It seems you have JavaScript disabled.

Ummm.. Yeah... I'm going to have to ask you to turn Javascript back on... Yeah... Thanks.

A Sad End For The Afinsa Fraud Saga at Trader’s Narrative

A Sad End For The Afinsa Fraud Saga

While the Madoff scandal transfixed everyone around the world last year two stamp ponzi schemes imploded in Spain a few years ago with very little attention. The two companies involved were Forum Filatelico and Afinsa and the sums involved approach 5 billion Euros, easily surpassing the size of the recent Madoff losses. But what is even more devastating is that unlike the Madoff ponzi scheme that operated in the shadows, Afinsa and Forum operated in the open for more than 25 years and promoted their services in mass media targeting the average Spanish investor. Like this newspaper ad:

afinsa newspaper ad
“Is it profitable to invest in stamps? 100 pesetas invested in stamps in 1976 (19%) would be worth 15,035 today while if invested in the stock market, worth only 1,679.”

When the government finally stepped in and raided their offices and stopped their operations, the two firms left in their wake millions of investors who had in many cases lost all their life savings. In the aftermath, as with all similar cases, there are more questions than answers. For example, how was it possible for these firms to operate and grow to such a gargantuan size without someone in the government realizing that they were not regulated?

Why did the CNMV (Spain’s securities governing body akin to the SEC) not act and simply assumed that asset management firms like Forum and Afinsa were not under its jurisdiction? How could the ICAC or Institute of Accounting and Auditing be made aware of serious irregularities as early as 1991 and in the end not initiate any sanctions? Well, this last one is easy to answer. It was because Gestynsa, the auditing firm hired by Afinsa, pulled strings behind the scene to have the investigation shut down.

Restitution? Forgetaboutit
No doubt the Spanish government at all levels, over many years messed up big time. And no dout that bribery and the “old boys” network had a lot to do with it. Naturally, the victims organized and clamored for the government to make them whole as it was responsible in their view for not protecting them in the first place. But recently the supreme court of Spain ruled that the government is not legally liable and therefore, will not provide any form of restitution to those who suffered losses.

forum filatelico logoOf course, the state is in no mood these days to pay 5 billion Euros as they are battling to keep their economy afloat and to beat back speculators who are betting on the break-up of the Euro monetary union. Spain has become so paranoid they’ve sicked their secret service against hedge funds and foreign media who they feel is agitating against them.

But interestingly enough, the Afinsa and Forum ponzi scheme can be traced to the European Union. Joining the monetary system forced Spain to accept artificially low interest rates for too many years. This induced a lot of pensioners and average hard working folks to seek out higher yielding investments. At 14-18% annual returns, stamp investing programs from Afinsa and Forum not only offered the right amount of juicy yield, they also provided a rational explanation that served as the perfect cover story.

afinsa logoThe only silver lining in this whole thing is that similar to the Madoff scandal, there is something, however small, left at the bottom of the pot. While the vast majority of the stamps were worthless copies, the victims may get a few cents back for every euro they lost as the two firms did have some mediocre stamps worth a few hundred million euros. But liquidating these is tricky. Obviously, if they are sold haphazardly they will depress worldwide stamp prices and reduce the over all sum recovered.

To me what is remarkable about this is not just that it hasn’t gotten much coverage outside of Spanish media (even within Spain it has fallen off the radar as it is now considered ‘old news’). But that it harkens back to the old style ponzi schemes when regulatory bodies where not even in place. How in the world can two firms capture billions of dollars of “secured” deposits and grow to 5 billion euros right under the nose of watchdogs? Then again, we can ask the same question about every single ponzi scheme in recent history.

Finally, if we step back to gain some historical perspective, from a purely market point of view, it is interesting that frauds like this usually blow up either at the top of markets or during the brutal years that ensue. How many of them have we seen? Alan Stanford, Madoff, Afinsa, Forum, etc. Why do I get the feeling this is a natural cycle we’ve seen before? People get greedy, they assume zero risk and pile in. Then they get burned and for the rest of their generation are cautious. Until the next crop of suckers shows up and we go through it all over again.

Enjoyed this? Don't miss the next one, grab the feed  or 

                               subscribe through email:  

9 Responses to “A Sad End For The Afinsa Fraud Saga”  

  1. 1 flix

    “Why do I get the feeling this is a natural cycle we’ve seen before?”

    you are being very optimistic about human nature… it takes much less than a generation for the cycle to repeat.

    Also… I suggest you google the terms “fractional reserve banking”, “austrian theory of the business cycle” and “”Bank Charter act 1844″… if your interested in explanations.

    Ponzi was a small timer.

  2. 2 Babak

    flix, the propensity of the average investor to take on risk does ebb and flow. Those that lived through the depression almost never fully recovered psychologically and never really took any risk. Then again, there is a sucker born every minute.

  3. 3 flix

    Sure, to some extent. However I witnessed plenty of spanish people badly burned by Afinsa… jumping straight into the real estate bubble… so my guess is that the extent of the shock necessary to immunize an entire generation from “free money” is cataclismic.

    There’s got to be a better way.

    I don’t have the answers, but I have found a lot of wisdom on this subject in the works of austrian school economists. As well as the most on-target warnings in the past 5 years.

    Their conclusions about low interest rates are specially valuable and, IMHO, much more logical than the oft-repeated “not enough regulation” trope.

    Also… a post on Ponzi schemes which doesn’t mention fractional reserve banking (or national pension plans)… is severely myopic.

  4. 4 Babak

    flix, you sound like you are you living in Spain. re Austrians and fractional reserve banking, I don’t think there is anything inherently evil about it, as long as there are safeguards in place. Unfortunately the fabric of regulation has been systematically shredded for the past 10 years.

  5. 5 juan marino montero

    The real history of this criminal affair is in

    Best regards

    Very nice article.

  6. 6 Babak

    Thanks Juan, looks like you’re devoted to exposing this thing to the last scumbag.

  7. 7 Martin Smith

    This article is misinformed. Rates to investors were between 6 and 10% and the Spanish stamp expert appointed by the government to examine the collections found not one fake stamp. His valuation coincided with the valuation of Lloyds insurers. The stamps were like bonds or shares except that you were guaranteed a dividend each year; Afinsa invested your money in a whole range of instruments just like any investment bank or mutual fund or pension fund. The stamps were only a guarantee that the contract would be fulfilled. And the company was incredibly successful with not one complaint in 30 years. Four and a half years later the investors and ex-employees are still united in condemning the destruction of the company - just check out the number of Afinsa forums and the thousands of documents collected. One investor - Nila Hernan - has just written a book denouncing the whole sorry charade where the banks, envious of the company’s success, conducted a smear campaign and bribed the government by writing off nearly 50 million euroes of debt owed by the governing PSOE party just two months before the raid. Still not one person has been charged or is likely ever to be charged with any offence. The company was squeeky clean. I should know because I am doing part of my PHD on it and I speak and read fluent Spanish. Get your facts right, amigo.

  8. 8 Babak

    alguien seguro que sea confundido. Hace solo dos dias que me mandaste un email felicitandome por haber escrito sobre este asunto. Y ahora dejas este comentario (?). Sobre la cuestion de que si habia fraude, la SEC cerro su investigacion concluyendo que “Escala, hoy Spectrum Group, estableció junto con Afinsa un “negocio fraudulento” que se desarrolló entre 2003 y 2006 que consistía en controlar los catálogos para inflar los precios de los sellos que la filial norteamericana vendía a su matriz a través de la sociedad del grupo Central de Compras.” Expansion

    En fin, como te escribi en respuesta atraves de email, me gustaria leer tu tesis cuando lo hayas terminado.

    someone sure is confused. It was just two days ago that you sent me an email congratulating me for having written about this. And now you leave the above comment (?). On the question of whether there was fraud, the SEC closed its investigation conclucding that “Escala, today known as Spectrum Group, established in partnership with Afinsa a “fraudulent business” which developed between 2003 and 2006 and which consisted in controlling the catalogue prices in order to inflate the price of stamps which the North American affiliate was selling through the central buying organization.” Expansion and SEC link

    As I wrote to you in the email response, I would appreciate reading your thesis when it is finished.

  9. 9 Martin Smith

    Sorry, Babak, I didn’t realise you were the same person. Here is a comment from Mike Mitchell at deep capture:

    Another focus of my investigation at CJR was the appalling bear raid on a collectibles company called Escala (NASDAQ:ESCL). Not only was Escala the victim of massive amounts of illegal naked short selling, but a hedge fund convinced the Spanish government that Escala’s parent company, based in Madrid, was fleecing investors in philatelic collectibles. The Spanish government closed the parent company, Afinsa, but not a single executive of the company has since been prosecuted for any crime. Former clients of Afinsa are now petitioning the Spanish government, claiming that the closure was a gross miscarriage of justice. For the full story, I encourage you to visit a website ( put together by Escala’s former CEO. This website provides evidence that the hedge fund at the center of the bear raid on Escala – the hedge fund behind the Spanish government’s decision to close Afinsa — was none other than Kingsford Capital, which donated a bundle of money to the Columbia Journalism Review while I was busy trying to figure out which hedge fund was at the center of the bear raid on Escala.

    More to come on SEC corruption and the so-called case against Escala. Why didn’t they go after Kingsford for naked short selling?

Leave a Reply