Weekend Economists Celebrate Endless Summer August 29-September 1, 2014

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68. Who’s to blame when Spanish small investors get swindled?

http://elpais.com/elpais/2014/08/27/inenglish/1409155495_434003.html

Gowex, Pescanova, Nueva Rumasa: respectively, the rising star of Spain’s technology sector; a leading seafood processor; and the latest version of a holding company that was expropriated more than three decades ago. All three companies swindled investors out of millions and evaded the oversight supposedly exercised by Spain’s financial and markets authorities. What went wrong?

Gowex was exposed by New York-based market analyst Gotham City on July 1. Since then, investigators have discovered a complex network of front companies, fictitious contracts and bank accounts in tax havens around the world where the company’s directors had salted away millions of euros.

“I was totally convinced that Gowex’s success was built on real foundations. It was the star performer in the MAB [Spain’s alternative stock market], it had installed wi-fi in several cities, its accounts were brilliant and it was conquering the international market. A few days before the scandal broke I sold all my other shares and put the money into Gowex,” says one investor, who prefers to remain anonymous. “I initially invested €95,000, but as the share price rose, I invested another €20,000.” He lost his life savings when the company went belly up.