A federal judge plans to consolidate over 40 antitrust suits alleging commission price-fixing by auction houses Sotheby's Holdings Inc. and Christie's International to determine whether the cases will get class action status. U.S. District Judge Lewis Kaplan said during a hearing last week he expected the litigation would be resolved within a year.  A tentative trial date was set for February 2001, in the event no settlement is reached. Kaplan says he plans to issue the consolidation order this week and he gave plaintiffs until March 22 to submit motions requesting class action status for the cases.

Various sources claim that over 40 antitrust suits have been filed in the federal court in New York before Kaplan and other judges.  A number of cases have also been filed in other jurisdictions, including Michigan, California and Pennsylvania. 

The lawsuits surfaced after Christie's announcement on January 28 it had told the U.S. Justice Department that behavior by former management might be relevant to the government's antitrust action.  Christie's statements appear to give new life to the case, which began nearly three years ago. 

In addition, the New York Times reports that a federal grand jury in Manhattan was also examining whether the auction houses engaged in price fixing.

Apparently Canadian metals trader Herbert Black of Montreal filed the first suit in this wave of cases seeking class action status over alleged price fixing January 31. The suit alleges that as early as 1992 the auction houses agreed to stop competing with one another on the basis of fees.  The suit further alleges the firms conspired to raise their commission to the same levels. 

The latest twist is the addition of class action suits in New York, Michigan and Pennsylvania relating to Sotheby's stock.  The Michigan complaint charges Sotheby's and its senior officer with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.  The complaint alleges defendants issued a series of false and misleading statements about the Company's revenues, which resulted in artificially inflated stock prices during the Class Period.  The complaint further alleges defendants failed to disclose that the Company's revenues were both reliant upon and unsustainable at the Class Period levels in the absence of an illegal price fixing arrangement with Christie's International PLC. 

This class action complaint has been filed in the United States District Court for the Eastern District of Michigan by Miller Faucher and Cafferty LLP on behalf of a Class of persons who purchased the common stock of Sotheby's Holdings, "at artificially inflated prices during the period February 11, 1997 through January 28, 2000 ("Class Period") and who were damaged thereby."  The plaintiff seeks to recover damages on behalf of all purchasers of Sotheby's common stock during the Class Period.  The suits in New York and Pennsylvania allege similar damages.

Early last week A. Alfred Taubman stepped down as chairman of Sotheby's and Diana Brooks resigned as president and chief executive officer.  The company gave no reason for their sudden departures.

Brooks, who joined Sotheby's in 1979, had been president and CEO since 1994.  Taubman, who took the helm at Sotheby's in 1983, owns about 13 million or 23% of Sotheby's total shares outstanding, which represent an approximate 63% voting interest. Taubman's voting power remains unaffected by his resignation and, for now at least, he will keep his seat on the board.   Sotheby's then tapped Michael Sovern, a former president of Columbia University in New York, as its new chairman of the board.  William Ruprecht, who has been managing director of Sotheby's North and South America since 1994, will become president and chief executive.  Robin Woodhead, chief executive of Sotheby's Europe and Asia and an executive vice president of Sotheby's Holdings, and Deborah Zoullas, executive vice president of Sotheby's Holdings, will also join the new executive team.  Ruprecht, Woodhead and Zoullas were elected to Sotheby's board, effective immediately.

Meanwhile, Fitch IBCA placed Sotheby's Holdings, Inc.'s $100-million 'A' rated 6.875% senior notes and Sotheby's Inc.'s $300-million 'F1' rated 3(a) 3 commercial paper program on RatingAlert-Negative.  In resolving the RatingAlert-Negative status, Fitch IBCA says it will meet with Sotheby's new management team to discuss the findings and strategic and monetary effects of the government investigations and lawsuits. In addition, the impact on the company's strategic operating and financial plans will be examined.

Standard & Poors, Duffs & Phelps and Moody's may also lower ratings on Sotheby's.  Duffs & Phelps notes that a purchase of former chairman Taubman's shares in whole or in part by Sotheby's could result in increased leverage and therefore have negative rating implications.  His shares, even at the currently low price, are worth in the vicinity of a quarter billion dollars.

The European Commission, the Office of Fair Trading in the United Kingdom and the Australian Competition Commission have also started to make inquiries into the alleged antitrust actions.

Shares in Sotheby's slumped to a new low for the year on Tuesday, February 22 down to 14-1/2 at one point.  The stock has recovered somewhat over the last week, although it's been a rocky road.  The stock price was at 19-1/2 as of Friday, February 25. 

In a recent article in the New York Times, Sotheby's Sovern says the federal investigations and the lawsuits would be "expensive but not life-threatening."

In the New York Times phone interview Sovern was upbeat about the investment in the Sotheby's web site, calling it "solid" and something that "would pay off."

Perhaps, but there still is a lot of work to make this site workable as I've indicated in newsletter #10 (http://www.comcat.com/~anovak/Newsletter10.htm).

Sovern, an academic with no experience in the fine art auction market and little background in art at all, claims there would be no more management changes.  And he notes that while it was too early to discuss commissions changes, Sotheby's "will not be underbid by Christie's."

Translation?  Sotheby's can't hike their rates immediately so as to add fuel to the antitrust flames, but they will as soon as possible to pay the bills for all of the legal sharks sensing blood in the water.  In the meantime rates to sellers will be sharpened up, especially as some observers are saying that the turmoil might impact prices realized and buy-in percentages.  Personally I don't subscribe to this latter point of view.  Buyers will have a bigger problem with too much on the auction market and having to pay a higher fee on their purchases--a higher fee that will, so far, impact only Christie's.

The upshot of all of these woes is that many financial and news sources are claiming that it's only inevitable Sotheby's will be sold.

In fact, England's Independent newspaper in this Sunday's edition claimed eBay would mount a $1.6 billion assault to take over the troubled Sotheby's--an unlikely scenario.

The New York Post cited a source who said French financier Bernard Arnault, who has reportedly been upset that his rival Francois Pinault controls Christie's, could be a possible buyer.

"The whole industry is talking about it and I know that investment bankers in Paris are crunching numbers over this right now," says the New York Times source.

But Bernard Arnault has already been making serious inroads in the international art auction world. Arnault is the chairman of LVMH Moet Hennessy Louis Vuitton, which bought Phillips, the world's third largest auction house, less than four months ago.  And his company's recent purchase of the French auction house Tajan (see below for more details) might signal he was ready to challenge on several fronts.  Would his purchase of Sotheby's come under antitrust scrutiny in this environment?  You bet.

A more likely suitor might be Amazon.com, who has already purchased $35 million in stocks and $10 million in stock warrants in Sotheby's in its mega deal linking the two companies.  The $10 million price for stock warrants looks more and more like a bum deal for Amazon, whose warrants entitle it to purchase an additional one million shares of Sotheby's Class A stock at a price of $100 a share.  Not something they'll be exercising any time soon.

And don't count out Disney, which has been mentioned as a suitor in the past for Sotheby's.  Andrea Van de Camp, chairman of Sotheby's West Coast, was recently reelected to the Walt Disney Company's board of directors.  And Michael D. Eisner, Chairman and CEO of Disney waxed eloquently at that board meeting about the new GO portal and Disney Internet enterprises.  Wouldn't an auction service fit just fine?

But according to an article in the New York Times, James M. Meyer, director of research at Janney Montgomery Scott, a Philadelphia-based investment firm, says the chances Sotheby's would be sold to a public company were "slim."   He suggests instead that a leveraged buyout specialist might be interested in buying it on the cheap.

As Meyer says, "As things stand now with the investigation, it's hard to believe this is the end of the story."

 

After months of speculation, the identity of the mysterious L080 has reportedly been revealed. 

I had been hearing details for several weeks about the anonymous Sotheby's London buyer who spent nearly $8 million at this past October's sale of the Jammes photography collection.  One major collector told me that he absolutely knew who the buyer was and that he was a wealthy Middle Eastern individual. 

Finally, yesterday the French newspaper Le Monde reported that Saoud Al-Thani, a relative of the Amir Hamad Bin Khalifa Al-Thani, who is the head of the gulf state of Qatar, was probably the bidder. 

Saoud Al Thani is reportedly responsible for the Emirate's cultural policies and plans on building a major museum of modern art in his country.

 

Last week LVMH Moet Hennessy Louis Vuitton announced that it had agreed to buy Etude Tajan, France's largest auction house.   The announcement comes only four months after the company's purchase of Phillips auction house. 

The two auction firms make an intriguing combination. The addition of Tajan will allow Phillips to enter the French auction market, which still remains closed to foreign auctioneers, even though the monopoly granted French auction houses is due to expire soon under new French guidelines.  It will, however, give the LVMH team an earlier start than their competitors, Sotheby's and Christie's.  While both Sotheby's and Christie's have new offices and auction facilities in Paris, neither has been able to put them to good use.  Reportedly both have experienced heavy financial drains due to the delays by the French government in eliminating the auction monopolies in Paris.

LVMH's purchase will also give Tajan's customers access to London and New York markets, where Phillips has sales and auction offices and where taxes are lower than in France.

Arnault reportedly has significant investments in several Internet art companies, among them icollector.com, a new online auction site. You can expect the mid to lower-end goods that both Tajan and Phillips sell to end up being offered online in competition with Sotheby's/Amazon and Ebay/Butterfield.

Tajan has about 150 auctions a year. In 1999 it reported sales of $71.4 million. Phillips has about 800 sales a year. Last year it reported sales of $224 million.  Both houses have major photography sales about twice a year.

Phillips has also announced it was looking for a more upscale premises in New York City.

In the meantime, Phillips has rented the American Craft Museum at 40 W 53rd St in Manhattan--a mere four blocks from Christie's Rockefeller Center location, in addition to its space on 79th St between First and York Aves. 

 

State and Federal agencies recently announced what they called a crackdown against those who use the internet auctions to offer goods they don't have, or accept payments and don't deliver.

``We want Internet auction users and the online auction industry to know that the e-con artists who capitalize on them are going, going, gone,'' Jodie Bernstein, director of the Federal Trade Commission's Bureau of Consumer Protection says dramatically for effect. ``We don't intend to let a handful of rogues erode consumer confidence in Internet commerce or Internet auctions.''

Bernstein says complaints received by the FTC about Internet auctions have soared to nearly 11,000 in 1999 from 107 in 1997. Of course, millions of auction transactions take place each day.

The FTC, Department of Justice, U.S. Postal Inspection Service and other agencies say they have filed a mere three dozen law enforcement actions concerning internet auction fraud.

Of those cases, at least half a dozen involved the sale of the stuffed collectible Beanie Babies, which usually were paid for but never delivered, according to an FTC report.  

One fraud case was brought against one eBay vendor, who pleaded guilty on July 14, 1999, in Los Angeles to charges of cheating people who bid on various items on eBay, the world's largest online auction site.  He reportedly took about $37,000 from consumers without delivering a thing, and was sentenced in November to 14 months in federal prison.

So far no legal actions have been filed that I'm aware of against internet auction photography vendors, although I've heard a number of complaints--usually about antique dealers selling photos rather than full-fledged photo dealers themselves.

The new FTC initiative includes training for law enforcement officers, teaching them to track and prosecute Internet con artists.

This month eBay, with over four million items up for bid daily, began feeding the fraud complaints it receives from its users to the FTC, says Lisa Hone, an attorney with the consumer protection bureau.

Like other auction sites, eBay provides a forum for users to comment on their experiences and rate buyers and sellers.  While a useful tool, even good feedback about sellers should be viewed with caution, Hone says. 

``Unfortunately we've started to see examples of fake feedback, people giving themselves feedback, as well as sellers building a positive feedback rating and then going and ripping consumers off,'' she says.  

According to the FTC, some sellers also supply items different from those advertised or fail to deliver on time. Some consumers have bought collectibles like autographed sports memorabilia only to discover they've bought a fake, Hone says.

The FTC advises consumers who buy items through Internet auctions to:

1.) Identify the seller and check the seller's rating.

My advice: You should actually look over the feedback comments. Moreover, see if the vendor has any negatives posted and what exactly they were for.  A couple of negatives for an active dealer (over a hundred feedbacks) are typical.  For photography I'd also suggest to see if the vendor is either a member of the Daguerreian Society or AIPAD.  I've found a higher level of competence, honesty and willingness to take items back from members of these two groups.

2.) Be sure to understand what they're bidding on, its relative value, and all terms and conditions of the sale, including the seller's return policies and who pays for shipping. 

My advice: If you can't see an item clearly, don't usually bid on it.  Fellow dealer and Dag Society member Michael Lehr and I once joked--with a strained sense of black humor--about how he and I had wasted thousands of dollars on top quality scanners that show every nick, scratch or slight bend, while many of eBay's vendors rely on $59 scanners and cheap digital cameras to hide the flaws of their images.  Also beware of the overuse of Photoshop and other image editing software that clean up an image.  It's one thing to try to replicate the way the image looks by using the tools; it's another to try to use them to deceive.  I recently saw a dag that looked like more airbrush then actual image.

One common come-on is: "Fresh to the market.  Just took this dag out of an attic in Maine (or substitute your own favorite state)."  I've previously owned or handled a fair amount of the images that have had such "marketing" language attached to them.  There are even more misleading claims on line, of course.  Just look at some of the ones below.

I've seen many problems with misleading information about vintage, condition, type of image, attribution, and identification, but then I've seen all of this with the major auction houses too.

If the listing sounds "folksy" or naïve, it often is the exact opposite.  The dealer just wants you to think they don't know what they're doing. 

There have been too many counterfeit tintypes in particular on line.  Be aware that there are fake cowboys, Indians, nudes, etc.  Some are very well done.  Most of us in the trade have been seeing these for some time.  I remember a dealer showing me fake tins of Indians in 1984 that used original old plates.  They were very good indeed.  Look for half tone dots under high magnification (a Ferris wheel at the Columbian expo that came up on ebay was apparently such a copy, according to Mike Lehr), coatings that don't look "right" (color, peeling, surface), flatness of a copy (although there are many perfectly fine period copies), and publication of the image somewhere else.  If the image seems familiar, run, don't walk, away from this image.

Likewise, almost all of the identifications that I've seen in on-line auctions have been erroneous, and most of the dealers knew it.  One ebay vendor told me that if Christie's could call their dag a Lincoln, he could call his a Vice President.  That after I had proved to him that his image couldn't possibly be the person he claimed it to be.  The comment does remind us all that misidentifications also occur at other types of auctions as well.

Remember: It is always "Buyer Beware." 

Certainly email your questions on these areas to on-line dealers--and auction houses--and pay attention on how they respond, or don't.  I've gotten too many ambiguous responses and I feel the vendors were responding this way purposely to conceal problems.

Also pay for insurance on any item over $25.  It's worth it.

3.) Establish their top price and stick to it. 

Yeh, right.

4.) Evaluate their payment options. If possible, they should use a credit card because it offers the most protection if there's a problem. They can also use an escrow service that holds their money until the purchase arrives and is approved. 

My advice: If a dealer offers a credit card facility, he is probably more likely to be above board and you will not need to use it to protect yourself.  In my experience--for most dealers--an escrow service is unnecessary and very expensive.  Very legitimate dealers hate to use these facilities.  They're cumbersome and they tend to hold on to the dealer's money longer than they need to.   And frankly, there are more problems on the buyers' side with fraud than the sellers' side.  Know your dealers.  That's the best policy.  And don't deal with those vendors who won't offer you a reasonable return policy if the item isn't the way it's been described.  That doesn't mean, by the way, you should return an item just because "you don't like it."  And expect to pay postage/insurance both ways and auction fees on a return.  In another words, be serious about your bidding and don't abuse a good return policy.

5.) The Feds didn't warn about this next one, but it seems to be a recent phenomenon.  Be very careful about bidding in a "private" auction.  A private auction is one where the names of bidders are not revealed.  Recently I was emailed some disturbing news about one auction on eBay.  The emailer had complained to a vendor about the accuracy of its description.  The vendor ignored the emailer and changed the auction to private status, in order, so the emailer surmised, to avoid having any of its bidders notified of the problem.  By the way, eBay even says contacting bidders with the intent of interfering in an auction can get you booted off of their site.  While I'm sure their original intentions were good, the effect is chilling and further promotes dishonesty.  I hope they rewrite this rule.