Auction House Conflict of Interest

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Posted By: Aaron M.

I wrote a rather impassioned reply to a post that I think was just deleted, but I think what I wrote should be read anyway. My post was in response to a specific mention questioning why REA stresses their anti-shilling bid technology if they weren't aware of shilling going on elsewehere:

I also think your point about Robert Edward Auctions and their "Honest-Auto-Bid" format is well-founded. Why else would Rob stress this so much if he wasn't aware that many auction houses engage in shill bidding?

I mean at the end of the day by allowing his employees and executives to bid on Mastro auctions, Doug Allen cannot prove that in-house shill bidding does not occur. In fact you almost have to be a moron not at least be suspicious because the opportunity and motivation are so strong and obvious for Mastro employees to engage in shilling

Instead of bidding confidently with the knowledge that Mastro employees are forbidden from bidding on Mastro auctions (thus strongly lowering the oppurtunity to shill), you basically have to trust that Mastro employees are all honest, all are completely immune to any sort of financial interest in shilling, and never, ever, ever bid on an item they have in the auction just to see its price increase -- rather they always bid because they have a genuine interest as a collector in that item. How can Doug prove that? And why should we as bidders even be asked to trust them on it?

Think about it: All Mastro employees know that their jobs and reputations and hope for continuing to receive high-level consignments hinge on Mastro receiving strong prices on items. It never enters any of their minds that if they bid up items that it helps secure their own continued financial security by helping to keep the Mastro train rolling?

And what sort of check and balances do they have? Doug knows the bids? So he asks "Employee A" if he bid on a item out of genuine interest or shilling? What's the guy going to say? "Yes, I shilled, please fire me"? Good grief.

Without peering into the minds of Mastro employees we (including Doug Allen) can never know if that employee bid because of genuine interest or to shill. And with the motivation and opportunity to shill so strong and obvious and easy, we should not be asked to make this judgment or worry about it occurring in the first place.

Edited to re-title the thread. As has been fairly pointed out to me, this issue should be addressed with respect to auction houses in general and not single out one in specific.

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Posted By: barrysloate

Aaron- you are opening a huge can of worms here and you are just speculating. Plus, you are singling out one auction house when there are dozens of others.

I know a lot of bad things go down in this industry but you need to be careful what you say.

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Posted By: Harry Wallace (HW)

Aaron, why are you only mentioning Mastro? Besides REA, what auction houses claim to not allow employees to bid?

Sotheby's and Christies are the two largest auction houses in the country and allow their employees to bid on items.

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Posted By: Aaron M.

Please feel free to expand my orignal post to include any auction house which allows its employees to bid on their auctions.

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Posted By: Joann

Someone had started a thread (now deleted)about the difference between the way collectors view dealers versus auction houses when it comes to certain practices. Aaron's post does single out Mastro for discussion, and the original post was a far more generic (and interesting, I thought) question. However, I think that if Aaron's post were read in the context of the original thread it might make more sense.

Joann

ETA: The original post mentioned a wide, wide variety of practices. Self-interested bidding by auction houses and their employees was only one of many mentioned. Aaron's response zero's in on that comment.

OK. I think I should get out of the 'splaining business, because I'm not doing a very good job of it here!

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Posted By: Harry Wallace (HW)

Aaron, besides REA, what major auction houses do not?

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Posted By: leon

I deleted the original post/thread and there were no additional posts when I deleted it. The original poster had DELETED all of the words already and there was absolutely nothing there. Sorry if there was a response in the making...but again, the original post was deleted by the poster so I deleted the thread. Everyone knows my stance on deleting a post or thread when it's not anonymous....regards

edited spellin'

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Posted By: Joann

That's right - the original author had deleted all content from the first post before the thread was deleted. I thought it was an interesting post that could have raised some good discussion, but he deleted it soon after posting.

Joann

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Posted By: barrysloate

When I worked as an independent contractor at Sotheby's they not only allowed me to bid on Barry Halper material, but had a pre-printed form called an employee bid sheet. They had no problem with it at all, and just asked me to leave book bids and not raise my hand in the auction room. They allowed it and I don't see it as a big deal.

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Posted By: Aaron M.

Barry, I don't think this is opening a can of worms. I think it is dealing directly with an issue within the collecting community that needs to be addressed.

For the record, despite philosophical differences with some of Mastro's policies, I have always enjoyed good experiences with their auctions and never been disappointed with any of the items I've won in their auctions. I also intend to continue to bid on Mastro auctions, until I have reason otherwise.

But I do want to to see them and other auction companies reform in a climate of what I believe to be increased pressure to do so. My feelings are very much in line with what MEARS made public recently and REA has followed for years. Specifically I want to see auction houses:

1. Discontinue allowing its own executives and employees bid on their auctions.

2. Either discontinue the practice entirely or disclose if a a card has in any way been altered prior to grading.

3. Either discontinue the practice entirely, or disclose if an authenticator owns an items he authenticated.

4. Discontinue the practice of auctioning items the auction house itself owns.

To me, rather than a can of worms these are "the basics" of reform that we should be pushing for. From there we can tackle more complicated issues, but these are the "no-brainers" that we shouldn't receive any resistance from the various auction houses over.

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Posted By: barrysloate

I'm not sure I even agree with all of Mears' policies. I own lots in my current auction and if anybody cares I would be happy to disclose which ones. What possible difference does it make? I buy inventory all the time, and need to sell it. Why can't I sell it myself?

Edited to add I would guess that nearly every auction house owns some of the material they sell. REA may be an exception but that is their policy.

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Posted By: Aaron M.

Barry, rather than being an independent contractor working for Sotheby's on a one-time only basis, imagine you were a full-time employee of Mastro's and your financial well-being was dependent on their performance.

Now imagine you were head of consignments for a particular region. Now imagine in your opinion consignments that you had secured from high-profile collectors were underperforming in your auction.

You begin to wonder if you will be able to continue to get consignments from those high-profile collectors. You wonder if those high-profile collectors are influential enough to warn their fellow high-profile collectors against consigning to you.

The flip-side is you know if these items sell for strong prices those high-profile collectors have even more valuable items they might consign to you. And so do their high-profile collectors friends who they might recommend to you.

All you need to do is confidentially feign interest in those items and enter some bids and you are in a better position financially as a Mastro employee.

Is what I wrote that implausible?

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Posted By: barrysloate

Aaron- I hear what you are saying and rest assured I am painfully aware of the pressures of getting high prices for consignors. And I am not denying that funny stuff goes on.

But let me play devil's advocate for a minute. A lot is sitting at $1000 and an auction house decides that is not high enough. So they place a bid of $1100 and that is where the lot stops.

Now they have just purchased a lot that they probably don't want. What do they do with it?

Or a variation on that theme: the employee has his own collection and is willing to add that piece to it for $1100, so he places the bid and wins it. How great a transgression is it if he bid in good faith?

Please understand I deplore shilling but as an auctioneer I recognize other sides to every story.

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Posted By: Aaron M.

Yeah, leon, I must have been writing when the OP deleted his text. I read his post and then then when I finished writing and hit "respond", it was gone. I actually had some comments directed to his point about dealers essentially becoming auction houses to skirt acceptable business practices, but they would have made no sense without the original post there, so I cut that from my post. What I wrote above I felt made sense on its own without the original post to place it in much context.

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Posted By: barrysloate

Here's something else that rankles me, and please note this is not directed at any specific auction house.

I am really tired of people coming on this board and tearing auction house XYZ from limb to limb about all their unethical practices, then as soon as they get that auction house's catalog they are placing their bids and ultimately spending thousands of dollars with them.

When it comes to getting "stuff", all questions about illegal practices fly out the window. The issue in this hobby isn't integrity, it's stuff. And stuff trumps everything else.

And I think those people are all hypocrites.

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Posted By: James Feagin

I completely agree with you Barry, and these well known and outspoken board members know who they are.

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Posted By: Aaron M.

"Now they have just purchased a lot that they probably don't want. What do they do with it?"

They can re-sell it.

"Or a variation on that theme: the employee has his own collection and is willing to add that piece to it for $1100, so he places the bid and wins it. How great a transgression is it if he bid in good faith?"

That's the key distinction here: we might never know for certain if that's the case. Just like Doug can't prove shill bidding is not occurring, we can't prove shill bidding is occurring, because to do either would require prying open the employee's head and figuring out what their true intentions and feelings were. None of us can do that.

There's opportunity and motive to shill. There's also opprunitnity and motive to genuinely add to your collection. But what the policy of allowing employees to bid does is create those circumstances that could allow it to happen. And so really, as collectors, our only real protection is to "trust" (and take their word for it) that the auction houses don't give in to that temptation when we consider bidding. I genuinely believe we shouldn't have to, even if it means that employees have to forgo items they might genuinely be interested in -- it's a fair sacrifice given they expect our business in return.

"Please understand I deplore shilling but as an auctioneer I recognize other sides to every story."

That's what this forum is for -- to openly discuss issues surrounding our hobby. To me that requires listening to all angles to a particular issue and being open to considering other positions even if you end up not agreeing with them.

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Posted By: barrysloate

Aaron- your points are well taken and I agree this forum is for discussing issues like this. I just look at things a little differently sometimes and don't always agree with the general consensus.

For example, I respect REA's policy of not owning cards they auction, and Rob is a friend. But if an auction house chooses to only sell consigned material is that a guarantee of anything? Likewise, because I own a percentage of lots in my current auction is it right to assume that something unethical must be going on?

I just like to look a little more closely at things, that's all. Just because an employee purchases a lot doesn't mean the world is coming to an end. Was it done in good faith? That's a more important question to me.

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Posted By: leon

You have many valid points. I have gone back and forth about the auction house employees being able to bid on stuff in their own auction. I fall about 51% on the side of it's ok as long as they disclose it. The reason being is that it is all too easy to have someone bid for you if you own a lot. I have never done that but know it happens. I am positive it happens in REA, MASTRO etc.....So, I would rather be up front and let it happen, have full disclosure, and if the employee wins they have to pay the full commission and any other fees just like everyone else.....You notice I could almost go either way on this. It's a good debate ....

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Posted By: Cobby33

I don't see anything wrong with being critical with an auction house's policies, yet continuing to do business with that establishment. I doubt the auction house would have a problem with it either. That's almost akin to the GOP saying "if you don't like the current administration, move to Canada."

If people were tuly alturistic and self-righteous, they would not patronize companies with whose policies they disagree. Fortunately or unfortunately, I know of nobody (here) who fits that description.

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Posted By: jay behrens

raises hand I don't buy Coke or Coors products because of certain policies the companies have and will not shop at Wal-Mart because of their forcing suppliers to out source jobs overseas to lower cots, thus costing American jobs, along with other polcies they have that have issues with.

Jay

The richest person is not the one who has the most, but the one who needs the least.

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Posted By: Cobby33

Jay-
That is really great and I mean that.
But I would be willing to bet that there are some products you buy or services you use that are owned or operated by companies who are tied to causes with which you don't agree. That's my whole point. Nobody (in this society at least) is truly self-righteous and by the same token, nobody is a hypocrite for exercising their First Amendment rights, but who also acknowledge that their is a need for survivial (or a need to enjoy their hobby)...

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Posted By: Jeff Lichtman

Jay, you're a beacon of morality in our otherwise grim corporate-mentatlity forum.

Cobby is right -- you can still bid in an auction house's auctions and be critical of their practices. I think if you believe you're getting ripped off then it's a different story and you bid at your own risk. It really depends on the practices that you have a problem with.

If I restricted my bidding to auctions that I was sure I was not getting abused on any level by I would be doing 99.99 percent of my buying on the BST thread. That being said, there are at least 2 auction houses that I won't touch with a 10 foot pole no matter what is up for auction.

Conflicts of interest should be disclosed in all auctions: whether it be for items owned by auction houses, items authenticated by consignors, etc. What is the big deal to provide transparency -- another few words under an item's description? In this day and age where we read about FBI investigations, criminals running auction houses and fake items for sale is it asking so much that we, the consumer, are given a reasonable level of comfort? Why should we be totally at the mercy of the auction houses? And they may snicker at my rhetorical questions...but I assure you that a continuing lack of transparency combined with dishonesty will cause the lids to be ripped off the auction houses for all of us to see what lies underneath.

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Posted By: Joseph

So does this mean that I can still root for Rick Ankiel?

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Posted By: Jeff Lichtman

In a word, yes -- as long as you don't also root for Bonds.

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Posted By: barrysloate

Rick Ankiel has a .765 slugging percentage. Converted pitchers just don't hit that way without a little help from their friends.

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Posted By: Anthony

He's only been up a few weeks. Lets see how he does over a lot, hot, humid summer in St Louis.

I seem to recall a couple of converted pitchers that did ok- Babe Ruth and Lefty O'Doul.

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Posted By: Aaron M.

"Cobby is right -- you can still bid in an auction house's auctions and be critical of their practices."

Yep, to me the point is not to tear down Mastro (or other auction houses), but to make them better. I would hope that they view their company as constantly malleable with a model that is always open to change if it means improving the experience for their customers.

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Posted By: peter chao

If you are going to rake Bonds over the coals for HGH then you need to do the same for Ankiel.

Actually, I would really hate to see the Cardinals make it to the playoffs, they are playing .500 ball.

Peter C.

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Posted By: Jeff Lichtman

Yeah, Peter, you really nailed it: the evidence and circumstances surrounding Bonds and Ankiel are identical.

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Posted By: peter chao

It's more like I can't stand the Cardinals and Ankiel just happens to be a Cardinal.

However, I am a fan of both Eckstein and LaRussa.

Peter C.

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Posted By: JimB

I don't think the question is wether or not auction houses allow employees to bid in their auctions; the issue is honesty and transparency with which they do it. An auction house can have a strict policy against it and than is not going to stop employee X from getting a friend to bid on an item he wants. Most people working at auction houses are in the business in part because they love this stuff. It just needs to be done honestly and openly.

And I don't have a problem with Barry or any other auction house auctioning items they own, but there should be a policy of full disclosure in my opinion. If one knows, then one can look at the item description with a more critical eye and carefully observe the bidding on that item.

While I think it is important to keep a watchful and critical eye on the powers that be in this hobby and to let them know they are being watched, at the same time a little balance would be nice. I think we often get all riled up into a bit of hyteria and paranoia on this site more often than is healthy for the hobby.
JimB

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Posted By: jay behrens

I am sure there are companies that I buy things from that have policies that I don't agree with. When I learn about them, I no longer spend my money with them.

Jay

The richest person is not the one who has the most, but the one who needs the least.

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Posted By: peter chao

JimB,

I couldn't agree with you more, transparency is important, but is it fair to the auction houses that they are held to a higher standard than other businesses.

For instance, stock brokers can sell stocks to relatives, employees, and friends, that wouldn't be a problem. Real estate agents can sell property to relatives, employees etc.

So is it fair to hold auction houses to a higher standard than professionals?

Peter C.

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Posted By: Jeff Lichtman

Peter, again, my mouth is agape.

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Posted By: peter chao

Jeff,

Once in a while I cringe at some of your posts, but I got to admit those scans are great.

Peter C.

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Posted By: MikeU

"there are at least 2 auction houses that I won't touch with a 10 foot pole no matter what is up for auction."

Please share with the group.

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Posted By: Cobby33

Jay-

I commend you, but I think that is an impossible task in this society. Depending on what social issues you view as important, to truly boycott companies who have policies you don't agree with, presumably would include boycotting the US government; oil companies; shoe manufacturers; household cleaning agent manufactuers; steel manufacturers; etc. I don't know your threshold for tolerance or what you view as important or not- but if you think about it, I'm sure you give money to companies of which you are aware, which have poilicies you don't agree with.

I'm not trying to challenge you, or anyone, just pointing out that you don't have to be self-righteous to be outspoken.

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Posted By: barrysloate

Since transparency has been requested in this thread, the following lots in my September 20 auction are owned by me:

36, 37, 38, 47, 49, 50, 51, 53, 54, 56, 57, 58, 59, 60, 62, 63, 65, 68, 95, and 105.

If anyone has a problem with this I request you bid on the other lots and support my consignors. That is more important to me anyway. Thank you.

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Posted By: Jeff Lichtman

Wow, now that Barry has come clean he is off my auction house blacklist!

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Posted By: boxingcardman

But I really don't think that whether or not an auctioneer allows house bids is a big deal. I've said it before and I will repeat it here: it is impossible to prevent a determined shill bidder from acting even with an honestly-designed system, so the only safe course is to bid what you are comfortable paying and simply assume it will be what you end up spending.

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Posted By: barrysloate

I couldn't agree with Adam more. Just bid with someone you feel comfortable with, get your high bid in, and take out all the other distracting noise. If you place a very high bid and an auction house is stupid enough to top it and then gets stuck with something they don't want, it serves them right. You put in your maximum bid, you didn't get it this time, it will come around again and you will have another chance.

I think there is less shilling going on than people think. Maybe I am naive but for every three accusations posted on this board about auction house shilling, I'll cross two of them off. Just set your limit, bid, and forget about everything else.

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Posted By: Jim Crandell

Barry and Others,

How about those who tear apart an auction house limb from limb and despite the auction house having a number of attractive cards the buyer would ordinarily bid on aggressively, the buyer passes as a protest against the unethical practices of the auction houses.

There are fouir houses I am not bidding with as my little form of protest.

Its time to take a stand people!

Jim

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Posted By: barrysloate

Jim- I absolutely agree with that. If you don't feel you are being treated fairly, for whatever reason, of course you shouldn't bid.

I think that is better than critcizing an auction house's ethics, but bidding anyway because the stuff is too good to resist.

I respect your position wholeheartedly.

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Posted By: boxingcardman

For example, the last lot I won from Mastro was at roughly half the max bid I put in. I've won cards there more than once without hitting my bid top.

Has anyone here actually been shilled? I know most are going to say that they have no idea...and that's the problem with this whole conspiracy theory approach--you are damning in the absence of knowledge. I mean, I could say that Bush started the war solely so his family and cronies bcould profiteer from it. I can't prove it, but lots of people would believe it and lots of people would get very ticked off by it (and no I am not going political here, so skip the indignation--it is an example of how readily you can come up with an explanation in the absence of facts. Another term for it is myth-making.

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Posted By: JimCrandell

Thanks Barry,

I have been as vocal as anyone in criticizing Mastronet. They have taken me off their mailing list despite me being a substantial customer-- bidding through my name and others.

I also do not feel comfortable bidding with Memory Lane anymore because of various concerns I had

There are two other auction houses that I am also not bidding with for the simple reason that I gave them the chance to explain their policies on Net 54 and they never did. Their choice. But its also my choice not to bid with them because of it. Simply put, I believe that auction houses have to take a stand on the major issues of the day and if they are less than being completely forthcoming I don't want to bid with them.

Jim

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Posted By: Tim Newcomb

Adam, I respect your opinion as much or more than I do anyone's, but I can't help feeling your argument in the post above-- I paid less than my high bid for Lot X, Y, Z and therefore I doubt shilling is going on-- is at least as fallacious as those who claim to KNOW that shilling exists in the absence of incontrovertible evidence. Every time an insinuation of shilling is made, somebody wheels out this line of reasoning, and it amuses me.

But--

-- No sane person is going to claim that EVERY lot up for auction is shilled up to the max bid.

-- Even if an auction house embarked on a vast systemic conspiracy to shill, which I very much doubt, they would never do it on every lot because it would be immediately obvious what was going on.

-- Therefore even in the worst-case scenario we would always have plenty of counterexamples to point to--which means they signify nothing as evidence.


Shilling by its very nature is a shadow act, like insider trading. I agree with you that if those who do it can maintain some restraint and keep their mouths shut, it is almost impossible to prove. But that hardly means it can't exist, and possibly even be widespread.

Cheers,
Tim

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Posted By: John Basilone

IMO, all auction houses should document, implement, & enforce a strict Conflict of Interest policy. In addition, each auction house should have a documented Segregation of Duties (SoD) program in place to help protect against fraud, collusion, management override, etc.

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Posted By: Jeff Lichtman

Free money to be had by pressing a key on the computer or having a friend make a bid on an item you are selling? In an unregulated industry with zero oversight? Sure, just a myth. In auction houses in which consignors authenticate their own lots without divulging this to the buying public? In auction houses that sell game used material that they know to be false -- and they sell it anyway? Can't be. Too great a leap in faith, I suppose, to imagine that auction houses could do such a thing.

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Posted By: Larry

Jim- this is being stated respectfully..........Even without you and several others that now protest Mastro Auctions, ...they are getting amazing numbers and have many bidders compared to material offered....There is no shortage of customers, just material.......

The only way you can really fight what you are trying to do which is to purefy the hobby of badly graded cards and or rid auction house shill bidding may have to begin with looking at your own collection ...by the way Jim, maybe even some of those fabulous cards that you posted with early brand X HIGH grades have the possibility of being tainted. You would have to go to your major grading service that you supported, isolate your possibly trimmed material (getting two distinct opinions at least) and go after *** legally in worse case scenario so they honor their buy/back policy or those that sold you those beautiful cards.

I am sure you know that you could dump the tainted cards back into the market but then you would be doing this knowingly, which you stated would not be ethical. Accordingly, it would be righteous to disclose this info according to your ethical stand, even if items are in a holder. This protest would really impress the industry and most likely yourself, and that is a real stand.