Legislation in New York Aims to Forbid Chandelier Bids

Legislation in New York Aims to Forbid Chandelier Bids

by Jessica Best and Betty Flood

Sham or chandelier bids from auctioneers would be prohibited, unless the bids are identified with the phrase “for the consignor,” under legislation introduced in both houses of the New York State Legislature. Also known as a “phantom” bid, a sham or chandelier bid is any bid announced by the bid caller for which there is no bona fide offer or bidder. It is used by bid callers to keep the bidding alive and moving upward.

“Sham bids create a false atmosphere of interest in offered work that may not actually exist and deprive the public of any real knowledge of the true level of interest for the work,” said Senator John J. Flanagan (R-C-I-Suffolk), a co-sponsor.

The legislation follows testimony claiming that the sham bids are used by auction houses as a means of obtaining bids that meet and/or exceed the reserve price. “At legislative hearings, witnesses testified that sham bidding undermines confidence in the art market, and that such bids are deceptive and should be prohibited,” said Flanagan. “Testimony was received that a sham or chandelier bid is not an ethical bid but is simply an inventive bid.”

Referring to the sham bids as “chicanery perpetrated by auction houses,” Assemblyman Richard Brodsky (D-West-chester), a co-sponsor, said, “Acceptance of a sham bid by an auctioneer on behalf of an auction house is essentially a deceptive practice. There is no justifiable reason to permit the taking of fake bids without disclosure of this practice to the public. The theatrical benefits created by this practice are far outweighed by the public’s right to be informed of the acceptance of such bids during the auction process. The marketplace has no need for such fraudulent and deceptive practices.”

In opposition, Sotheby’s Holdings, Inc., one of the most prestigious art and auction houses in the world, has labeled the bill “unnecessary” and claims that it would regulate auction houses “in a manner that would almost certainly result in sellers electing to have their artworks and other items sold at auction in London, Paris, or other locations outside the United States.”

In a memo against the bill, Sotheby’s stated: “In addition to adversely impacting the New York City auction market, this legislation also will negatively impact the hotels, restaurants, and retail markets that benefit from the national and international visitors who come to New York City to attend the premier auctions that take place at Sotheby’s and its competitors.

“This legislation appears to be based upon the erroneous theory that buyers at auction houses like Sotheby’s are not aware of the fully disclosed bidding practices that are utilized. In actuality, disclosure statements in auction house catalogs and other information plainly inform auction participants of the bidding methods. This includes notice of the existence of reserve bidding and guaranteed prices, when such methods are utilized.”

Sotheby’s cites the Department of Consumer Affairs of the City of New York’s regulations, which are applicable to all of Sotheby’s auctions in New York City and were developed in conjunction with the Association of the Bar of the City of New York’s committee on art law. The regulations include provisions dealing with licensing, bonding, fingerprinting, and monitoring of auctioneers; auction house disclosure to the bidding public if reserves exist; standardized consignor contracts; detailed invoices that are given to the purchasers; explanation of estimated values of works published in catalogs; and indemnification of purchases in the event of title defects.

“In addition to the foregoing, this legislation may have the unintended consequence of encouraging collusive bidding,” claimed Sotheby’s. “The bill would, in effect, require the auction house to disclose the seller’s minimum price for the property being auctioned. If all prospective buyers know the seller’s minimum price in advance, there would not be any incentive for bidders to enter an opening bid in the hope that the property will not be sold at auction. This would, in turn, provide potential buyers with the opportunity to seek to negotiate a private sale with the seller, but with the advantage of knowing the minimum price that the seller is willing to accept. Auction houses in other countries are not subject to such a requirement. Consequently, sellers would elect to sell their property overseas rather than in New York State.”

Thus, “…Sotheby’s strongly opposes this legislation and respectfully requests that the bill be held in committee.”