Should Employees of an Auction House Bid in their own Auctions

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Posted By: Jay Miller 

This is a question that came up in a chat with Leon and I was wondering what people think?

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Posted By: Mike Williams

no! Regardless of how ethical the auction house is, it is in their best interest to never get close to the "conflict of interest" perception.

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Posted By: Tom Lawrie

The problem if they are allowed to bid in their own auctions is that no one can be sure that an auction house hasn't bid up individual items to the price level just below the current ceiling. I'm not saying that they do, but they could.

For example, if you bid 300 on an OJ with a 700 ceiling, and you end up winning it for 660, were the bids at 600 legitimate or were they the auction house maximizing their profits?

Personally, I think it is probably much more common for sellers to bid on their own items to maximize their personal take and to make sure that items don't sell for too little. I know Mastro prohibits this practice, but I'm sure a lot of consignors figure out ways around the restrictions. Is this as unethical as an auction house bidding on its own items? Probably not as bad, but still in the gray on the wrong side of the ethically acceptable line.

Just my opinion,
Tom

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Posted By: Tom Lawrie

By "seller" in the last paragraph above I meant "consignor" and not the auction house itself.

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Posted By: Harry

Many of the major dealers in our hobby started out as collectors (Mastro, Lipset, Sloate, Smolin, etc.) and I am sure that many of them still actively collect.

In any auction situation there has to be lots of trust between the auctioner and its bidders and consignors. I would think that this specific situation is just a small part of the total trust that must exist.

I would much rather have the dealers be up front about bidding in their own auctions than for them to have a "acquaintance" bid for them which is basically the same thing.

As long as the bidding is done in a way that there is no unfair advantage, I am OK with it.

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Posted By: leonl

At first my answer would be "no" the auction house employees should not be bidding on the items they are auctioning. Then I thought to myself that if they can't then they could definitely get someone they know to do it for them.....I guess as a rule I will still stick with the "no" answer...I have spoken to several of the folks that work at those places about this and for whatever reason everytime I come away saying it's no big deal......with that being said I think there still is room for the "perception" of funny business so........if they want to get someone else to do it for them then so be it but I am not going to publicly make it ok by authorizing it (again, this is if I am an auction house)...as no one listens to me regardless so it wouldn't matter what I said regards all.....should be an interesting thread...

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Posted By: Jay Miller

Personally, I see no problem with it but I appreciate the fact that some people might not think that it passes the smell test.

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Posted By: Kevin Cummings

In order to avoid the perceived impropriety, neither auction house employees nor consignors should be able to bid on their own items.

That having been said, I don't think there is any way to enforce the rule since an employee can engage a friend to bid on his/her behalf and a consignor (or the house for that matter) can engage a friend to shill bid the item up.

As flawed as the ebay process is, at least in an open auction in that venue you know who has beaten you out for the goods and who contributed to the final selling price.

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Posted By: mapabr

My first response is NO, there shouldn't be any inference of wrongdoing and that the transaction is at arms-length. But if it's in the open and the purchase is really finalized (as opposed to a shill-bid to protect the asset) I don't see why not? When banks hold forclosure auctions, an auctioneer actually stands on the property or at a designated location and holds a real live auction except the bank has the right to bid-in at the end to save their interest. That doesn't seem fair but what it really amounts to is a "reserve" auction.

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Posted By: David

I don't have an opinion on this interesting question.

The owner of Sotheby's, who was unrelatedly convicted for fixing prices with Christies, bid in his own auctions. This was considered by many to be unethical but not illegal. The practical problem for him was that he was a high-end art collector (if you own Sotheby's you have extra pocket change), and Sotheby's & Christies handles something like 90% of that market. Assuming he was sincere in his choices and his checks didn't bounce, I'm sure the consignors weren't complaining.

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Posted By: TBob

No. In two words, hell no!
Empolyees should not bid on their employer's auctions. You guys can tell me all day long how auction house people were once just collectors and how honest they are ad nauseum, but the simple fact is that when bidders are secret the temptation is too great for chicanery.

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Posted By: Tom Boblitt

of the largest auction house can from what I understand...............

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Posted By: Bill Cornell

I vote no. I also don't doubt that it happens all the time.

FYI - eBay does allow their employees to bid on items on the site, but they're supposed to identify themselves to the seller as an employee before doing so. My guess is they don't bid, though... too much fraud .

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Posted By: Elliot

There is no way this should be an acceptable practice. Getting to see everybody's proxy bids, the amount of interest in a lot, and then getting a chance to get a last bid in.....No way. Perhaps, if they were allowed to put a max bid in, before any other bids were submitted, with no additional bids allowed, would be OK. If I were to compare it to the stock market, any orders from an employee of a brokerage firm is labelled a "pro" order and only gets filled after all customer orders. Even then a number of firms do not allow employees to trade individual stocks.

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Posted By: Julie Vognar

Mastro's guys should go bid at Leland's, even if it's a come-down.

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Posted By: B Hodes

Certainly allowing employees/relatives/principals of auctions at least creates the appearance of impropriety. So the hard line postion would be "no."

A more nuanced rule that allowed such people to bid would have to at least prevent these "in house" or "potentially conflicted" bidders from knowing any more than the average bidder or having any special privilege. By special knowledge or privilegde I mean that under no crcumstances should they be aware of any other bidders proxy or limit bid so that they could knowingly drive up the price without possibly winning (they would then have "insider information").

Additionally such "inside" bidders should not be able to place bids where other "normal bidders" cannot. For example if the Rule is that after the designated closing time only bidders who have already bid on an item may bid this must also apply to "in-house" bidders so that they can also only bid on items that they have already bid on. Another potential solution would be to require these bidders to place their bids only once -- by proxy -- on each item before the bidding has been opened to everyone else so that they cannot use information of others limit or proxy bids to increase the hammer price.

Frankly a really reputatable auction house should adopt some position on this "insider bidding" issue and state this position in its auction catalogues and on its web-site.

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Posted By: warshawlaw

an auctioneer (and presumably its employees) is prohibited from bidding on lots in its own auction unless clearly stated in the auction rules. I would be comfortable with that rule. Of course, I would run like a Frenchman fleeing a German army if I ever got a catalogue that authorized such bidding. The shill potential is too great. Of course, this is all impossible to police, since anyone who wants to bid on an auction can have a friend do it for them.

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Posted By: leon

Most, if not all, of the auction houses clearly state that they, and their employees, are allowed to bid in their own auctions. I know Mastro clearly states it and am pretty sure the others do too.....regards all

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Posted By: Julie Vognar

when I say that Mastro and SCP (to name the latest) will tell you if you're high bidder of not. Or even, if the high bid is a long way off from what you've bid.

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Posted By: Julie Vognar

employees should not be able to use the information about limit bids for their own advantage. If they're going to tell me, they're going to use it themselves!

I REALLY don't think employees of auctions, even the temporary help, should be allowed to bid on their own auctions. It gets sort of Pete Rosish.