Auction Law and Ethics
Templeton Peck. Do you remember him from the 1980’s? He was the slick con man on The A-Team TV series (1983-87). Peck was such a pretty boy he was often called “Faceman.” I always liked the show and often recall the wry-smiling Faceman when I think of auctioneers—not because of shared characteristics, but because I sometimes refer to auctioneers as the “Faceman.”
My use of the moniker for auctioneers relates to their being “the face” of the auctions they conduct. Auctioneers are seen by auction-goers as the person in charge and, therefore, responsible for all that occurs. Auctioneers build their reputations, good or bad, on what happens at their auctions. If folks are satisfied with what transpired, the auctioneer receives positive reviews. If anything goes awry, either in reality or perception, witnesses will badmouth the auctioneer and give him or her a bad grade, maybe as low as an “F.”
At first glance the way people judge auctioneers seems fair enough. Good conduct draws good marks, while anything less incurs a penalty. When you consider the issue more carefully, however, it becomes clear that this approach is flawed since auctioneers can’t control everything that happens in their auctions. Sometimes auctioneers don’t even know some of what takes place behind the scenes. To borrow a line from The Wizard of Oz, there is sometimes a “man behind the curtain,” and that “man” is the seller. The auctioneer might be the “face” of the auction, but sellers frequently engage in conduct that makes what auctioneers and auction-goers alike see and believe to be happening more illusion than reality.
The clock had flipped from a.m. to p.m., and I was near to leaving the office for lunch. My phone rang. The receptionist alerted me that a man on the line said that he urgently needed to speak with me. He was an auctioneer. I get calls like this and when I do, I try to take them. I realized that some auctioneer was upset about something that had happened, and if I could help relieve the problem, I would be glad to do so. This was the case, and the auctioneer was surprised, angry, disgusted, and uncertain about what to do regarding a rogue seller.
The auctioneer had conducted a large auction for a seller the previous day that contained hundreds of lots with a number of highly desirable pieces. He had widely advertised the event as an “absolute auction” (i.e., an auction without reserve protection on the lots), and it had been heavily attended. The auctioneer had registered over 300 bidders. His call to me centered on what he described as the “jewel” of the event. To preserve the anonymity of the parties, the piece will be referred to as a “widget.”
The widget came to the block and was greeted with enthusiastic bidding from several serious contenders. The auctioneer was delighted as the bids rapidly rolled in. When the lot was finally hammered down, the item had achieved a little less than what the seller had said he hoped to get for it, but the auctioneer felt it was a fair price for both the seller and the buyer. Unfortunately, the stench of something rotten soon arose.
At the end of the auction, the seller approached the auctioneer. He had expected the seller to say how pleased he was with everything. The man didn’t. Instead, the seller said he didn’t want the widget to be run through the auctioneer’s books because no money was going to change hands for the piece.
The auctioneer asked what was going on, and the seller revealed that the “buyer” was his daughter who lived out of state. She had never met the auctioneer, and the auctioneer knew nothing about her presence at the auction. The fellow added that he wanted no mention made to anyone of what had occurred. For the auctioneer’s cooperation, the seller offered to pay the full commission the auctioneer would have earned on a sale to a real buyer at this price. The auctioneer said he was shocked and never expected anything like this from the seller.
An unfortunate truth is that some auctions rival the best magic acts in Las Vegas. The illusions are perfectly camouflaged and largely undetectable. An observer thinks she’s seeing one thing when, in fact, something quite different is happening right before her eyes.
This is what happens when a person bids and seemingly becomes the buyer of a lot, but is not a real buyer who will pay real money for the item. This practice is used by some auctioneers and sellers to protect lots from selling to buyers for prices less than what the sellers want to accept.
Three schemes are commonly used to run up bids on legitimate bidders in an effort to induce them to bid higher for an auction lot than legitimate bidding competition would require, all without the audience knowing what is occurring:
In the case of our aforementioned example, the daughter served as a shill (“b”) to protect her father’s widget from selling for less than he was willing to accept. These techniques are generally fraudulent and are violations of law.
Supreme Court Justice Louis Brandeis once observed: “Sunlight is said to be the best of disinfectants.” Indeed it is, but the light must pierce the haze before the infection can be cured. Sometimes that happens in an auction, which leads to the discovery of an illicit bidding scheme. Things then get interesting.
There is an old saying that “hell hath no fury like a woman scorned.” A bidder who has discovered that he or she was cheated while legitimately competing for an auction lot may demonstrate a similar temperament! These people rightfully can run plenty hot about what was done to them. Look back to the beginning of this column to see who will be targeted for the bidder’s ire when this occurs—it will be the “Faceman,” the auctioneer. The auctioneer gets the harpoon every time, but often doesn’t know what has occurred, and is not responsible for the wrongdoing.
Sellers have a strong financial interest in the goods that they consign to auction. More than a few make plans to protect their assets against a perceived sacrifice, and these sellers are prone to keeping their intentions secret, even from the auctioneers. What’s more, given a chance, such sellers will readily toss an auctioneer off a cliff into a canyon of blame before they consider taking that plunge themselves.
That’s what this seller was saying to the auctioneer who called me. He was willing to pay a commission for the auctioneer’s silence. The seller didn’t want to take a hit of any kind for what he and his daughter had done, so he instructed the auctioneer to remain quiet so any knowledge or suspicion that bidders might have about the event would be focused solely on the auctioneer. After all, when things like this happen, everyone knows that the auctioneer did it and deserves the bullet. Meanwhile, the real architect of what transpired stays behind the curtain and walks away unseen.
The caller clearly could see all of this and the possible setup, and he didn’t want to take the fall for what he hadn’t done. His question to me was, “What do I do?”
I complimented the auctioneer on recognizing that this situation held risk and potential liability, which he needed to block. News of what had happened was certain to find the light of day. Even if the auctioneer maintained his silence, others were involved who would talk among themselves and then to outsiders. There was a cashier who knew the lot hadn’t been paid for. The clerk who had recorded the sale price on the clerking sheets was a friend of the cashier. Both these women were friends with the three ringmen (one of whom worked with the daughter on her bids) and the other crew members.
I advised the auctioneer that he was facing these primary risks:
The auctioneer needed a shield to protect himself against these risks. The “shield” should be a document that includes several components and is signed by the seller. First, the seller should acknowledge full responsibility for the bidding that was done on the lot by his daughter. Second, the seller should acknowledge that the auctioneer had no knowledge that the daughter was bidding, no involvement in it, and no liability for it. He discovered the facts from the seller only after the auction had ended. Third, all post-auction decisions on this matter were made by the seller who, as principal, instructed the auctioneer, his agent, on how the matter would be handled. Fourth, the seller should promise to hold harmless and indemnify the auctioneer against any adverse matter that might arise from this and pay all costs that might accrue to the auctioneer. Fifth, the seller should agree to immediately pay the full amount of the auctioneer’s commission on the “sale” to the daughter.
I advised the auctioneer to promptly contact his attorney to have this document prepared for presentation to the seller for execution. If the seller refused to sign it, the auctioneer should write a comprehensive file note about everything that happened and state that the seller declined to execute the document prepared about this event.
Auctioneers aren’t all saints, and some use bad practices in their auctions. Many auctioneers are honest and ethical practitioners, yet bad things sometimes happen in their auctions. When something unsavory occurs, auction-goers shouldn’t jump to the conclusion that it’s wrongdoing by the auctioneer. Oftentimes it’s not. While it’s true that the auctioneer is the face of the auction, sometimes there’s a face behind the “Faceman”—a guilty seller.
That’s it until the August issue of M.A.D. Until then, good bidding.
Steve Proffitt is general counsel of J.P. King Auction Company, Inc., Gadsden, Alabama. He is 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. Proffitt may be contacted by e-mail at <email@example.com>.
Originally published in the July 2013 issue of Maine Antique Digest. © 2013 Maine Antique Diges