Spanish free wifi provider Let's Gowex revealed Sunday its accounts have been falsified for at least four years and said it is filing for bankruptcy protection.
Gowex, which offers wifi services in world capitals including Paris and New York, made the devastating admission after days of protesting that a damaging US report on its operations was incorrect and defamatory.
Gowex president Jenaro Garcia Martin informed his board the previous day that, in fact, he had faked the company's results, the firm said in a statement released by Madrid's Alternative Equity Market.
"Garcia Martin, chief executive and president, said before several board members that the company accounts for at least the last four years do not reflect the true picture, attributing this falsehood to himself," Gowex said.
Board members revoked the chief executive's powers and accepted his resignation, it said.
"The board, confronted by the expectation that the company would not be able to cope with its maturing current debt payments, agreed to file a voluntary request for bankruptcy."
Gowex had been expected to give a detailed response on Monday to allegations about its operations, which had sent its shares plunging 60.2 percent to 7.92 euros in two days before they were suspended from trade by Madrid's junior stock market, the Alternative Equity Market.
- Shares worth 'zero' -
US firm Gotham City Research sparked the freefall Tuesday by publishing a highly critical report, which had previously been described by Gowex as "unfounded and defamatory".
Gotham City Research called Gowex a "charade" and said its revenues were far lower than the company had reported.
Gotham City said its target price for Gowex shares was zero.
In its 93-page report, Gotham City said Gowex's actual revenues were "at most" 10 percent of those reported.
About 90 percent of Gowex's telecommunications revenues came from undisclosed related parties, Gotham City said.
Gowex's audit fee was only 40,000 euros, far less than would be expected for a company generating revenues of more than 180 million euros, the firm said.
"We have evidence Gowex's largest customer was really itself," the report said.
After Gowex issued the statement saying that Garcia Martin had faked the firm's results, he announced on Twitter that he had made a "voluntary confession in court".
"I am willing to face the consequences and cooperate with justice," the former wealth management manager added.
The posting followed an earlier Twitter message in which he said he was "wholeheartedly sorry" and apologised to "everyone".
The European professional investors association ASINVER filed a suit Friday against Gowex with the Spanish public prosecutor alleging false accounting.
"Given the lack of response by the company for requests for more information, we had no choice but to ask the public prosecutor to look into the issue because it is very likely that a crime took place," Javier Flores of the Spanish branch of ASINVER told public television.
Spanish stock market regulators are also likely to face scrutiny over their supervision of the firm's activities.
On Wednesday, the Spanish market regulator, the CNMV, said it had asked the US Securities and Exchange Commission and Britain's Financial Conduct Authority "for information about Gotham City Research LLC and its administrators".
The CNMV said it did so "in order to analyse whether the document published by that entity on Let's Gowex could constitute a possible abuse of the market".
On the same day, Gowex had issued a statement confirming its 2013 revenues of 182.6 million euros ($249 million) and stressing that the figures had been audited.
"We are a high growth company that is financially stable and very solid and we are being attacked," Garcia Martin said that day in an interview with Spanish public television.