11.06.2006 - The Great Philatelic Fraud (part 2)
Potential investors were offered high returns from the purchase and management of a stamp fund, which was apparently made up of overvalued – or even fake – stamps and whose returns were financed with

Potential investors were offered high returns from the purchase and management of a stamp fund, which was apparently made up of overvalued – or even fake – stamps and whose returns were financed with money brought by new investors enticed into the scheme. As a result, the whereabouts of investor funds totalling more than 4.2 billion euros are now unknown. Investigators reckon some of the stamps were overvalued by up to 1000 per cent, and would make on the open market only a small fraction of what the investors had paid.

Spain´s Prime Minister Jose Luis Rodriguez Zapatero pleaded for "calm and confidence" in response to the suspected fraud and promised to protect investors. But alarm spread when the finance ministry and the Bank of Spain made clear that these kinds of investments in stamps were not covered by a government-backed insurance plan.

In reaction to the news regarding Afinsa and Escala´s business operations, shares of Escala fell dramatically on May 9, 2006, falling from $32.00 per share to $12.23 per share on heavy volume. Thereafter, on May 10, 2006, shares of the Company continued to plummet -- falling an additional 47% to close at $6.55 per share. On May 11, 2006, Spanish authorities charged 11 people for their involvement in the pyramid scheme, including 5 Afinsa executives. On this news, shares of Escala dropped an additional $2.21 per share, or 33.74%, to close at $4.34 per share, on heavy trading volume.

On May 15, 2006 the Escala Group announced that it has obtained and reviewed the written statement of allegations that was submitted to a Spanish court by the Spanish prosecutorial office in connection with the investigation of Afinsa Bienes Tangibles, S A in Spain.

Escala has confirmed that this document does not allege any impropriety on the part of Escala or any of its subsidiaries. As a result, no charges have been filed against Escala or any of its subsidiaries. In the news release, the company also reported that its Board of Directors has commenced an investigation into whether the Company acted in any way improperly in its business transactions with Afinsa. Jose Miguel Herrero, Chief Executive Officer of Escala, commented that though the company faces a strong challenge because of the events, "we believe that Escala´s core operations in auctions, trading and sales of inventory in our collectibles segments are well-positioned to benefit from that demand."

Professional philatelists, and stamp collectors disapprove of both companies because of their single-minded focus on stamps purely as investment. Spain´s National Association of Coin and Stamp Businesses (to which neither company belongs) insisted stamps were principally a cultural artifact, and hoped that a traditional trade would not be damaged "by something that has nothing to do with stamp-collecting".

Stanley Gibbons, the British stamp auctioneer and catalogue publisher that offers a rare stamps investment scheme of its own, also suffered, despite having no links to the scandal. Shares in the company fell 12 per cent on May 10, 2006 before staging a partial recovery on May 13.

European stamp dealers, collectors and investors are waiting anxiously to see whether the scandal will cause long-term damage to the international stamp market, worth an estimated $13 billion a year. a global fall in the price of collectible stamps, for the first time since the 1980s, is probable.

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