Investors stunned by massive false accounting at Spanish free wifi provider Let's Gowex inflicted huge losses Monday on the shares of a slew of other small and medium-sized firms.
Gowex, which offers wifi services in capitals including Paris and New York, said Sunday it was filing for bankruptcy after chief executive Jenaro Garcia Martin admitted faking its results for at least four years.
The Gowex board said it had revoked the chief executive's powers and accepted his resignation.
Hours later, Garcia Martin 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 specialist added.
Just a day before, even as Gotham City's allegations reverberated through the market, Garcia Martin had Tweeted: "Gooooood morning Madrid!!!! Perfect morning to go out for a run."
The fallout from the scandal, which was revealed in a report last week by the US firm Gotham City Research, spread to unrelated companies listed on Madrid's junior market, the Alternative Equity Market.
By the close of trade Monday, the junior market, which caters to smaller companies seeking equity financing, was awash with red ink. All but one of the 23 companies posted losses.
Telecommunications firm Eurona dived 21.88 percent, carbon-fibre specialist Carbures plunged 20.79 percent and biopharmacy firm Bionaturis plummeted 23.91 percent as its rival Neuron BioPharma slumped 18.18 percent.
- 'A charade' -
Four companies -- Carbures, energy group Ebioss and telecommunications firms Ibercom and Eurona -- told investors they plan to switch to the main Madrid stock market, which has more exacting requirements.
Independent financial adviser Alberto Roldan said Spain had a "long history" of corporate scandals, from a decade-long property boom that imploded in 2008 to poorly managed banks and alleged fraudulent accounting at fisheries group Pescanova.
"This has generated a reputational risk that by experience I can say is very hard to recover, to clean up -- very difficult," Roldan said.
"Those most affected are companies with a small capitalisation that have a specific market for listing, the Alternative Equity Market," he told AFP.
In a statement, the junior market said the Gowex scandal should not put in doubt the market's "essential" role in raising funds for small and medium-sized companies.
On July 1, Gotham City Research issued a highly critical report on Gowex that sparked a two-day, 60-percent plunge in its shares to 7.92 euros at which point the stock was suspended from trading.
Gotham City Research, a so-called short-seller that makes money by betting that the share price of certain companies will fall, called Gowex a "charade", said its revenues were far lower than the company had reported, and derided its shares as worthless.
On Monday, Gotham crowed about its role in exposing Gowex.
"Auditors, regulators, lawyers, investment bankers and others rarely detect fraud. Insiders and short-sellers do," the company said in a statement.
"Therefore, perhaps the market participants, the media and regulators should focus on the validity of a short seller's message rather than shooting the messenger."
- 'Act quickly' -
Spain's stock market regulator, the CNMV, stressed that its role in the affair was limited to surveillance of possible market abuse and compliance with the junior market's rules.
On July 2, the CNMV had said it was looking into possible abuse of the market by Gotham City, adding that it had sought information about the short seller from US and British stock market regulators.
In its 93-page report last week, 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.
"We have evidence Gowex's largest customer was really itself," the report said.
The European professional investors association ASINVER filed a suit Friday against Gowex with the Spanish public prosecutor alleging false accounting.
Spanish equity research group Link Analysis urged the authorities to act swiftly.
"It is of vital importance that the authorities act quickly to find those responsible and adopt necessary measures to ensure it cannot happen again," Link Analysis said in a report.