Escala stamp scheme collapses

SmartMoney.com, Times UK and others are reporting that shares of Escala, formerly known as Greg Manning Auctions, lost 62% of their value after Spanish police raided their Madrid offices and arrested at least eight people. The company has been under investigation for some time for allegedly defrauding investors in philatelic material by using unrealistic values.

"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. "

James Kloetzel, editor of Scott's stamp catalogs is quoted as saying buying stamps should be more of a labor of love than an investment strategy.

He says the domestic stamp market was flooded with investors in the late 1970s and burst in 1981, and has since been more the province of philatelists than profit-obsessed investors.

"The market in general is just fine, but it is a collector-driven market, not an investor-driven market," he says.

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