Investment scam rocks Portugal and Spain

Stamp traders accused of embezzlement

NINE PEOPLE have been arrested, including a prominent Portuguese businessman, after two large Spanish stamp trading companies were charged with operating one of the biggest financial scams in the country’s history.

The two companies concerned, Afinsa and Fórum Filatélico – which are now said to be virtually bankrupt – have nearly 350,000 investors in Spain and Portugal and stamp investment portfolios valued at 6.5 billion euros.

Spain’s public prosecutor accused Afinsa of embezzling 1.75 billion euros from almost 143,000 investors in a massive ‘pyramid’ scheme built on worthless stamps. A Spanish police spokesman described the scam: “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 did not arise (from the fund) but from money received from new clients”. As a result, the whereabouts of investor funds totalling more than 4.2 billion euros are now unknown.

The two companies employ around 2,000 staff – including branches or subsidiaries in several other countries – and 400 staff in Portugal. They have operated in Spain for 25 years where one per cent of the population have invested savings in the stamp trading companies. The corporations concerned are unregulated investments (meaning that purchasers’ losses are unprotected by the state), prompting worried investors to demonstrate outside the companies’ offices in Madrid last week.

Portuguese politicians and footballers among investors

The scam has not just affected Spanish investors. The Portuguese press has revealed that António Mexia, ex-Minister of Public Works and current president of EDP, had invested around 6,000 euros in Afinsa. Aside from Mexia, there are believed to be other famous investors, including sporting figures who will be unable to recoup their money. Portuguese daily newspaper, Correio da Manhã, has revealed that various footballers from the Divisão de Honra were among Afinsa’s Portuguese clients. The paper also claims that Manchester United footballer, Cristiano Ronaldo, nearly became a victim of the fraud after he was approached many times to invest in Afinsa, but that he had not made a final decision until last week.

The Bank of Portugal is also investigating various Portuguese investment societies that have links to Spain. The Bank is paying special attention to societies that market funds from property investment and conduct business transactions with Spain. The Bank of Portugal has provided information to Spanish authorities in regard to transfers made by Afinsa and Fórum Filatélico, via direct debits from Portuguese client accounts. These deposits or direct debits, first channelled into Portuguese banks, then found their way into the accounts of Afinsa and Fórum Filatélico in Spain.

Last week, a representative from Afinsa in Portugal, based in Porto, released a statement guaranteeing future payments to investors in spite of the likely insolvency of the Spanish branch. Afinsa guaranteed that it has stamps valued at two billion euros, as well as valuables and other property worth 930 million euros. Prime Minister José Sócrates said that his government would monitor the charges surrounding Afinsa and Fórum Filatélico very closely. “We must investigate what happened and punish those who have failed to abide by legal requirements,” he said.

Afinsa’s Portuguese founder is arrested

To date, nine of the firms’ executives and directors have been arrested – charged with embezzlement, money laundering, tax evasion and fraud. These include Afinsa’s main supplier until 2003 – Francisco Guijarro. Spanish police recovered around 10 million euros in 500 euro banknotes at Guijarro’s house in Madrid last week. Police also arrested four senior Afinsa executives, including the company’s 75-year-old Portuguese founder, Albertino de Figueiredo, his son, Carlos de Figueiredo, as well as the company’s chief executive and chairman. Albertino de Figueiredo, who was decorated by former President Jorge Sampaio in 1999, is considered to be one of the most famous Portuguese citizens in Spain. He is president of the Portuguese-Spanish Chamber of Commerce and a close friend to Portugal’s former Minister for Foreign Affairs, António Martins da Cruz, who said last week that he continued to believe in Figueiredo’s good character and “honour”.

Spain’s public prosecutor also accused Forum Filatélico of running a similar scheme involving more than 200,000 investors. Francisco Briones, chairman of Forum Filatélico – and four of the company’s directors – are all facing criminal charges. A Spanish judge jailed all the suspects, due to the high probability that they would abscond or tamper with evidence if bailed.

Several events, in the run-up to the formal charges, had fuelled the suspicion of authorities. Prosecutors said tax inspectors had detected over-invoicing on a large scale in transactions between Wec Netherland BV, a Dutch stamp dealer, and Forum Filatélico. “The over-invoicing, and the payment of prices that were far higher than those on the open market, are indicative of money laundering,” said the prosecutor. Authorities had also asked the Spanish mint to examine some stamps in Afinsa’s vaults, some of which were subsequently revealed as fakes. Earlier this year, insurance syndicates at Lloyd’s of London, the world’s largest reinsurance market, chose not to renew Afinsa’s 1.2 billion euro premium, because of doubts about the true value of the insured stamps. In a further move, the prosecutor has also requested a full report on the assets of Escala Group, an American company controlled by Afinsa that is listed on the Nasdaq. Escala owns a global network of auction houses and has been Afinsa’s main supplier of stamps and coins since 2003. Afinsa, in turn, owns 67 per cent of Escala.

Traders offered “double fiction”

Prosecutors said Afinsa and Forum Filatélico sustained a “double fiction” – the illusion that clients were investing in rare, valuable postage stamps and that they would earn high guaranteed returns of up to 10 per cent a year based on the “revaluation” of their stamps. After purchasing low quality stamps on the open market for only a fraction of their catalogue value, prosecutors estimate Afinsa made a 1,150 per cent profit on stamps sold to investors.

Despite the turmoil, Afinsa published a full-page advert in the Spanish press promising clients it would meet its obligations. “We can meet all our commitments,” it said, claiming that each investment was backed by real stamps held by the company. Forum Filatelico also said it had an insurance policy covering 85 per cent of all payouts.

The scandal looks set to undermine stamp collecting worldwide. News of the alleged swindle came at a time when investment in rare stamps was increasingly seen as a lucrative ‘share’ option, accompanied by rising prices over the last 20 years. Recently, Stanley Gibbons (which has nothing to do with the alleged scam) launched a number of investments to take advantage of non-experts’ increasing desire to find alternative assets to shares and property. The move helped to drive the company’s profits up by 65 per cent last year. But now, following the recent scandal, sources at the Universal Postal Union in Switzerland revealed that a global fall in the price of collectible stamps was almost certain.