Mastro/Legendary Article in Today's NY Daily News

[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.