A little less than a year ago, Spanish officials raided the offices of Afinsa Bienes Tangibles, the world's third-largest auction house. They seized its assets, charged its executives with operating a pyramid scheme, and threw a number of its directors in jail.
Stateside stamp-and-coin-trading outfit Escala (OTCBB: ESCL.PK) -- two-thirds owned by Afinsa -- was thrown off course by the scandal. Its stock plummeted to $3 a share, from former highs in the mid-$30s. Executives resigned in a steady stream. The company's own directors cleared it of any malfeasance, though others are far less sure of that. And Escala was subsequently delisted from the Nasdaq exchange, after failing to file any financial reports since the scandal hit.
Today, the stock sits at $4 a share, just about where it traded immediately after the scandal broke, despite the greater clarity available to investors -- and the greater danger inherent in Escala's already precarious situation. Although Afinsa filed for bankruptcy in the U.S. as a means of protecting Escala's assets from shareholder lawsuits, the end of the one-time premier coin-and-stamp-trading company may be fast drawing to a close.
Afinsa's administrators, appointed by the Spanish government in the aftermath of the company's collapse, have determined that its assets will cover only one-quarter of its debts, emphasizing the extent to which the fraud expanded. Afinsa's jailed directors had claimed that the company had net assets exceeding $3.5 billion at current exchange rates, yet an audit showed that the 150 million stamps in its collection have a value of just $338 million. In fact, it has only $836 million in verifiable assets, including its 67% ownership interest in Escala.
Forum Filatelico, another Spanish auction house brought down at the same time as Afinsa, and also accused of running a Ponzi scheme, is estimated to have even larger debts.
"It is not possible to consider, not even hypothetically, that the company is still viable," the court-appointed administrators said regarding Afinsa. "There is no way that its trading operations could be restarted given the value of its stock of stamps." That's a stark contrast to what was once a leading auction company, behind Sotheby's
The Spanish government is attempting to help the 400,000 victims of the stamp swindle, making available a $681 million fund to aid them in pursuing Afinsa and Forum Filatelico. However, the government noted that it was capping the money any one victim could receive at 15% of his or her total loss, saying it was not the responsibility of the government to make the people whole, but that of the two companies perpetrating the fraud.
That's where the danger to remaining Escala investors lies. While the court proceedings will undoubtedly be a long, arduous process, they may also spur the Spanish government to seize and liquidate Escala's assets sooner rather than later. Right now, that possibility seems to become less remote with every passing day.
Although Escala still goes about its daily routine, holding auctions and running its coin-and-stamp business, whatever value its operations may once have held has now evaporated, like the value of the millions of dollars' worth of stamps it sold to Afinsa.
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