50:08"}; var _comscore = _comscore || []; _comscore.push({ c1: "2", c2: "1000004" }); (function() { var s = document.createElement("script"), el = document.getElementsByTagName("script")[0]; s.async = true; s.src = (document.location.protocol == "https:" ? "https://sb" : "http://b") + ".scorecardresearch.com/beacon.js"; el.parentNode.insertBefore(s, el); })(); (function(d) { var e = d.createElement('script'); e.src = d.location.protocol + '//bounceexchange.com/tag/1021/i.js'; e.async = true; d.getElementsByTagName("head")[0].appendChild(e); }(document)); GOLoading...>> View All Results for ""

Enter multiple symbols separated by commas

London quotes now available

GO HOME EDITIONNewsEconomyFinanceHealth CareReal EstateRetailWealthAutosEarningsEnergyMediaPoliticsCommentarySpecial ReportsAsiaEuropeMarketsPre-MarketsU.S.AsiaEuropeStocksCommoditiesCurrenciesBondsFundsETFsInvestingFinancial AdvisorsPersonal FinanceCNBC ExplainsPortfolioWatchlistStock ScreenerFund ScreenerTechRe/codeMobileSocial MediaEnterpriseGamingCybersecuritySmall BusinessFranchisingFinancingManagementVideoLatest VideoDigital WorkshopU.S. VideoAsia VideoEurope VideoCEO InterviewsAnalyst InterviewsFull EpisodesShowsWatch LiveCNBC U.S.CNBC Asia-PacificCNBC EuropeCNBC WorldFull EpisodesWatch LivePRORegister|Sign InMember CenterMember CenterSign OutX World Markets Gowex's collapse rattles faith in Spain Katrina Bishop| @KatrinaBishop 4 Hours AgoCNBC.comSHARES

The downfall of Gowex—a company once heralded as a Spanish tech success story—has raised concerns about the strength of some the country's companies, especially those on the alternative stock exchange.

Gowex's collapse in bankruptcy was instigated by damning analysis by U.S. short-seller Gotham City Research. Published last week, its report put the value of Gowax shares at 0.00 euros and alleged that over 90 percent of the company's reported revenues did not exist.

Gerard Julien | AFP | Getty ImagesA Gowex advertisement in Madrid, Spain

Gowex, which provides free wifi services in cities, filed for bankruptcy on Sunday after its founder and ex-CEO Jenaro Garcia Martin resigned.

"An outsider, such a Gotham, was able just to look at the published accounts, using public information, and spot unusual trends and ratios that didn't make sense," Fernando Penalva, professor of accounting and control at the IESE Business School in Barcelona, told CNBC. "If they were able to do it, why was no one else paying attention?"

Read MoreShorting vigilante Gotham City pulls no punches

Gowex isn't the only Spanish corporate to be hit by accounting irregularities recently. Pescanova, a multinational fishing company, was forced to seek bankruptcy protection last year after its real debt level was revealed to be billions of euros higher than it reported.

"This came as a surprise—it's a large company, it's listed and had a good auditing firm. It's surprising they managed to get away with it for so long," Penalva added.

'Weak regulatory oversight'?

For some, the troubles at these two companies are symptomatic of a wider problem in Spain that goes to the very heart of the Spanish government, led by Prime Minister Mariano Rajoy.

"That Gowex was not just a darling of the Spanish equity markets but was also lauded by Spanish politicians and regulators as a high-tech success story is deeply embarrassing for the Rajoy government, the stock market regulator and the accounting watchdog," Nicholas Spiro, managing director of Spiro Sovereign Strategy, told CNBC. "Serious questions need to be answered."

Gartman: Don't even consider shorting the market

It's still a bull market says Dennis Gartman, "The Gartman Letter" editor, sharing his thoughts on Tuesday's triple-digit drop in the Dow. I think it's time to be neutral again, says Gartman.

Spiro highlighted the case of Bankia, which was forced to accept over 20 billion euros ($27.2 billion) of European aid after clocking up massive losses as a result of the country's dramatic property crash. Over 30 Bankia board members were investigated over allegations of fraud, price-fixing and falsifying accounts at the lender.

"Weak regulatory oversight contributed to Spain's financial crisis and is evidently still a problem, despite the fact that Spain has been under intense external scrutiny over the past several years," Spiro added.

Read MoreHot company declares bankruptcy, admits fraud

"One would have hoped that the collapse of Spain's housing bubble, and the ferocious criticism of Spanish banking and stock market regulators that ensued, would have put an end to these kind of scandals Unfortunately this is not the case."

MAB concerns

Before its shares were suspended, Gowex was listed on Spain's alternative stock exchange, the Mercado Alternativo Bursatil (MAB).

The company had come to be seen as something of tech star, with its share price rising around 25 percent between January and its peak in April. However, after Gotham City's report on July 1, its stock plunged close to 60 percent – pulling a number of other MAB-listed companies lower with it.

In a statement on its website, published before it filed for bankruptcy on Thursday, Gowex said it was preparing a response to Gotham City's "baseless allegations".

Read MoreEinhorn: Tech bubble brewing, shorting momentums

The MAB, meanwhile, insisted that "grave irregularities" at Gowex should not cast doubt on the index, which it said was "indispensable" to the Spanish financial system. In response to Gowex's downfall, Spain's financial regulator, the CNMV, said it was looking at revising the way it monitored MAB companies and would assess whether other firms on the index had been engaged in similar market abuse.

But Predrag Dukic, senior equity sales trader at CM Capital Markets in Madrid, told CNBC there was no doubt the saga had done "significant damage" to both the MAB and Spain's stock markets more broadly.

"Quite a few companies (have announced) they are going to leave the MAB. No doubt, once the credibility is lost, it is very difficult to recover it," he added.

Dukic stressed, however, that although Gowex's accountancy irregularities were able to go unnoticed on the MAB, this situation was unlikely to occur at one of Spain's international blue chips. Companies like Banco Santander, BBVA and Telefonica, for instance, have to obey international accounting standards and are audited regularly.

"At the end of the day, less-regulated markets such as the MAB depend on the integrity of individuals running the firms. As long as there is an incentive to cheat, there will be cheaters," Dukic said.

—By CNBC's Katrina Bishop

Katrina BishopDeputy News Editor, CNBC.comRelated Topics Let's Gowex SA Pescanova SA Bankia SA Banco Santander SA Banco Bilbao Vizcaya Argentaria S.A. Telefonica SA Europe SymbolPrice Change%ChangeGOW---PVA---BKIA---SAN---BBVA---TEF--- More From World Markets Stocks rise before Fed minutes; Alcoa up on earnings Treasury yields edge up before Fed minutes, auction Oil extends losses after drop in US stockpiles Gold rises with Fed on radar; palladium surges Dollar treads narrow range as Fed minutes loom Asia stocks down for third straight session on US losses, China data Europe shares close lower; banking stocks slide Treasury prices rally on weak equities, US data Stocks fall before earnings; Nasdaq hardest hit US stocks eye Fed minutes for rate-hike hints Contact World Markets #optIn-right-rail{font-family:'klavikar',Arial;color:#424858;font-size:18px;padding:20px;background:#efefef;float:left;border-radius:3px;}#optIn-right-rail a{font-weight:normal;}#optIn-right-rail em{font-weight:bold;}#optIn-right-rail h4{border-bottom: lightgrey solid 2px;margin-top:0px;/* padding-right: 50px; */width: 310px;margin-bottom: 10px;padding-bottom: 5px;font-size: 22px;font-weight:normal;}#optIn-right-rail h5{border-bottom: lightgrey solid 2px;width: 310px;margin-bottom:5px;margin-top:0px;}#optIn-right-rail .opt-in-select select{background:white;padding:5px;font-family:Arial;border:lightgrey solid 1px; font-size:14px;border-radius:3px;height:30px;cursor:pointer; -webkit-appearance: none;border-color:lightgrey;width:200px;margin-right:5px;margin-bottom:5px;}#optIn-right-rail #optIn-right-railSubmit{font-family:'klavikar',Arial;line-height:18px;background:#427a92;border-top-right-radius:3px;border-bottom-right-radius:3px;padding:8px 8px 4px 8px;color:white;border:none;text-transform:uppercase;font-size:14px;cursor:pointer;margin-left:0px;height:29px;}#optIn-right-rail #optIn-right-railSubmit:hover{background:#3f9ccd;}#optIn-right-rail .opt-in-field{height:18px;border-radius:3px;border:lightgrey solid 1px;margin-bottom:5px;font-size:14px;padding:5px;margin-top:0px;margin-right:5px;width:188px;}#optIn-right-rail .opt-in-field#email{margin-right:0px;border-bottom-right-radius:0px;border-top-right-radius:0px;}#optIn-right-rail .inputs-wrapper{float:left;margin-top:5px;width:100%;}#optIn-right-rail .opt-in-input{float:left;}#optIn-right-rail p{font-size:14px;font-family:Arial, Helvetica;padding:0px;margin-bottom:5px;}article #optIn-right-rail span{width:auto;float:left;clear:none;}.hidden-elements{height:1px;padding:0px;margin:0px;}#modal-iframe{overflow-y:auto; -webkit-overflow-scrolling:touch;}#rt_contact h3{display:none;}.pico-content{font-size:16px;font-family:Arial;white-space:nowrap;width:auto!important;padding:40px!important;border-top-left-radius: 3px!important;border-top-right-radius: 3px!important;border-bottom-right-radius: 3px!important;border-bottom-left-radius: 3px!important;top:40%!important;}.pico-close{background:#b0b9bd; color:white; border-radius:3px; padding:5px 2px;}.pico-close:hover{background:#3f9ccd!important;}.newsletter-check{margin-bottom:10px;background:#e9e9e9;padding:5px;border-radius:3px;border: solid #dfdfdf 1px;}#optIn-right-rail .newsletter-check input{float:left;cursor:pointer;margin-top:0px;}#optIn-right-rail .newsletter-check label{display:block;color:#427a92;cursor:pointer;}#optIn-right-rail .newsletter-check label:hover{color:#C34C28;}#optIn-right-rail .nl-description{font-size:12px;font-family:Arial, Helvetica;margin-left:20px;}#rt_contact .module-header{display:none;}#optIn-right-rail .newsletterPreviewLink{color:#3f9ccd!important;}#optIn-right-rail .newsletterPreviewLink:hover{color:#C34C28!important;}#optIn-right-rail .nl-link{font-family:arial, Helvetica;}#optIn-right-rail #collapsible{display:none;}#toggle-close{float:right;color:white;padding:4px;border-radius:3px;background:#427a92;font-size:12px;display:none;cursor:pointer;}#toggle-close:hover{background:#3f9ccd;}CNBC NEWSLETTERS

Get the best of CNBC in your inbox

Morning SquawkDaily before the bell news roundup  › SampleYour WealthWeekly advice on managing your money  › Sample Please Select Job Industry ?Advertising/MarketingAutomotiveCommunications/PRConstruction/ManufacturingEducationFinance/Banking/InsuranceLegalMedia/EntertainmentMedical/Health CareMining/Oil/Gas/UtilitiesGov’t/Non-ProfitReal EstateRetailTechnology/ITTransportation/ShippingTravel/HospitalityOther› Learn More? Market Insider with Patti Domm Small caps could have big impact if woes deepen Early movers: AA, TCS, C, B, AAPL, PFE, AMX & more Cupcakes and other momentum stocks gone bad Earnings freight train may be derailed by revenue Early movers: WMT, TSLA, GRPN, GES, UAL, T & more Europe News Pain in Spain: Tech firm’s collapse rattles faith Tech boom: A tale of two ex-communist countries AbbVie forced to retract Shire investor claims Croatia 'slow to act' in 6-year recession: Minister Germany thrashes Brazil in markets, too Asia-Pacific News Indonesia elections: Scenes from the vote China and US share words, but do they share trust? Do investors care who wins Indonesia’s election? China inflation in line; unlikely to sway policy Indonesia voting under way in two-horse race Top News & Analysis Boehner: Use pension trick to save highway fund Faber and Schiff may be just what this rally needs Psst! Pimco has a really hot investing TIP for you Surprise! This is where to find earnings growth Debt addiction: Red is NOT the new black NewsEconomyFinanceHealth CareReal EstateRetailWealthAutosEarningsEnergyMediaPoliticsCommentarySpecial ReportsAsiaEuropeMarketsPre-MarketsU.S.AsiaEuropeStocksCommoditiesCurrenciesBondsFundsETFsInvestingFinancial AdvisorsPersonal FinanceCNBC ExplainsPortfolioWatchlistStock ScreenerFund ScreenerTechRe/codeMobileSocial MediaEnterpriseGamingCybersecuritySmall BusinessFranchisingFinancingManagementVideoLatest VideoDigital WorkshopU.S. VideoAsia VideoEurope VideoCEO InterviewsAnalyst InterviewsFull EpisodesClosed CaptioningShowsWatch LiveCNBC U.S.CNBC Asia-PacificCNBC EuropeCNBC WorldFull EpisodesCNBCAbout CNBCSite MapVideo ReprintsAdvertiseCareersHelpContactCorrectionsNewslettersPrivacy Policy - UPDATEDTerms of Service(New)Independent Programming ReportLatest News ReleasesRSSCertain market data provided by Thomson ReutersData also provided by

Data is a real-time snapshot *Data is delayed at least 15 minutes
Global Business and Financial News, Stock Quotes, and Market Data and Analysis

© 2014 CNBC LLC. All Rights Reserved.

A Division of NBCUniversal

$(function () { CNBC_Utils.showRedirectPopup("redirect"); });