The E-Sylum:  Volume 9, Number 20, May 14, 2006, Article 26

ESCALA OFFICES RAIDED IN PYRAMID SCHEME INVESTIGATION

A couple subscribers forwarded reports from Spain of raids on
the company formerly known as Greg Manning Auctions.  Although
the current investigation focuses on the sale of stamps, some
news accounts claim other collectibles may be involved.  The
company has numismatic divisions in the U.S., including Bowers
and Merena Auctions Spectrum Numismatics and Teletrade.  The
bulk of the parent company's profits came from stamp sales.

"Shares of New York auction house Escala Group Inc. lost more
than half their value Tuesday after Spanish police raided the
offices of Escala, its majority owner and another company in
a probe of alleged fraud involving collectible stamps.

Spanish police arrested eight people in connection with the
alleged fraud that could affect as many as 200,000 small
investors, authorities said Tuesday.

Escala's stock plummeted $19.77, or 62 percent, to close at
$12.23 on the Nasdaq Stock Market. The stock has traded in a
52-week range of $9 to $35. Escala, which is based in New York,
was previously known as Greg Manning Auctions until it changed
its name last year."

"The raids were part of a joint investigation launched by Spain's
National Court, tax authorities, financial crime prosecutors and
the National Police over an alleged pyramid-type scheme based on
overpriced stamps and other collectibles."

"The raids came after Barron's investment magazine extensively
reported questionable practices at Afinsa, which operates a
"no-lose" stamp-sales program for investors in Spain and Portugal.
Many of the investors are retired individuals allocating an
average of 150 to 300 euros ($190-$380), according to court
officials."

To read the complete article on Yahoo News, see: Full Story

"In Spain, television broadcasts were full of images of Spanish
investors virtually besieging Escala's office, demanding more
information on the allegations of stamp-investing fraud."

"It's going to be one of the biggest financial scandals in Europe,"
says Charles Dupplin, chairman of the art and private client division
of Hiscox, a London specialty insurer that cut ties with Afinsa last
year amid media reports questioning its business practices. "It's
really awful."

According to Barron's and The Wall Street Journal, experts have
questioned Afinsa's valuation methods for rare stamps. The stamps
underpinned investment contracts that guaranteed a return of 6%
to 10% over a fixed period, with a money-back guarantee when the
contracts expire. Many of the estimated 350,000 investors, mostly
in Spain and Portugal, were retirees buying contracts worth a few
hundred dollars. Critics have dubbed the guaranteed-return program
a Ponzi scheme that depends on pulling in more participants to
continue funding the returns."

"Escala also counts among its business units a number of small
auction houses in the U.S. including Ivy & Manning Philatelic
Auctions, Greg Manning Galleries, Spectrum Numismatics, Teletrade,
Nutmeg Stamp Sales and Superior Sports Auctions. In Europe, the
group includes Spain's Auctentia Subastas (Afinsa Auctions),
Switzerland's Corinphila Auktionen, and the Koehler group of
auction companies in Germany. In Asia, its auctions operations
are conducted through John Bull Stamp Auctions, the oldest
philatelic auction house in Hong Kong."

"The investigation should have little effect on the broader
stamp market, says James Kloetzel, editor of Scott's, a Sidney,
Ohio, publisher of stamp catalogs.

"As far as I know those [auctions] are all on the up and up,"
he says. "They're selling real stamps to real buyers at real
prices.  Where the problem came in was the investment area.
They set values [for the stamps that guaranteed the investment
contracts] using catalog prices that don't reflect what a
collector will actually pay."

To read the complete article in Smart Money, see: Full Story

One reader sent a copy of an article from The Financial Times:

"According to one UK-based trader, Escala became a giant hoover
of stamps in international markets, and because it bought in bulk,
it was able to command huge discounts from smaller dealers.
Philatelic experts say little of what Escala bought on the market
could be considered investment grade.

They bought damaged stamps, worth only 1 per cent of catalogue
value, or stamps that were not rare, and therefore had no
investment value, one philatelic expert said.

Afinsa insists it only deals in investment grade stamps, and
this is reflected in the value of its transactions with Escala.
But OCU, a Spanish consumer lobby group which bought a set of
stamps from Afinsa for €600 last year, was only able to recover
5 per cent of the purchase price when it tried to sell the
stamps on the open market."

  Wayne Homren, Editor

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