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Spanish fraud rocks UK stamp investors
The Sunday Times May 21, 2006 Spanish fraud rocks UK stamp investors By Jessica Bown Investors in British stamp funds were left reeling earlier this month when 350,000 Spanish philatelists lost up to €5 billion (£3.4 billion) after buying stamp schemes through dealers Afinsa and Forum Filatelico. The firms’ offices were raided and sealed by police investigating allegations of fraud, money laundering, tax evasion and embezzlement. Investors, who had been told their returns were guaranteed, were left angry and confused. It was then British investors’ turn to worry as shares in Stanley Gibbons, a London-based stamp cataloguing company, slumped 12%. The firm runs investment schemes that buy rare stamps to provide a return for investors. These could suffer if there is any knock-on effect on the British market, although there is as yet no sign that the Spanish crisis has hit worldwide stamp prices. Andrew Claridge, a partner at stamp specialist Grosvenor Philatelic Auctions, said: “The problems in Spain have had no real impact on the market here as far as I can see.” Last October, Stanley Gibbons launched a guaranteed investment product that promises investors a return of 5% to 7% a year over a three, five or ten-year term. The investment schemes involved in the Spanish fraud also carried guarantees which were not backed by the value of the underlying stamps because dealers had purchased relatively modern stamps and ramped up their values before selling them to investors. There is no suggestion that Stanley Gibbons has been involved in such practices, but sceptics fear that, if the stamp market does fall at some point, the company would struggle to meet its obligation to investors. Chris Harman, president of the Royal Philatelic Society, said: “The market has been very buoyant, but prices will drop at some point. We’ve seen it so many times before.” In the 1970s, for example, investors flooded the stamp market, sending prices soaring to up to eight times their previous levels. Soon after, however, experienced collectors banked their profits and prices crashed back. This year, as then, lofty prices are being paid for very rare stamps at auction. In one recent example, a rare Canada Black stamp was sold at Sotheby’s in New York for $220,000 (£116,000). Thousands of people have therefore bought into the market as an alternative to shares or property. Claridge said: “The market is much more active now than it was a few years ago. It has been bolstered by collectors, ranging from those investing in a very junior way to those prepared to pay tens of thousands of pounds for rare specimens.” The boom is all the more worrying because investments of this kind are not regulated by the Financial Services Authority, meaning investors cannot complain to the Financial Ombudsman Service or make a claim to the Financial Services Compensation Scheme if they lose their money. Stanley Gibbons points out, however, that it is making monthly provisions to cover any potential shortfall. The firm also runs a five-year worldwide rare-stamp investment fund that carries no guarantees, although that closed to new investors on Friday. Launched in November last year, it required a minimum investment of £20,000 and has attracted interest from overseas, as well as domestic, investors — despite charges of 5% upfront and 1.5% a year. However, Stanley Gibbons admits it has only limited knowledge about the stamp market outside the UK and Commonwealth. Richard Purkis of Stanley Gibbons said: “We’re only really qualified to speak about the markets in Britain and the Commonwealth because that’s where our expertise lies.” The launch of the rare-stamps fund could further increase the risks for investors in the guaranteed contracts because prices could slump when it is liquidated in five years’ time. Harman said: “It is good that the Stanley Gibbons schemes are concentrated on rarer stamps. However, the main warning I would give is that stamps are pretty illiquid because collectors generally hold on to their stamps for 10 or 20 years. “The market is also relatively small — in Britain we estimate that it is worth about £200m to £250m. This means that people are often trying to buy the same stamps, which can create an artificial bubble.” Pension advisers believe that Stanley Gibbons has launched the guaranteed and rare-stamp schemes in a bid to cash in on the self-invested personal pension market. Interest in investing in stamps surged when the government indicated that physical stamp collections would be able to be included in Sipps last year. Such assets were later vetoed as part of Gordon Brown’s turnround on esoteric investments. But stamp funds do qualify for inclusion — although pundits warn against ploughing too much money into such a specialist asset class. Tom McPhail of Hargreaves Lansdown, an adviser, said: “I wouldn’t encourage someone to invest in this type of fund unless they were reasonably familiar with that market, and even then it should generally only be a minority holding — perhaps 10% of your overall portfolio, if you were feeling reckless.” Claridge argues that investors should only buy stamps when they are sure they understand the market. He said: “You should always go for the very best stamps you can afford.” |
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