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R Lalique Auctions Law and Ethics: The $64,000 Question

by Steve Proffitt

$64,000 Question on RLalique.comAfter completing a four-part series on bid rigging, it's past time to check the mailbag.

Q. I am planning on attending an auction in my area and am concerned that the seller may attempt to "by bid" on some lots to inflate the prices artificially and illegally by having his agents submit bids either in person at the sale or by telephone calls into the auctioneer. If all of the bidders are present, it would be easier to keep track of the bids, but I expect there will be telephone bidders, and this would increase the possibility of a "by bid." My fear is based on some personal knowledge of the seller and his business tactics, as well as his general reputation in the community. If I am a bidder in the auction, I want to know whether I can inquire of the auctioneer at any time during the sale as to exactly who is bidding. This is the only way that I could assure myself and others there that no one is bidding on behalf of the seller. If there is an approved protocol for asking this question, I would like to know what it is to make certain everything complies with both the law and all ethical considerations.

An auctioneer received this letter from someone he knows and forwarded it to me for my advice. I replied that two things about auctions have long perplexed me. First, sadly, a good deal of intentional wrongdoing is regularly practiced in some auctions to defraud bidders and buyers, so this questioner's fear might be well placed. Second, I am amazed by the large number of bidders and buyers who continue to patronize auctions even after they learn that illegal conduct is being perpetrated against patrons. This writer's letter hits both of these points. Mark me down as one who just doesn't get it that people like this just don't get it.

-By-bids

Let's begin by defining a term the questioner used. "By-bids" are bids placed in an auction by (can you believe it) a "by-bidder." A common synonym for "by-bidder" is "shill." Another synonym is "crook."

A by-bidder works for, or on behalf of, an auctioneer or seller. A by-bidder is a mere straw bidder who never intends to buy anything. Instead, his sole purpose in participating in an auction is to act as a decoy to trick other bidders into bidding more for the lots than legitimate bidding competition would require them to bid. A by-bidder bids on cue or instruction from an auctioneer to drive bid prices higher. By-bidders are often employees, relatives, or friends of the auctioneer or seller. What they do is outright fraud.

-Tracking Bids

An auctioneer works from a vantage point that is typically superior to anyone else's at an auction. The auctioneer is usually facing the crowd and frequently has the advantage of an elevated stand. The reason for this is to give the auctioneer the best means and opportunity to scan the crowd for bids on the lots being offered. Ask any auctioneer what her major concern is in calling bids, and she will likely tell you she worries about missing a bid. That is because, despite the advantages the auctioneer has to see the bidders, it is darned easy to overlook a bidder and miss a bid.

Now consider an auction-goer who is not facing the crowd and not at an elevated position to look across the crowd. What do you suppose the chance is of that auction-goer's failing to spot bids? The obvious answer is that it is a far greater likelihood the auction-goer would miss a lot more bids than the auctioneer would, and this probability grows significantly when you consider the secretive means by which numerous bidders bid to mask their identities and interest.

This brings us to an obvious question: how could a mere auction-goer ever keep track of all of the bidders and bids in an auction, let alone know who these bidders are? The answer is, he could not. The questioner's desire to visually "track" the bids made in an auction is pure folly.

The questioner is correct that the potential for wrongdoing certainly exists with telephone bids, but that risk is not lower when there is no telephone bidding and the auctioneer is working exclusively with a crowd in attendance. In that case, by-bidders and phantom bids are significant threats to bidders in auctions where such tricks are practiced.

-Hey, Mr. Auctioneer

The questioner wants to know if it's OK for a bidder in attendance to ask an auctioneer "at any time during the sale" who is bidding on a given lot. If it is OK, what's the correct protocol for doing this?

How many of you have been at an auction with the auctioneer steadily chanting the bid and asking prices for a lot when someone in the crowd wanted to stop the process to learn who is bidding? The answer to that question is, next to none of you. I have seen it happen just once when a woman interrupted an auctioneer.

"Who's bidding on this?" she called out to the auctioneer.

"If that's a bid, you are," the auctioneer replied. "If it's not, be quiet."

Now, that was a great answer. No auctioneer is going to suffer such an interruption kindly, because there is no protocol for interrupting an auctioneer during an auction and asking questions for which you're not entitled to know answers. That's right. No bidder is entitled to learn from an auctioneer who is bidding on a lot, and no auctioneer should provide that information. I previously alluded to the secretive bids that some bidders make for the very purpose of hiding their identities and interests from others. These people certainly don't want to be exposed to others by auctioneers that they patronize.

-More

Let's take this issue a bit further. The questioner's goal is to be able to "assure myself and others there that no one is bidding on behalf of the seller." How would asking the auctioneer accomplish this, even if he answered you? He probably doesn't know the identities of most of the bidders, so how could he tell you who they are?

What if the auctioneer answered this question by saying, "The gentleman in the back is bidding." In a large crowd of people, what would that tell anybody? How would anyone know which gentleman he meant? If the seller is crooked, there's a chance the auctioneer might not be the straightest arrow either. In that case, the auctioneer could tell the questioner anything, but there would be no guarantee of truth.

-Flip Side

Now let's consider a flip side to several of these points. Suppose an auctioneer is calling bids on a lot, and the questioner is a registered bidder in the auction. The questioner makes a bid, and another bidder calls out and asks who just bid. The answer is, the questioner did. Do you think the questioner would want the auctioneer to reveal her identity to the other bidder and the rest of the crowd? I'm pretty sure she wouldn't.

How about this? The questioner bids in an auction, and the auctioneer immediately stops the bidding and asks for the questioner's identity. Then he goes on to wonder whether she is making a legitimate bid and, if so, whether she has the intention of performing the contract for sale and the financial ability to pay the purchase price if she becomes the buyer. Would the questioner enjoy this line of inquiry being directed at her? Again, I'm confident she wouldn't-just as no auctioneer wants to be interrupted and questioned by a bidder in the manner mentioned above.

-The Big One

Do you remember the TV show The $64,000 Question? I was just a little boy and never watched it, but I remember people talking about it. Well, here's the "$64,000 question" for me on this letter: what is this person thinking?

The questioner is concerned that the seller is a cheat, but she states her intention to attend the auction and maybe bid. In Steve's world, that is not smart. I look at such situations and feel that if I walk into a snake pit, I don't expect to find a bargain. In a snake pit, you subject yourself to the risk of snakebite. You can avoid this risk simply by staying outside the pit where you needn't worry about snakes. Why would anyone want to go into a snake pit?

The seller's reputation causes the question writer to worry that by-bids might be placed on behalf of the seller to artificially drive up bid prices. That is a common practice in crooked auctions, and it is what you would expect to find in an auction involving cheats. It is also something worth worrying about because, where it happens, it poses a real threat to buyers' wallets. There's an old saying that applies here: "You can't beat a man at his own game." Why would the questioner want to try and beat the seller at a crooked game where the stakes are the questioner's money-and maybe a good bit of it?

-Conclusion

You can boil the question writer's worry down and paraphrase it: I strongly suspect the seller is going to cheat during the auction, and I don't want him to cheat me. How can I prevent that from happening?

The answer is simple and logical: carefully think about all of this and then do the only smart thing--don't go! Find an honest auction to patronize. There won't be any snakes running that event, and that's a really good thing.

That's it for now. Until next time, good bidding.

Steve Proffitt is general counsel of J. P. King Auction Company, Inc. in Gadsden, Alabama. He is also an auctioneer and instructor at the Reppert School of Auctioneering in Auburn, Indiana, and at the Mendenhall School of Auctioneering in High Point, North Carolina. The information in this column does not represent legal advice or the formation of an attorney-client relationship. Readers should seek the advice of their own attorneys on all legal issues. Mr. Proffitt may be contacted by e-mail at <sproffitt@jpking.com>.

© 2008 Maine Antique Digest

All articles in this series on Auction Law and Ethics are 2008 Copyright Maine Antique Digest and are reprinted with the assistance of of the Maine Antique Digest and the generous permission of the author, Steve Proffitt.

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