Some experts are calling it the "Enron of Spain," the biggest financial scam that country has ever known. A Spanish prosecutor has warned it might have “grave repercussions for the Spanish economy.” And now, the shock waves are rippling into U.S. markets, where the full effects are still unknown.

Earlier this week, the U.S. Securities and Exchange Commission launched an investigation of a relatively obscure New York stamp and coin trading firm called the Escala Group, a company that has morphed in just three years into the third-largest conglomerate in the collectibles industry, after Christie’s and Sotheby’s (BID).

Trading in the stock of Escala (ESCL) — which has estimated annual revenues of $3 billion — reached a high of $35 in February on the NASDAQ stock exchange, but has slid over the past two weeks to around $7.50 – as the company has been battered by a dozen class-action lawsuits filed in the U.S., alleging fraud.

Escala insists it is innocent of wrongdoing, and notes that no authority has stated otherwise.

The SEC did not reveal the reasons for its probe, but it undoubtedly has much to do with the Spanish scandal, where some 350,000 working and middle-class investors in collectible stamps in Spain and Portugal may have lost billions of dollars in savings.

Last month, that scandal exploded when 300 armed Spanish police officers raided and shut down two huge enterprises, Forum Filatelico and Afinsa Bienes Tangibles, jailing top executives from both — including a stamp supplier who hid 10 million in euros in a freshly-plastered wall of his home. Both firms, which took in roughly $5 billion from investors over the years, are now in the hands of a Spanish court-appointed administrator. A number of the executives have since been released, though they remain as subjects in the anticipated fraud case.

Among other things, Afinsa is the 67 percent owner of Escala. And Escala, in turn, is the exclusive long-term supplier of stamps to its major stockholder, with a 10-year, $1 billion deal to provide raw material for the Spanish company’s retail stamp investment operations.

Escala is already embroiled in another scandal involving the mysterious 2003 sale of the United Nation’s unique postal archive [Click here to see the story from April 26], apparently without proper authorization. The U.N. is still investigating, but Escala has not been charged with any wrongdoing.

Now it appears that Escala was also an important economic cog in what Spanish prosecutors are calling a pyramid-style fraud that left panicked investors begging for information outside Afinsa’s now-sealed elegant headquarters in Madrid.

Investigators in Spain have only begun to pry the metal lids off safety deposit boxes in Afinsa’s famed headquarters vault –- boxes that held the stamps for the investors, who rarely took actual possession of them.

These investors were guaranteed annual returns of 6 to 10 percent in their stamp collection investments, depending on how many years they held the stamps. But as one top stamp fraud expert told FOX News: “You could buy these stamps all day on eBay (EBAY) for one-tenth of what Afinsa had valued them at for their investors.”

The allegation is that rather than earning investment returns, early investors were simply being paid out of revenues that later investors brought to the party – essentially a Ponzi scheme.

“It’s the Enron of Spain,” says Brian Bleckwenn, senior expert at New York’s venerable Philatelic Foundation, the industry’s central agency for authenticating and grading stamps. In fact nothing is yet that clear, as the executives arrested in Spain have declared their innocence, and in the U.S., Escala Group and its founder, Greg Manning of Far Hills, N.J., have also declared emphatically that they did no wrong.

Nonetheless, a review by FOX News of corporate records, along with dozens of interviews since the Madrid raid, raise serious questions about whether Escala was used –- if unwittingly –- as part of a global business plan that was far from transparent, and possibly unworkable, and the details of which may not have been fully or adequately disclosed to equity investors.

The questions may extend even further — to the venerable investment house of Oppenheimer (OPY) on Wall Street, which loudly praised Escala’s stock; to the pristine U.S. Mint in Washington, which uses an Escala subsidiary as perhaps the largest single outlet for selling U.S. investment-grade gold coins; to the United Nations, where the controversial stamp archive sale came at a critical time in Escala’s sudden growth and worldwide development.

That the ghost of embezzler Charles Ponzi may have turned up in Spain is all too fitting. For 11 months in 1920, Ponzi parlayed a scheme involving the sale of Spanish postal coupons in the U.S. into a multi-million dollar investment frenzy that collapsed after it was discovered that he was simply using money from new investors to pay off the old ones. When the feds raided Ponzi’s offices, no inventory of postal coupons was found. A swindle of this nature has been known ever since as a Ponzi scheme.

Escala today declines to answer questions about its status, beyond declaring that it intends to cooperate “fully” with the SEC investigation. But in an exclusive interview with FOX News, Greg Manning –- the founder and vice-chairman of the company now majority-owned by Afinsa –- defended both Afinsa and Escala vehemently.

“The charges in Spain are bogus,” Manning says. “The real story is what short-sellers and the media have done to the company, and that story I’m confident will someday be told. I built a reputation that I take very seriously. It was all above board.”

Manning, 59, is one of the best-known figures in the stamp collecting business. Indeed, he rose from trading stamps as a Boy Scout into the most powerful industry player in North America. In 1993, he took his auction firm public as Greg Manning Auctions International, with the goal of becoming a one-stop powerhouse for all collectibles, from coins and baseball cards to stamps, art and comics.

Manning was among the first to offer loans to mom-and-pop stamp dealers –- giving them huge cash advances and up to 90 days repayment time to divide up and sell collection lots that they otherwise couldn’t afford to touch. The sales took place through his auctions, and Manning made money on all sides of the transactions.

“This can work quite nicely if you keep churning it,” explains Keith Harmer, who sold his family’s prestigious century-old stamps business, H.R. Harmer, to Escala in 2004. “I never issued credit like that, but Greg did it with fervor. He had a touch of the gambler. And when he went public, he had the biggest pockets of anyone in the game to write the biggest checks.”

Today “he’s the banker for the entire trade,” says stamp expert Ken Lawrence, who has written extensively about the industry for two decades. “Almost all the small stamp dealers in the US are beholden to Greg. They love him, and he is essential to the trade.”

Manning’s goal of creating the Merrill Lynch (MER) of collectibles really only took off in the late 1990s, after he struck up an intimate relationship with privately-held Afinsa and its two owners: Albertino de Figueiredo, a businessman who fled Portugal for Spain after Portugal’s 1974 leftist revolution; and Juan Antonio Cano, who joined Afinsa in 1980 at the age of 20. Their goals were similar to Manning’s: creating a global collectibles powerhouse.

The two sides quickly hit it off, and Afinsa began buying up large amounts of stock in Manning’s company in 1997. Then, in 2002, Afinsa presented Manning with a plan that involved Afinsa becoming the majority stockholder and they merged some of their businesses over the next year, leaving Afinsa with more than two-thirds control by September 2003.

Only months earlier, Manning had emerged from a quick and opaque transaction as the sole owner of the UN’s huge stamp archive. And just three months after the UN archive deal, Manning signed his $1 billion 10-year deal with Afinsa to be their exclusive wholesale supplier. It’s a remarkable contract, given that the entire global stamp market is worth barely $3 billion, with one-third of that total in the U.S. In fact, one of Manning’s major activities in 2004 was selling a significant amount of the U.N. archive stamps to Afinsa under the supply deal.

Manning also went on a huge buying spree from 2003 to 2005, scooping up many of the most prestigious houses in stamp collectibles –- H.R. Harmer, Nutmeg Stamp Sales, John Bull (Hong Kong), Heinrich Kohler (Germany) –- names that would give Escala prestige and a history of goodwill, if little else.

Last summer, Manning cemented Escala’s reputation by buying A-Mark Precious Metals, a Los Angeles trader of gold coins and bullion that is today one of the largest suppliers of (and purchasers for) the U.S. Mint. “Essentially, the U.S. government is partners with Afinsa,” says Steve Ivy, who runs Heritage Auction Galleries, a major Escala rival.

On paper, Manning’s biggest transformation took place just last September. With Afinsa owning two-thirds of Manning’s shares, it changed the name to Escala (Spanish for ladder) and installed a new CEO. Manning moved aside –- happily, he told FOX News — to become vice-chairman and return to his former specialty, running stamp auctions.

All of Manning’s and Afinsa’s moves were warmly greeted on Wall Street. Escala shares reached their $35 high this year, thanks in part to a series of favorable reports by Oppenheimer analyst Barry Sine -– the last one published three months ago. “In short, the Escala of today is to Manning’s early company what the Space Shuttle is to the Wright Bros. Flyer,” Sine enthused to Oppenheimer’s customers.

Sine declared that he conducted a “due diligence” tour of Spain this winter, where Afinsa’s “first-rate organization” is “very well-connected and respected” and employs “the highest ethical standards.” The business model? “Sound and vibrant.” The quality of the stamps? “A very small percentage of stamps are rejected” by Afinsa’s technicians.

As for a number of stock market short sellers, who publicly disparaged Escala and bet that the stock price would fall, Sine declared that “their investment thesis is unraveling.” Sine did not return calls from FOX News.

After the May raid in Spain, Escala’s stock dropped by more than 80 percent in value, but then recovered to nearly $10 per share. On Tuesday, following news of the SEC probe, shares closed at $7.52, and were trading even lower on Wednesday. The company’s market value still tops $200 million.

Why was Escala stock still trading after the raid? Even though the firm was the main asset and vendor to a majority-shareholder that Spanish authorities have declared bankrupt — meaning that Escala’s own assets could be tied up or even liquidated in Spanish legal actions — that’s apparently not reason enough for its trading to be halted or the stock delisted by regulators.

“The security laws are not intended to take away the stupidity of investors, just to level the playing field,” explains former SEC attorney, Ernest Badway.

But a level playing field requires transparency in corporate business dealings. And Escala is currently a lot less than transparent.

The company, for example, has never disclosed that the executive running Nutmeg an auction house it acquired in 2004 and now its most profitable U.S. auction operation — was convicted in 1992 of using an alias to sell altered stamps to investors. (By all accounts in the stamp-collecting world, the executive has since fully redeemed himself.) Nor did Escala disclose that its Chief Financial Officer, Larry Crawford, had filed for personal bankruptcy in the 1990s. (Crawford was replaced several days after the raid in Spain.)

“They should have disclosed those things,” says former SEC lawyer Badway, “as they are material information for investors — and it begs the question whether there is anything else the company should be disclosing that it hasn’t.”

But investors seeking further public information from Escala this week are out of luck. Most of Escala’s Web site isn’t functional, beyond a notice that points to the firm’s “impeccable reputation.” A corporate spokesperson requested FOX News’ questions in writing, but sent no reply to a detailed list. Escala’s CEO, Jose Miguel Herrero, hosted a brief, conference call with investors on May 23 — with no questions permitted.

Nor are Escala’s outside directors returning calls. One of them is James Davin, a former chairman of the board of governors of the National Association of Securities Dealers, and a former managing director of Lehman Brothers. “I don’t speak to the press,” says Davin. “Now that’s the third time I’ve told you, so have a nice day, OK?”

There is no word from Afinsa either. According to Laurence Gibson, the man who runs Escala’s North American stamps division, “We’re not in communication with Spain now, so there’s a lot we don’t know.”

Even before the SEC announcement, the disaster that had hit Afinsa and Escala was all the talk last week among the Who’s Who of the stamp-collecting world, most of whom were gathered in Washington for the eight-day World Philatelic Exhibition, an international event that only takes place once a decade in the U.S. Many of them were quick to pour scorn on the idea that stamps could be retailed as a mass-market investment with a guaranteed rate of return — a proposition that would be illegal in any case under U.S. securities laws.

“Anyone who thinks stamps are for investing needs to have their head examined,” declared Ariel Hasid, waving his arms in disbelief from behind his booth at the show. Hasid, the third-generation owner of West Island Philatelics, is one of the country’s leading dealers of rare Canadian stamps, a small block of which he is selling this week for $100,000. “We cannot prove how many stamps exist — of any stamps,” he said. “It is all speculation and guesswork.”

Escala founder Greg Manning was in attendance at the show, looking harassed and lonely. A nearby poster with his photograph exclaimed that “The demand for stamps from our worldwide clientele is staggering….We need stamps and we need them now!”

But where were the customers? “It’s like the Gobi desert over there,” said a major stamp dealer, Richard Rubinson, pointing to Escala’s booths, which were the most elaborate on the convention floor. “Everyone is afraid to deal with them right now.”

In his interview with FOX News at the show, Manning defended Escala and Afinsa and blamed their problems on a sophisticated campaign of short sellers working closely with reporters and perhaps even the Spanish government. He also insisted that he’s never done anything wrong, nor has he sold a single share of his Escala stock as it has climbed and dipped through the years. “If I was selling, I could understand criticism of me,” he says. “I lost $50 million in one day after the raid.”

It was the financial weekly Barron’s that actually started Escala on its downward slide, raising questions in September 2004 about Escala’s accounting and its relationship with Afinsa. Two month later, a former Afinsa executive named Jose Maria Sempere spoke at a conference in Madrid, where he lambasted the company and its competitors for basing their business model on what he called “countless falsehoods” regarding the economics of stamps.

His warnings weren’t heeded. But in mid-2005 insurers from Lloyds of London pushed the questioning even further, dropping their coverage of Afinsa after analyzing some of its stamp values.

Manning is correct to note that that major short sellers have been playing his stock for a long time and have been assertively communicating with reporters, including those from FOX News. The question is whether the shorts in this case were right.

“If I had enough money or nerve, I would have shorted it myself,” says the president of one of the largest stamp houses in America, seated just a few booths from Escala at the stamp show. “I thought Afinsa would be shut down years ago.”

That view is not shared by Manning. “Afinsa has 26 years of satisfied customers,” he says. “I don’t know what they did that’s so wrong.”

Stamp experts say that along with the notion that stamps can ever be a guaranteed investment vehicle, another faulty premise lies at the heart of the Escala-Afinsa relationship: That any supplier can come up with $100 million in decent stamps each year to feed into such a retailing machine.

Says stamp expert Lawrence, who served until 2005 as head of ethics enforcement for the American Philatelic Society, the world’s largest collector organization: “[$100 million] is half the amount of retail merchandise the U.S. Postal Service sells annually, and they have the world’s largest fulfillment operations. Anyone who says they can supply that much is just spinning tales.”

But in his talks with FOX, Greg Manning comes across as a true believer. He says that funneling $100 million of suitable stamps a year to Afinsa was “a challenge,” but “not that hard.” He says that smaller dealers simply don’t know the global market the way he does, and don’t have the layers of networks that Escala has built up over the years.

The biggest challenge, he says, was getting the stamps he supplied approved by Afinsa. “They examined each one by hand. They had to be perfect and they would reject many of them.”

Manning's view is not shared by the principals of another Spanish supply company named Filasyl, which had a contract to provide $12 million of stamps to Afinsa through an Escala subsidiary. They agreed with Manning that since 2003, 20 percent of their stamps were rejected by Afinsa, and that it was very hard for them to find stamps that Afinsa found suitable.

But when told that Escala had to meet a $100 million annual supply contract with Afinsa, the Filasyl partners –- Ignacio Llach and Josef Soler — shook their heads in disbelief. “I didn’t know this; we are surprised,” says Llach. “This is very, very difficult to do. Sotheby’s and Christie’s never sell this amount of stamps in a year.”

From an analysis of Escala’s public financial statements, it appears the company never made much money beyond its huge Afinsa contract. And that contract had highly favorable terms that helped to boost Escala’s earnings. In addition to the $100 million contract, Afinsa would pay a 10 percent commission to Escala –- which makes little financial sense, except that as Escala’s principal owner, Afinsa was in effect paying itself.

Escala’s extra earnings, however, had a positive effect on the firm’s stock price. And that, in turn, enabled Afinsa’s owners to show that they had huge assets beyond their stamps: Stock in Afinsa was worth $600 million before the Madrid raid pulled the plug.

And that leads to one of the biggest questions of all: How could Spanish and Portuguese citizens invest in stamps that they know nothing about? The answer, in part, is that Spanish financial regulations leave something to be desired.

“Spain has been, for the last 20 years, a machine of black money,” says Carlos Schwartz, a Madrid-based investigative business consultant. “The stamps were a haven for people with undeclared [untaxed] money, which everybody in Spain has. And Afinsa was paying double the interest of any bank.”

The claim that stamps were a guaranteed source of ever-expanding value came largely from Afinsa founder Albertino de Figueiredo, who was among those jailed and then released this week.

As his firm touted stamps as an investment, de Figueiredo took out ads in stamp journals claiming that independent stamp catalogs should never reduce the values of stamps. “In other words, he’s saying that the catalog values should always go up and have no relation to market value,” says stamp expert Lawrence. “And that’s particularly interesting because his son, Carlos, is also the president of the International Association of Stamp Catalog Publishers.”

Carlos del Figueiredo was also a vice-president and director of Escala Group. He too was jailed after the Madrid raid, then released, and has resigned from his Escala positions.

Unlike the goods in Charles Ponzi’s original postal coupon scheme, the stamps held by Afinsa do appear to exist. So the still developing legal debate over Afinsa and Escala will center on whether de Figueiredo was right, or whether those thousands of stamps –- including the huge number that originated in the UN’s archive — were grossly overvalued in markets that were tightly-controlled by insiders.

To old-timer stamp collectors with a memory, all of this is not as new as it might seem. In the late 1970s an investment bubble in stamps — led by over-the-top valuations in the catalogs of Britain’s Stanley Gibbons stamp firm — caused a market crash that crimped the stamps business for a decade. But Gibbons, a publicly-traded company in London, is now back in booming business, selling its own guaranteed-investment portfolios since October.

It is far too early to predict that Escala’s troubles will lead to a similar crash in the stamp world. But with SEC investigators now on the scene, questions about the company, and its mysterious Spanish owners, can only grow.