News: Full Disclosure

By: Daniel Grant

October 2007

NEW YORK—Emcees warm up their audiences’ mood with some jokes before the featured act and governments “prime the pump” with public spending to encourage private investment. So when auction houses claim phantom bids to build momentum in the real bidding—is it the same thing?

Republican New York State Senator John Flanagan says no. “Consumers can get hurt when everything isn’t out in the open, when they’re competing against imaginary bidders at an auction.” In June, he proposed an amendment to the state’s General Business Law to prohibit “acceptance of sham or chandelier bids by auctioneers without disclosure” to actual bidders. The bill is a companion to another that the State Assembly passed in early June, sponsored by Democratic Westchester Assemblyman Richard Brodsky, who has been promoting these changes in every session of the legislature since the early 1990s.

Auctioneers believe that chandelier bids—so named because they appear to come from the ceiling—are a necessary tool of the trade. “People don’t start bidding right away, and you need to build up momentum,” says Debra Force, former director of Christie’s American Paintings department and currently an art dealer in Manhattan.

Under New York City’s 1987 Department of Consumer Affairs law, an auctioneer may, on behalf of the seller, bid up the price of a lot to its reserve. However, the auction house must disclose this practice both on signs posted at the entrance or inside the auction room and in the sale catalogue. (Sotheby’s Condition of Sale statement, for instance, announces that “The auctioneer is entitled to make consecutive bids or make bids in response to other bids on half of the ‘seller’ up to the reserve placed on the lot, although the auction will not indicate during the auction that he is making such bids on half of the ‘seller.’”) After the lot’s reserve price is reached, neither the consignor nor the auction house may bid further. “Nonexistent bids and secret reserves have long been a part of the system and, really, no harm is done,” says New York City arts lawyer Ralph Lerner.Many auctioneers say that the Brodsky and Flanagan bills are a solution in search of a problem. “We have clients who are not at all shy about revealing what they like and don’t like, and this isn’t one we hear about,” says Andrew Foster, chief operating officer at Christie’s, a claim which is echoed by a spokesman for San Francisco’s Bonhams & Butterfields.

“Basically, the legislation is asking auction houses to disclose the reserve,” says Gilbert Edelson, administrative vice-president of the Art Dealers Association of America. Senior auction house administrators worry that if the reserve price were made clear to bidders, they would show reluctance to go much beyond that. The reserve is always below the auction house’s stated low estimate of the object’s value and ranges from half the low estimate to 90 percent of the low estimate. (In rare cases, the low estimate will be the reserve, but it will never be above the low estimate.) “The public doesn’t need to know what the reserve is, so long as the low estimate is stated,” says Chicago auctioneer Leslie Hindman. If the reserve were instead eliminated completely, “there would be no auctions,” Force says. “Only in the hinterlands are there absolute auctions, where you take whatever someone is willing to bid. Without reserves, consignors would only sell at galleries.” Edelson agrees: “If there were a law requiring the auction houses to reveal my reserve price, I would try to sell my property in London, where they don’t have a law like that.”

So how can auction-goers identify these imaginary bids? Marc Selwyn, an art dealer in Los Angeles who had been in charge of West Coast art sales at Sotheby’s until the mid-1990s, states that chandelier bids are probably taking place when the auctioneers “don’t identify the location of the bidder.” Force, on the other hand, pays more attention to what is being said. “If the auctioneer says, ‘The bid is up here’ or ‘The bid is up front,’ that means the house is executing the bid.”
Still, no method is foolproof, especially as bids may come from a variety of sources—in the audience, over the telephone, in an absentee note or online. “If I didn’t see anybody’s hand go up, I think it wasn’t a real bid,” says Robin Starr, who both conducts auction and works in Skinner’s American and European paintings and prints department. “Of course, some people bid very subtly, and you can’t always tell.”