.......
.......A massive Ponzi/Pyramid scheme using postage stamps, that bilked approximately 400,000 unsophisticated investors out of about 5 BILLION Euros ($A10 Billion) when it went belly up - as all such schemes eventually do.
Lurid stories of 10 MILLION EUROS in cash being seized in police raids etc of those allegedly involved, ensured it got a LOT of press - none of it good for the stamp hobby sadly.
I wrote several columns about this mess at the time:
https://www.glenstephens.com/snjune06.html
And concluded:
Thankfully there will be virtually no local fallout in my view.
Our local Australian market is strong as real collectors are underpinning it. Very few collectors here buy Spain or Portugal stamps, where it can be expected weakness will prevail for quite some time.
The Federal Budget announcement in May of the very generous new Superannuation arrangements from July 1 next year will greatly increase local spending, not decrease it.
Many existing collectors are buying stamps of their choice with their self-managed Super.
Which is a prediction which has proven perfectly correct.
HOWEVER little has been published in the past 2 years or so. Ormond just linked elsewhere to a quite extraordinary 42 page US Government case against the Americans involved in this matter, who were connected with the US listed ESCALA company - who supplied much of what Afinsa bought and sold to the "investors":
https://www.sec.gov/litigation/complaints/2009/comp20965.pdf
I urge EVERYONE to make a LARGE coffee and print this out, or read it on screen.
I thought I knew a lot about what went on the stamp business, but most of what is in this most detailed US Federal Government brief of evidence was all new to me.
I stress this brief was only filed March 23, and AFAIK is still before the courts, and like in all legal matters, everyone is innocent until proven otherwise by a Court.
I've met Greg Manning several times, and have nothing against him whatever, and he has done no harm to me at any time.
However that said, the hour I took to read this dossier simply gob-smacked me.
Many major and very famous stamp auctions were owned by this Manning/Escala group.
The group's North American operations included huge names like the Greg Manning Auctions division, Ivy & Manning Philatelic Auctions, Greg Manning Galleries, Greg Martin Auctions, Spectrum Numismatics, Teletrade, Nutmeg Stamp Sales, Superior Sports Auctions, Bowers and Merena Auctions, Kingswood Coin Auctions, and H.R. Harmer.
In Europe, the leading stamp auction houses affiliated with the network were Auctentia Subastas (Afinsa Auctions) of Madrid Spain, Corinphila Auktionen of Zurich Switzerland, and the Koehler group of auction companies of Berlin and Wiesbaden Germany.
In Asia, Escala's auctions operations were conducted through John Bull Stamp Auctions Ltd, the oldest philatelic auction house in Hong Kong.
So they were a major GLOBAL player - to put it mildly
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
------------------~-----~-------------------------------------------------------l[
SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
ESCALA GROUP, INC., 09 Civ.
GREGORY MANNING,
LARRY LEE CRAWFORD, CPA,
Defendants.
------~-------------
42 pages of Evidence brief inserted here:
https://www.sec.gov/litigation/complaints/2009/comp20965.pdf
---------------------------
WHEREFORE, the SEC respectfully requests that this Court enter a Final Judgment:
Permanently enjoining Escala, Manning, and Crawford from violating Section lO(b) of the Exchange Act [15 U.S.C. §§ 78j(b)] and Exchange Act Rule lOb-5 [17 C.F.R. §§ 240.10b-5];
Permanently enjoining Escala from violating Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act [15 U.S.C. §§ 78m(a), 78m(b)(2)(A), and 78m(b)(2)(B),] and Exchange Act Rules 12b-20, 13a-l, and 13a-13 [17 C.F.R. §§ 240.12b-20, 13a-l, and 13a-13];
Permanently enjoining Manning and Crawford from violating Section 13(b)(5) of the Exchange Act [15 U.S.C. §§ 78m(b)(5)] and Exchange Act Rules 13b2-1 and 13b2-2 [17 C.F.R. §§ 240.13b2-1 and 13b2-2];
Permanently enjoining Manning and Crawford from aiding and abetting the violation of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) [15 U.S.C. §§ 78m(a), 78m(b)(2)(A), and 78m(b)(2)(B),] and Rules 12b-20, 13a-l, 13a-13 [17 C.F.R. §§ 240.12b-20, 13a-l, and 13a-13];
Permanently enjoining Manning and Crawford from violating Exchange Act Rule 13a-14 [17 C.F.R. § 240.13a-14];
Ordering Crawford and Manning to pay disgorgement of any unjust enrichment from the conduct alleged herein;
Ordering Crawford and Manning to pay civil monetary penalties pursuant Section 21(d)(3) of the Exchange Act [15 U.S.C. §78u(d)(3)] in respect of their violations;
Permanently and unconditionally barring Manning and Crawford from serving as an officer or director of a public company pursuant to Section 21 (d)(2) of the Exchange Act [15 U.S.C. § 78u(d)(2)];
Granting such other relief as this Court may deem just and appropriate.
Dated: March 23 , 2009
Respectfully submitted,
Mark A. Adler (MA 8703)
Jane M.E. Peterson (Trial Attorney)
Cheryl J. Scarboro
C. Joshua Felker
Deborah A. Tarasevich
Devon A. Brown
Matthew Skidmore
Attorneys for Plaintiff - Securities and Exchange Commission
100 F Street, N.E. Mail Stop 4010
Washington, D.C. 20549-4010
Tele: (202) 551-4468 [Peterson] Fax: (202) 772-9245 [Peterson]
Here is small part of what the PDF alleges:
18. Despite having discovered stamps with an alleged estimated value of $200 to $300 million to be forgeries in Afinsa's vault, Manning completed the Escala/Afinsa business combination transaction without disclosing the existence of the forgeries to others at Escala.
C. The Afinsa Supply Agreement
19. Escala was under tremendous pressure as the exclusive supplier of stamps to Afinsa. Afinsa's stamp needs were enormous and critical to its continued operation. Because it promised to buy back its stamp portfolios at 100 percent of the initial sale price plus interest, Afinsa required increasing numbers of investors and, in turn, increasing volumes of stamps to sell to them.
For each subsequent year, Afinsa had to increase the volume of stamps it sold in order to make new profits and to cover losses incurred for repurchases and interest. In other words, more new sales each year meant more repurchases in future years which in turn required more new sales. Manning understood the tremendous pressure Afinsa was under to maintain its Ponzi-like investment program.
D. The Brookman Agreement
20. To ensure that it could keep increasing the catalogue value of the stamp portfolios that it marketed to investors, Afinsa wished to control a pre-existing, international stamp catalogue. In an internal Afinsa report, the company stated: "Steps are being taken to control an international catalogue or to create our own in order to be able to fix prices in accordance with our philosophy."
In the words of a principal of Afinsa: "If we allow a third party to put out the prices, we are really in his hands, which cannot be admissible given the nature of our business."
21. Afinsa's discussions about controlling its own catalogue were occurring in the early stages of the Escala/Afinsa business combination negotiations - and included Manning.
Recognizing Afinsa's interest, Manning proposed that Afinsa consider entering into an arrangement with Barrett & Worthen, the current owner of the Brookman Catalogue - a stamp catalogue that Manning had owned before he sold it to a close family friend in 1983.
Manning told Mmsa: "I believe that a deal could be set up with [the current owners] staying on to run the entire operation .... We would have complete editorial control over the prices in the catalogue, but we can still use the current editors for the bulk of the work."
22. On behalf of Afinsa, Manning actively engaged in the negotiations with Barrett & Worthen focusing on editorial control of the Brookman Catalogue. On June 16,2003, Afinsa and Barrett & Worthen signed an agreement (the "Brookman Agreement") that Afinsa would pay $650,000 in annual payments of $65,000 for ten years.to Barrett & Worthen and would gain "full and final editorial review and control of the content and form of each edition of the Brookman Catalogue published during the term of [the] agreement"
"And that this "control and review shall include, but not be limited to, the final review of all pricing, the preparation and revision of all descriptions and the deletion and/or addition of material, in each case as [Afinsa], in its sole discretion, may determine ...."
The Brookman Agreement provided for confidentiality and non-disclosure of its contents. Manning negotiated the Brookman agreement, and it was drafted in-house at Escala. Crawford learned of the agreement while it was being drafted in-house.
23. Neither Manning nor Crawford told Escala's Audit Committee about the Brookman Agreement. Escala did not disclose the agreement publicly or mention it in any of its quarterly or annual reports that it filed with the SEC.
To the contrary, Escala remained silent on the matter and Afinsa sought to portray the Brookman Catalogue as an independent entity. In October 2003, an Afinsa representative thanked Manning for negotiating the Brookman deal and reminded him that "our name must not appear" in any Brookman Catalogue.
etc .... and this little gem. Some of the massive $$ figures in this evidence brief are astounding.
1. The Rapidly Rising Catalogue Values of the ABN Specimens
56. Manning determined the values for the ABN specimens which were to appear in a proposed future edition of the Brookman catalogue that ultimately was never published. Escala prepared spreadsheets containing these values.
In the months before Escala's first shipment of ABN Specimens to Afinsa in February 2004, Manning had estimated supplying approximately €60 million (as of February 1,2004 €60 million equaled approximately $74.8 million) catalogue value but had told Afinsa that a Brookman Catalogue draft could be finished in January with a catalogue value of approximately €30 to 40 million (as of February 1,2004 €30 to 40 million equaled approximately $37.4 to $49.8 million).
Manning also told Afinsa that "the new Brookman] catalogue will absolutely follow our suggestions about prices." As with the UN Archive, the catalogue values continued to rise.
57. With respect to Escala's first sale of ABN specimens to Afinsa, Manning used a catalogue that the two brothers had prepared as a starting point for setting the catalogue values. But Manning dramatically increased the prices of each item.
Thus an item listed in the Morowitz catalogue for $6 was listed in Escala's spreadsheet for €130 (as of February 1,2004 €130 equaled approximately $162).
58. In December 2004, after selling Afinsa ABN specimens worth a purported $266 million in catalogue value, Manning responded to an Audit Committee request and calculated the total catalogue value of ABN specimens that Escala had remaining in inventory. The amount was a staggering $512,348,355.
All told, the total alleged catalogue value set by Manning for the ABN specimens held by Escala, and purchased for approximately $850,000, approached $778 million.
etc, etc.
Essential reading, it really is.
Glen
They don't.
So much for catalog value being reliable intel.
