Mastro consignors not paid yet?

[barrysloate]

My two cents:

While I do not believe the principals at Legendary have made a conscious decision to not pay consignors, the way they have launched their new business is nothing short of stupefying. On the one hand they apparently had consignments left over from Mastro that they wanted to sell; on the other hand they were not in a financial position to properly conduct business. While I am certain bidders will still participate in their auctions if they see something they need, consignors will surely look elsewhere to place their material. I find this whole thing unfathomable.

[calvindog]

Originally Posted by barrysloate

My two cents:

While I do not believe the principals at Legendary have made a conscious decision to not pay consignors....

Really? Is there a scintilla of evidence (other than self-serving statements) that this is not the case? Who decided not to pay consignors?

[barrysloate]

I am speculating, and I have to assume they have some financial issues. Do you think their business model is to not pay consignors? If it is, that is plain psychotic.

[calvindog]

Barry, at that rate you'll never be a character witness for the Mastr--woops--Legendary guys when the time comes.

[barrysloate]

And that will suit me fine!

[Adam]

Originally Posted by barrysloate

While I am certain bidders will still participate in their auctions if they see something they need . . .

I love the use of the word "need."

[barrysloate]

Adam- you know that most collectors are junkies...the good kind, of course.

[benjulmag]

Before I give it, I want to make clear that in no way am I condoning shill bidding or any illicit activities.

Let's talk about prudent business models for ANY business. Businesses typically have lines of credit that they continually tap into. When those lines are withdrawn, ANY business can be without notice thrust into survival mode. I'm in the real estate business. The bulk of my tenants are retailers. With the current credit crunch, I can't overstate how many of them lost their lines of credit and are struggling to survive (and in the process either pulling out of deals or coming to me demanding rent concessions). So what does this have to do with Legendary Auctions? As someone mentioned some time ago in a previous thread, my strong suspicion is they lost their line of credit. Their ability then to borrow against it to pay consignors or cover shortfalls from nonpaying debtors went out the window. When this happened they were holding many consignments for their next auction. Yes, they could have returned the consignments and gone out of business. Or they could have tried to survive by keeping the consignments and continuing as a going entity (under the Legendary banner). They chose the latter and here we are. Almost certainly they have no line of credit. Too I believe what Jay said is correct -- they are owed substantial sums from people who based on reputation and past dealings they had every reason to expect would pay them in timely fashion (which had that happened all consignors would have been timely paid).

Yes, one can argue that a consignor's right to be paid on time should not be subject to the ability of an auction house to properly assess the credit risk of anyone they lend money too. Also one can argue that excessive reliance on a line of credit can be very risky and can cause survival issues if it is unexpectedly pulled. But the point is that many many businesses in all fields operate in similar fashion, and the cash flow problems Legendary is currently having are quite typical in today's unprecedented recessionary economy. I strongly suspect Doug Allen is well aware of the need to as quickly as possible pay his consignors, and that he understands the implications to his company's survival prospects by them remaining unpaid. While I hold no crystal ball as to what the future holds, I'd be surprised if they were not paid in the not-too-distant future.

[calvindog]

What about personal loans by the Mastro principals to the company to cover the short term cash flow problems? Couldn't that be done? Why should consignors bear the brunt of Mastro's incompetence instead of the owners of the company?

[Exhibitman]

Mastro's silence towards its consignors is inexcusable. Look, we all know that the economy melted down last year and we are all feeling that pinch on one way or another. I have been doing a lot of collections, workouts and modifications for my clients cutting both ways (creditor and debtor). The most important factor in all of these situations is communication. If I do not hear from a debtor I must assume that the debtor has the money and is not paying for some reason. It would not surprise me if some bidders defaulted on Mastro. That does not give Mastro license to default on its consignors, to lie to them, or to ignore their inquiries. What they needed to do at the outset was to come clean with the consignors about those situations.

Now let me tell you my theory: Mastro violated a basic tenet of a consignment (bailment) business--placing its consignors at risk by favoring large bidders with prepayment shipment--and the powers that be over there have been advised (accurately) that if they admit to doing so they will be sued, personally, for intentionally breaching their duties to their consignors. Not disclosing a policy of shipping items without payment is called fraud: concealment of a material fact from a person in order to induce action. And it was a very material omission: would anyone here ever have signed a Mastro consignment agreement if it had stated that they have the right to ship your item to a buyer without receiving payment for it? Of course not, so it remains a dirty little secret. So, they choose to ignore the consignors they feel it is safe to ignore, hope that they can collect on the bad bills, and figure that if they don't guys like us will not bother to sue them.

Again, if it was me, I'd sue Mastro and its chief henchmen immediately and start taking depositions. Then we'd get to the bottom of things--or we'd get a lot of 5th Amendment pleading.

But I'm a professional cynic, so what do I know?

[jmk59]

nm