Mastro/Legendary Article in Today's NY Daily News

[oldjudge]

Of course it does. Once the auction house sends out the lot/lots they are implicitly taking on the responsibility to pay the consignor. If they do not they are legally liable. This is exactly a credit decision.

[Peter_Spaeth]

I agree with Jay. I am sure, at the time, Mastro had good reason to extend credit to Dave, for many possible reasons as to which I would be speculating. It is only in hindsight that, of course, it looks bad. Indeed, it may be unrealistic to run an auction house at that level without extending credit to certain bidders.

[sportscardtheory]

Originally Posted by oldjudge

Of course it does. Once the auction house sends out the lot/lots they are implicitly taking on the responsibility to pay the consignor. If they do not they are legally liable. This is exactly a credit decision.

Okay, so if they don't pay, they should go to prison for theft. The consignee is the one that the theft is perpetrated upon. To simply have them go through the court system to get their money back is preposterous. If I go to a casino and they offer me credit, and decide I don't want to pay, I go to jail. They don't simply keep asking me for the money I owe them.

[sportscardtheory]

The moral of the story is, if you don't want to get screwed over by people who like to pass off blame (auction houses), don't use them. I know I never would.

[Exhibitman]

Originally Posted by oldjudge

Personally, I think people are barking up the wrong tree here. The auction house, by sending out lots to winners before payment is received, is simply making a credit decision that they are willing to trust that bidder. If they are wrong they must suffer the consequences. Credit is extended in all businesses. When you charge something on a credit card the bank is allowing you to take delivery of goods before they are paid for. Our society is built on people getting items before they pay for them. Mastro obviously made some poor credit decisions. REA may send out some items early but, if they are better at assessing the creditworthiness of their customers, they may not be subjecting themselves to any appreciable risk while at the same time generating considerable good will.

An auctioneer can do what it wants with stuff it owns. It cannot do the same with stuff it does not own. Mastro did not own those lots; the consignors did. They furnished them to Mastro under certain contractual terms, none of which included the right to send the items to bidders without payment. One of the actual contract terms stated that unpaid items could be reclaimed 60 days after auction (go check your small print in your consignment contract). If Mastro agreed in its contract that the consignors of unpaid items could ask for their return, then Mastro undertook the duty to hold those items, not send them out in the hope of future payment.

What is being described here is looking more and more like a Ponzi scheme where current sellers' proceeds were used to pay earlier sellers and/or where current sellers' items were used to fund large customers' businesses as no-cash-down inventory.

[Exhibitman]

Is anyone else thinking that this is going to be a real interesting National dinner?

[sportscardtheory]

Originally Posted by Exhibitman

An auctioneer can do what it wants with stuff it owns. It cannot do the same with stuff it does not own. Mastro did not own those lots; the consignors did. They furnished them to Mastro under certain contractual terms, none of which included the right to send the items to bidders without payment. One of the actual contract terms stated that unpaid items could be reclaimed 60 days after auction (go check your small print in your consignment contract). If Mastro agreed in its contract that the consignors of unpaid items could ask for their return, then Mastro undertook the duty to hold those items, not send them out in the hope of future payment.

What is being described here is looking more and more like a Ponzi scheme where current sellers' proceeds were used to pay earlier sellers and/or where current sellers' items were used to fund large customers' businesses as no-cash-down inventory.

And how would anyone know if Mastro/Legendary isn't in on the whole thing? "Hey, buy this from us for $500,000, don't pay us. Then sell it somewhere else and we will split the money." Sound crazy? Sounds like easy money to me.

[byrone]

On SGC's website, their home page has a section for "Prices Realized", touting the high prices paid for SGC graded items. Seems harmless enough, unless a grading company employee or owner is a bidder/owner of said item.

[Leon]

Originally Posted by Exhibitman

Is anyone else thinking that this is going to be a real interesting National dinner?

The way it's going there will be like 10 people at it.....

[Rich Klein]

Then Leon can spring for Steaks for all of us

[spacktrack]

Hi Everyone,

Hopefully everyone had a nice, safe holiday weekend. I wanted to take the time to address some questions that have arisen on the board. It's unfortunate that Dave Forman and Mastro Auctions could not resolve their differences outside of court, but this personal matter between these two parties does not impact SGC's day to day operations or policies.

I want to stress the fact that SGC employees and/or owners are not able to submit cards for grading. All grading decisions and policies are under the sole discretion of the Director of Grading and his senior grading team. SGC has the industry's only "real" guaranty and stands behind every single card that we've graded.

Anyone having any further questions or concerns is welcome to contact me during normal business hours.

Thank you,

Brian Dwyer
SGC
1-800-742-9212 x114
bdwyer@sgccard.com

[bijoem]

Originally Posted by oldjudge

Joe--If Dave won cards, then thought he had been shilled, and then decided not to pay for them why did he keep bidding in the first place? ...

I could be wrong but....
My take from the article is that Dave owes Mastro money.... but Mastro also owes Dave money. Yet... Mastro is asking for the entire money Dave owes them (ignoring the amount they owe to Dave).

Again - if you owed me $100, and I owed you $90.... would you send me the entire $100 and then 'hope' to receive the $90?

Where the shilling comes into play is....
At this point (now that this is a legal matter) why not question whether or not the money owed to Mastro is legitimate? If the items were shilled, should Dave pay the entire amount to Mastro? I think not.


And.... MOST IMPORTANTLY....
Mastro has an obligation to the consignors regardless of any money's owed to them by other people. I cannot operate a business and shaft my suppliers if I get shafted.

IMO -
Opening up "Legendary" and running away from Mastro - is just about as crappy as it gets.... and on top of that.... they must think everyone in the hobby are morons.

[oldjudge]

Adam--If the consignment agreement says that the consignor has the right to request the return of unpaid items after 60 days I still don't see where that prohibits Mastro Auctions from sending out the lots before payment is received. However, by doing this they are taking on the responsibility to pay for the item regardless of whether the buyer pays or not. By sending it out they are implicitly saying two things:

1-Consignor has been paid and we owe the consignor his money
2-We have entered into an interest free loan (or perhaps not) with the buyer to pay us the amount due

Therefore, if the consignor is not paid his or her claim is against Mastro, not the buyer. Mastro must file claim against the buyer.

Adam--Obviously, I am not a lawyer and I didn't even stay at a Holiday Inn last night, but where am I wrong?

[botn]

Dave is a very successful and seasoned dealer and hobby veteran. I think the shill bidding defense is weak unless of course the FBI investigation goes someplace. Right now it has not been proved they have shill bid.

As far as Mastro running a Ponzi scheme that is also a bit absurd. I don't think Mastro was engaged to do business simply to pay off past consignors. However they may have exercised poor judgment in extending credit to certain customers to the detriment of certain consignors. In both Bill Fisher's and Dave Forman's circumstances I suspect both showed the ability to make good on the credit which was extended to them. Not a unique situation where one day someone is a good customer and the next a bad creditor and as an auction house it can be tough to know when that is going to take place. I think Mastro got caught up in the feeding frenzy and was attempting to get the most they could for their items and the best way in which to do that is to extend credit.

I too would like to understand the arrangement Dave had with Mastro. Something very unsettling about this whole thing.

[slidekellyslide]

I thought I read on this board or maybe another years back when Forman took control of SGC that he was divesting his collection so as not to have any conflicts of interest as a collector/dealer and grading company owner. Am I wrong about that?

[Rob D.]

It goes without saying that if Mastro wasn't liquid enough to pay consignors before receiving payment from buyers, then it was incredibly stupid to deliver items before receiving payment.

But for people to post today how terrible such a practice is in theory when previously praise was heaped on REA for doing the exact same thing (that is, shipping before receiving payment), that's the very definition of Monday morning quarterbacking.

[Jim VB]

"...that's the very definition of Monday morning quarterbacking. "

Agreed. But that's what we do best, so we're sticking with our strengths!

[Exhibitman]

Originally Posted by oldjudge

Adam--If the consignment agreement says that the consignor has the right to request the return of unpaid items after 60 days I still don't see where that prohibits Mastro Auctions from sending out the lots before payment is received. However, by doing this they are taking on the responsibility to pay for the item regardless of whether the buyer pays or not. By sending it out they are implicitly saying two things:

1-Consignor has been paid and we owe the consignor his money
2-We have entered into an interest free loan (or perhaps not) with the buyer to pay us the amount due

Therefore, if the consignor is not paid his or her claim is against Mastro, not the buyer. Mastro must file claim against the buyer.

Adam--Obviously, I am not a lawyer and I didn't even stay at a Holiday Inn last night, but where am I wrong?

If you grant a consignors the contract right to exercise an option to recall their items after 60 days, you are impliedly representing that (1) the items will still be there and (2) you won't do anthing to make the right unenforceable. Sending out an item w/o payment in that context removes the item from Mastro's possession and destroys that right, which is precisely what happened here. If Mastro knew that it routinely sent out items without receiving payment, then it knew that it did not comply with the terms of its contracts on a regular basis, yet it told none of its consignors and certainly never obtained their permission to repudiate portions of their contracts. Or, to put it another way, show me the part of the Mastro contract that says Mastro had the right to send out the items w/o payment and to pay the consignor "whenever." It doesn't say that because no one would be stupid enough to agree to it. Yet if that is what Mastro was doing, which appears to be the case, any consignor would have wanted to know. Or, to place it in a slightly different context, what happened is the equivalent of if you listed your house with a realtor and the escrow agent then gives the keys and title to a buyer without getting the money for the house. The fact that the escrow agent may be able to rustle up the cash from somewhere else to pay you off doesn't make it right.

As far as a Ponzi scheme goes, the essence of the colloquial term "Ponzi scheme" is taking funds earmarked for one purpose and using them to pay off earlier "investors." I am not saying Mastro was a pure Ponzi scheme; it did more than simply pay earlier investors with money from later investors. However, it appears to me that given the increasing scale of unpaid but shipped items as the deals worsened/soured in 2007-2008 Mastro increasingly relied on credit lines and/or consignors' money to paper over its unpaid consignments. The extent to which that happened could be untangled from its accounting records. What is apparent is that at the end the cash needed to pay the last group of consignors and their items both went missing. I know some of the consignors who are unpaid have been told, in effect, "tough ***t, no money and no item" and have to watch their items being resold on Ebay.

[oldjudge]

Rob--What Mastro did was working when they had credit lines they could draw on. I would guess that they went out of business when these lines dried up and Silk Road would not advance any more money to make good on these obligations. So, that would imply that this mess is a function of bad credit decisions and some exogenous factors.

[Exhibitman]

Originally Posted by oldjudge

Rob--What Mastro did was working when they had credit lines they could draw on. I would guess that they went out of business when these lines dried up and Silk Road would not advance any more money to make good on these obligations. So, that would imply that this mess is a function of bad credit decisions and some exogenous factors.

The primary factor was endogenous, not exogenous: breaching their own consignment contracts by sending out unpaid items. BTW, had to look up "exogenous"; good one!

[sportscardtheory]

Originally Posted by Exhibitman

If you grant a consignors the contract right to exercise an option to recall their items after 60 days, you are impliedly representing that (1) the items will still be there and (2) you won't do anthing to make the right unenforceable. Sending out an item w/o payment in that context removes the item from Mastro's possession and destroys that right, which is precisely what happened here. If Mastro knew that it routinely sent out items without receiving payment, then it knew that it did not comply with the terms of its contracts on a regular basis, yet it told none of its consignors and certainly never obtained their permission to repudiate portions of their contracts. Or, to put it another way, show me the part of the Mastro contract that says Mastro had the right to send out the items w/o payment and to pay the consignor "whenever." It doesn't say that because no one would be stupid enough to agree to it. Yet if that is what Mastro was doing, which appears to be the case, any consignor would have wanted to know. Or, to place it in a slightly different context, what happened is the equivalent of if you listed your house with a realtor and the escrow agent then gives the keys and title to a buyer without getting the money for the house. The fact that the escrow agent may be able to rustle up the cash from somewhere else to pay you off doesn't make it right.

As far as a Ponzi scheme goes, the essence of the colloquial term "Ponzi scheme" is taking funds earmarked for one purpose and using them to pay off earlier "investors." I am not saying Mastro was a pure Ponzi scheme; it did more than simply pay earlier investors with money from later investors. However, it appears to me that given the increasing scale of unpaid but shipped items as the deals worsened/soured in 2007-2008 Mastro increasingly relied on credit lines and/or consignors' money to paper over its unpaid consignments. The extent to which that happened could be untangled from its accounting records. What is apparent is that at the end the cash needed to pay the last group of consignors and their items both went missing. I know some of the consignors who are unpaid have been told, in effect, "tough ***t, no money and no item" and have to watch their items being resold on Ebay.

Don't forget the fact that when things got hot, they simply closed down shop and started anew while saying "Sorry about your bad luck!" to those they owed money too. It WREAKS of Ponzi scheme. Maybe not in the true definition of the phrase, but it is something very close.

[Rob D.]

Originally Posted by oldjudge

Rob--What Mastro did was working when they had credit lines they could draw on. I would guess that they went out of business when these lines dried up and Silk Road would not advance any more money to make good on these obligations. So, that would imply that this mess is a function of bad credit decisions and some exogenous factors.

By no means am I trying to say that Mastro was in the right when it shipped items before being paid. I'm not. All I'm saying is comments like the ones below, which demonize the very practice of shipping before receiving payment, are pretty comical when in fact another auction company is praised for having great customer service for doing the same thing.

"The glaring omission from this article and from everyone's replies, is the fact that the consignments were sent out before they were paid for."

"I was going to bring that up in one of my posts, but was not certain that was the case, but apparently after rereading everything here, it certainly is. What a way to run a business!!"

"How crazy is it that the items were sent prior to payment being received...who does such a thing?"

[sportscardtheory]

Originally Posted by Rob D.

By no means am I trying to say that Mastro was in the right when it shipped items before being paid. I'm not. All I'm saying is comments like the ones below, which demonize the very practice of shipping before receiving payment, are pretty comical when in fact another auction company is praised for having great customer service for doing the same thing.

"The glaring omission from this article and from everyone's replies, is the fact that the consignments were sent out before they were paid for."

"I was going to bring that up in one of my posts, but was not certain that was the case, but apparently after rereading everything here, it certainly is. What a way to run a business!!"

"How crazy is it that the items were sent prior to payment being received...who does such a thing?"

Why are you lumping in my quote when I have never applauded the practice?

[oldjudge]

Adam, I still don't agree. Let me flesh an example:

Buyer A wins a lot in Mastro auctions
Mastro makes a loan to Buyer A for the amount due
Buyer A takes the loan money, agrees to the loan provisions, and hands the money back to Mastro (Mastro has thus received no net funds)
Mastro sends out the lot to Buyer A
Two things have happened; Mastro has been paid and Buyer A owes Mastro the loan amount
Because Mastro has been paid he owes the Consignor and since the lot has been paid for the Consignor has no right to recall it
The Consignor is now due only funds from Mastro and, if not paid, their only recourse is to sue Mastro

This is effectively what happens every time any lot is shipped before a check is received. In some cases there is an interest bearing loan due at some point in the future. In some cases it is a very short term zero interest loan.

[sportscardtheory]

Originally Posted by oldjudge

Adam, I still don't agree. Let me flesh an example:

Buyer A wins a lot in Mastro auctions
Mastro makes a loan to Buyer A for the amount due
Buyer A takes the loan money, agrees to the loan provisions, and hands the money back to Mastro (Mastro has thus received no net funds)
Mastro sends out the lot to Buyer A
Two things have happened; Mastro has been paid and Buyer A owes Mastro the loan amount
Because Mastro has been paid he owes the Consignor and since the lot has been paid for the Consignor has no right to recall it
The Consignor is now due only funds from Mastro and, if not paid, their only recourse is to sue Mastro

This is effectively what happens every time any lot is shipped before a check is received. In some cases there is an interest bearing loan due at some point in the future. In some cases it is a very short term zero interest loan.

lol, which can all be avoided by holding the item until it is paid for. When all you have to do is close up shop and change your name to relinquish your debt to your consignees, it is now simply a fraud perpetrated upon unknowing victims. So, you are sticking up for a fraud.

[oldjudge]

Wrong again--I think that Legendary starting up before all Mastro consignors were paid is very wrong (and very stupid). What I am defending, subject to good credit analysis, is the practice of shipping lots before a check is received.

[sportscardtheory]

Originally Posted by oldjudge

Wrong again--I think that Legendary starting up before all Mastro consignors were paid is very wrong (and very stupid). What I am defending, subject to good credit analysis, is the practice of shipping lots before a check is received.

It is quite evident you have never lost items of value to Mastro. I'm sure your tune would change if you lost your collection because the auction house shipped it all away without receiving payment and closed up shop telling you you are crap out of luck. Tell us you like the practice of shipping before payment then.

[oldjudge]

Plus, even if no lot was shipped before payment was received, this problem may not have been eliminated. Remember, major auction houses pay cash advances for new consignments (and pay salaries, returns to equity holders, rent, etc). The auction business is a dynamic process. Before, after and during auctions money is going out for these advances so that material comes available for the upcoming auctions. Once the credit lines dried up, even if every lot auctioned off up to that point was paid for, there may have not been sufficient funds to pay consignors. The credit lines were the safety net to overcome cash flow timing issues. Poor credit decisions only exacerbated the problem.

[oldjudge]

I would be angry and would contact my lawyer if the amount was significant. I fully understand how an aggreved consignor would feel. I doubt, however, that I would be against the practice (see prior post).

[sportscardtheory]

If I ran an auction house, it would be 10% or more up front and pay in full within 60 days or the item gets returned or re-auctioned at the discretion of the consignee. You don't get your item until it's paid in full and lose your down payment if after 60 days you haven't paid, no questions asked. See how simple that is? It's called running a legitimate business with your bread and butter in mind first and foremost. Your customers are the consignees, NOT the buyers/bidders.

[drc]

Until the buyer pays for it, the consignor is the owner of the lot. The auction house facilitates the sale, charging a fee for the service, but never owns the lot. Obviously, a contract will have agreed upon ground rules and time lines for sale and payments-- for examples, a consignor can't pull a lot in the middle of an auction, an unsold lot is to be promptly relisted, unpaid for lot goes to the underbidder or a bidder has to allow at least 30 days before receiving payment .

If the late lots have not been paid for, they still belong to the consignor, even if they were shipped a year ago. I don't see why the consignor can't go to the non-payer's house and pick up his stiff. If the buyer never paid, the items certainly don't belong to him and some might label the items as stolen property.

Beyond the practical pitfalls of shipping early (the buyer might not pay), I don't believe the auction house has a right to ship before payment. Unless there is contact details allowing the practice, the lot isn't theirs to ship before payment. Once purchased (paid for) by the winner, then the lot should be promptly given to the new owner.

[Peter_Spaeth]

I am surprised that the principal focus of this thread has been a few (presumably) unpaid consignors instead of (1) serious accusations of shill bidding against Mastro by a lawyer and board member with unquestioned credibility, and (2) revelations that the principal of the #2 grading service (#1 by far on this board) continues to buy and sell hundreds of thousands of dollars of cards. To me anyhow that is the far more interesting story line.

[WarHoundR69]

CGC is SGC's sister company. I'm wondering if Dave Forman has his comics CGC graded and then resells them. That might fly a bit under the radar.

A point of interest to me since I also collect comics and have many CGC graded examples

[Wesley]

Originally Posted by Peter_Spaeth

I am surprised that the principal focus of this thread has been a few (presumably) unpaid consignors instead of (1) serious accusations of shill bidding against Mastro by a lawyer and board member with unquestioned credibility, and (2) revelations that the principal of the #2 grading service (#1 by far on this board) continues to buy and sell hundreds of thousands of dollars of cards. To me anyhow that is the far more interesting story line.

I am surprised about that as well, Peter. It is a shame that Mastro has been unable to pay it's consignors, and they have justifiably been criticized about that for weeks. Also we have read about allegations of shill bidding for different auction houses for a long time.

For me the biggest news from reading the NY Daily News article and see that Mastro and Dave Forman is involved in litigation regarding hundreds of thousands of dollars for purchases made by Forman. I use SGC or grading and I rely on SGC for purchases and I am not exactly comfortable with hearing this news. Some are ok with it, but I don't like hearing that the president of SGC allegedly owes Mastro $400,000 for purchases, and that the president of SGC still consigns cards on such a large scale.

[MikeU]

Originally Posted by WarHoundR69

CGC is SGC's sister company. I'm wondering if Dave Forman has his comics CGC graded and then resells them. That might fly a bit under the radar.

A point of interest to me since I also collect comics and have many CGC graded examples

They have not been a sister company for years now.

[Bicem]

agreed 100% Wes.

[slidekellyslide]

Nothing surprises me anymore...Dave Forman was at one time associated with Gary Moser (one of the REAL bad guys in this hobby).

[barrysloate]

I'm with everyone else. I consider Dave a friend but as soon as he purchased SGC he should have completely stopped his involvement in buying and selling baseball cards. The appearance of impropriety is enormous even if everything is done on the up and up. SGC has long been the darling of the Net54 board, but I think it has taken a huge hit today.

[oldjudge]

Barry--I agree. Didn't David Hall sell his collection to avoid just this type of situation?

[barrysloate]

Yes, David Hall did. However, there was still a cloud surrounding it since all his cards were PSA graded. Collectors wondered whether or not his got preferential treatment.

But to his credit at least he avoided the potential conflict of interest.

[Peter_Spaeth]

And Mr. Hall was purely a collector, not a card dealer, as I recall.

[barrysloate]

David Hall was a big coin dealer, and I know he was influential in coin grading; I don't recall his role in the baseball card hobby.

[slidekellyslide]

David Hall may be a collector, but he is also a coin dealer. IMO he has the same conflict of interest as Forman does with SGC.

http://www.davidhall.com/

[oldjudge]

I believe Hall had a high T206 collection that he sold to avoid a conflict of interest.

[slidekellyslide]

Originally Posted by oldjudge

I believe Hall had a high T206 collection that he sold to avoid a conflict of interest.

David Hall owns PCGS...here he is on his website selling a PCGS encapsulated coin.

http://www.davidhall.com/coindetail.aspx?coid=25440

[botn]

I appreciate Brian Dwyer posting but none of us are privy to the checks and balances that are in place at SGC. I never thought that Dave made submissions to SGC directly. The real $400K question is how much of the inventory Dave was selling/consigning (or was being sold on his behalf) was SGC graded, if any.

Also I don't think Dave was ever associated with Gary Moser. That was Gerry Schwartz who at one time was "partners" with Dave Forman later to be "partners" with Gary Moser. But the point is well taken.

Greg

[benjulmag]

My understanding is that Mastro Auctions intends and expects in the relatively near future to pay all consignors. Their delay in doing so was caused by a "Perfect Storm" of extraordinary occurrences: (i) recognized credit-worthy individuals not timely paying on their debts and (ii) withdrawal of a line of credit caused by economic circumstances unseen since the 1930's.

Their practice of selectively sending out lots prior to payment is hardly without precedent in this hobby. As has been noted, when one other noted auction house did it, they received tremendous applause and no dissent. The belief that Mastro's actions were unique in this hobby is the height of naivety. So Mastro caters to certain bidders. Mastro's rationale almost certainly is that it induces those bidders to bid more aggressively in their auctions, which benefits all consignors. I have yet to hear a complaint from a consignor who received substantially more for his consignment due to bids from an individual who knew he would be extended just the sort of credt that caused this whole situation.

Bottom line to me: Mastro's business practices are the rule, not the exception, not just in this hobby but in collectables in general. Yes, by the letter of the law perhaps they fall short. But then so do the substantial majority of others. Those out to crucify Mastro certainly have enough fodder to make it a grand feast. But they are smoking on something if they feel Mastro is the exception and not the rule.

[Jewish-collector]

This is going to be one hell of a Net54 dinner !!!

[bijoem]

Originally Posted by benjulmag

My understanding is that Mastro Auctions intends and expects in the relatively near future to pay all consignors.

That would be great, and I hope it is true.

[oldjudge]

Well said Corey.