Madrid-based Wi-Fi service provider Gowex filed for bankruptcy protection upon the resignation of its CEO and president, Jenaro Garcia Martin, who acknowledged he has been cooking the firm's books for four years.

Known officially as Let's Gowex, the Spanish company said its remaining board members anticipate that it "might not be in a position to face its ongoing debts when they become due" and therefore agreed to file for a declaration of voluntary insolvency.

Gowex's collapse followed a scathing report issued July 1 by Gotham City Research, which called the company a "charade" and alleged that 90 percent of Gowex's revenue was nonexistent.

Gowex issued its first response that same day, saying Gotham City's report had "major factual inaccuracies and false statements which the company considers defamatory." The Wi-Fi provider contended that Gotham City was deliberately trying to damage Gowex's share price in order to gain through a short-selling strategy. In fact, Gotham acknowledged in a disclaimer to its report that it "stands to profit in the event the issuer's stock declines."

On July 2, Gowex issued a statement confirming its 2013 revenues of 182.6 million euros ($248.2 million). The company said the figures had been audited and added that its net cash position was 54.8 million euros ($74.5 million).

But in a July 2 Twitter posting, Gotham City said: "Gowex is the first multi-billion $ market value company, since Sino-Forest, that we believe is a near-complete fraud." Sino-Forest is a collapsed Chinese forestry group whose former chairman and CEO, Allen Chan Tak-yuen, is accused of fraudulently puffing up revenues and assets.

On his Twitter account, Gowex's Garcia wrote a message in Spanish on July 6 in which he asked for forgiveness, adding, "I'm sorry with all my heart." In a later posting, made in both Spanish and English, he wrote: "I made the deposition and confession. I want to collaborate with the justice."

Pido perdón a todos. Lo siento de todo corazón. — Jenaro Garcia (@jero_net) July 6, 2014

Reuters reported that it is unclear whether Garcia still controls Gowex. Firms he owned or controlled have been reported as Gowex shareholders. Other reported shareholders include Lazard Asset Management, JPMorgan Asset Management, Santander Asset management, The Vanguard Group or Allianz Global Investors Europe and others.

Gowex was widely touted as an entrepreneurial success story in Spain, which has faced dire economic conditions over the past few years. The company, which went public in 2010, has a business-to-business telecommunications unit and also claims to offer free municipal Wi-Fi service in 91 cities worldwide under its Wireless Smart Cities brand. In its July 2 statement, Gowex noted that its partners and customers include Cisco, ZTE, Nintendo, AT&T (NYSE: T), T-Mobile, iPass, Skype and Iberia. Gowex announced in January 2013 that it had signed a Wi-Fi roaming agreement with AT&T.

Gowex described its standard public-private partnership business model as being based upon building out free, municipal Wi-Fi networks via deals with cities. The company's revenue stream was ostensibly built with payments from those cities, roaming charges assessed to fixed, mobile and wireless carriers when their customers use Gowex's hotspots for data offloading, as well as advertising and fees for premium use.

Gowex launched Wi-Fi hotspots in New York City during March 2013. Last fall, it introduced We2, a product it described as a new social Wi-Fi network, which it was also bringing to New York City. In December, Gowex, in partnership with the New York City Economic Development Corp., said that the We2 Social Wi-Fi network had officially launched with more than 500 New York merchants on its roster.

For more:

- see this Gowex statement

- see this Wall Street Journal article (sub. req.)

- see this Bloomberg article

- see this Financial Times article (sub. req.)

- see this Reuters article

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