Lets Gowex falsification

6th Jul '14 by Allaisde

16 comments 6946 reads

It looks like Gowex is going straight to banckrupt, just after its ceo declared he has been falsificating financial accounts since 4 years.

This is a new sample of how weak is financial sytem. No warning from no one , especially from auditors.

This campany was a 1b eur company. This is not a small company. I do think this is once again a shame for our financial system and hope definitivly that auditor will start from now on to work for shareholder rather than just geeting their fees.

One good point : stockopedia earning risk manipulation was high. Good point for this warning.

Best regards

Denis Allais

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Allaisde

Premium Member

16 comments

AnonymousUser37607

6th Jul '14

If you read the Gotham City Research note the choice of auditor was an odd one for a company of this size - seems like the auditor in this case was never going to be the one to ask the tough questions

PhilHofGrowYourDough

6th Jul '14

Disgraceful. I'm fortunate to have made a good profit on this one and I got out in early May when the momentum disappeared. Commiserations to any who lost a wedge.

marben100

6th Jul '14

Quite agree that this is a disgrace. However, there is one thing it is important to understand: auditors don't work for shareholders, they work for the company. They are appointed by and their remuneration is agreed by the audit committee, which is a subcommittee of a company's board. That is patently a fundamental flaw.

ShareSoc advocates that independent committees of shareholder representatives appoint auditors and the Board itself. See this submission we made to the FRC:

http://www.sharesoc.org/FRC_Consultation_Response_Supp_2011-02-17.pdf

Edward Croft

7th Jul '14

Phil - well done getting out of this one before the fall. Ben Hobson highlighted this one to me on the CANSLIM screen back in October when it was at about 7p. Huge run since and now back where it's started. http://www.stockopedia.com/content/bill-oneills-can-slim-growth-stocks-rocket-in-2013-78133/

I seem to remember that it was ranking v. highly (90+) at the time with the StockRanks. The valuation rose and momentum stalled so it started dropping off ... smart move getting out. The Earnings Manipulation popup flags a LOT of issues with the accounts (receivables, depreciation etc - lots of classic signs).

With all rapid growth stocks one must never get over-committed - especially when there are potential accounting issues. A 50% fall one can weather if a stock is one of 15 or more in a portfolio, but if it's one of 5 it gets a lot more painful.

PhilHofGrowYourDough

7th Jul '14

Thanks Ed, I bought into them in May 13 and sold some in November and the rest in two lumps in May for a 155% return.

I reported on their step change in september ...
http://www.stockopedia.com/content/lets-go-with-lets-gowex-77672/

Very disappointing to see that it was a pipe dream however following price momentum (TA) rather than a straight value or growth approach got me out. Then again the report could have come out during the bullish phase and my profits would have been blown.

Perhaps then if someone is determined to commit fraud then no approach will defend you.

Best of luck to everyone.
Phil

cig

7th Jul '14

Common sense will get you a long way, it's a skill most people have from real life interactions, don't switch if off when on the markets! Most crooks are lazy and just try to deceive the most naive investors, so their tactics are often quite obviously dodgy. You may wrongly exclude some legit companies that way, but why take the risk when there's so many to choose from?

shipoffrogs

7th Jul '14

"Perhaps then if someone is determined to commit fraud then no approach will defend you."

There was one very big give away that this was a fraud, as with Madoff - an unknown auditor.

Paul Scott

8th Jul '14

also worth noting a key red flag that Gotham relied on - an extremely low audit fee, that was consistent with a company about a tenth of its size - which as it turns out was exactly what it was.

So we should check not only for unknown auditors, but also for audit fees that are a fraction of what they should be (ie. what similar sized competitors pay)

regards, paul.

Paul Scott

8th Jul '14

Worth noting also the statement today from Gotham City Research.
Very interesting & very blunt about Quindell.

p.

PhilHofGrowYourDough

8th Jul '14

Link please Paul!

Paul Scott

9th Jul '14

Dear oh dear Phil, haven't you heard of Google?!!! ;-)
http://gothamcityresearch.com/

marben100

9th Jul '14

You can find Gotham's forthright comments, which Paul refers to, on the front page of their website here:

http://gothamcityresearch.com/

PhilHofGrowYourDough

9th Jul '14

Hi Paul,

Well I have but your comments indicated a report today (8th) when a report was posted on the 7th.
I also mistook your comment about the auditors fee to be reported in 'today's report' and when I couldnt find it I assumed that something had been published and perhaps pulled.

Onwards and upwards

Paul Scott

9th Jul '14

Hi Phil,

I'm wondering if the article today from Gotham has been amended, as I'm sure it was far more cutting towards QPP when I first read it. Maybe they have toned it down?

Their stuff about the audit fee being anomalous for Gowex is in their original report on that, which is very impressive. Just have a dig around on Gotham's website.

P.

PhilHofGrowYourDough

9th Jul '14

Yes it sounds as if that might have happened as I'm sure another place suggested that GCR had used the 'F' word when discussing Qunidell. Maybe the legal team has asked them to row back some as clearly when you start to talk of 'Fraud' lawyers start to get a little hot under the collar.

JakNife

9th Jul '14

I think that it's just a case of Gotham having moved the original "F-word" document from the front page to another page. Here's a link:

http://gothamcityresearch.com/2014/07/07/gotham-city-researchs-formal-response-to-gowex-jenaro-garcia-martins-public-confession/

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Lets Gowex falsification

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Allaisde

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