Incidents Spark Complaints : N.Y. Plans to Impose Auction-House Rules

For the international auction houses, publicity has always been free and almost always favorable. Multimillion-dollar art sales in the pulse-pounding atmosphere of the auction hall have regularly grabbed headlines and stirred interest in venerable British-based Sotheby’s, Christie’s and their smaller brethren.

But recently the houses have been bathed in a highly unflattering light. Christie’s has launched an internal investigation following the resignation of a top official who confessed that he had lied about a sale to bolster market prices.

Further uptown in Manhattan, Sotheby’s has agreed to recall 21 Hebrew manuscripts and rare books that were auctioned in June, 1984, because the consigner did not have clear title to the property.

Complaints Rekindled

The two incidents have rekindled the complaints of some art dealers and collectors who have long asserted that they operate at a disadvantage with their sometime rivals behind the gavel. And they have drawn the attention of New York’s Commissioner of Consumer Affairs, who has launched his own investigation and has decided that it is time to impose new rules on a burgeoning industry that now operates with few regulatory fetters.

The nub of their criticism is that auction houses disclose some information but conceal other facts to stimulate bidding and hype the market for their products. “The question is whether the medicine-sideshow mystique deceives people, creating the circumstances for consumer injury,” says Angelo J. Aponte, the consumer-affairs commissioner.

The issues have become more important as auction-house sales have steadily increased, he contends, and the houses have sought to increase their sales to what they call “retail,” or non-professional, purchasers. The New York market recently surpassed the London market as the most lucrative in the world, and the imposition of new regulations thus could have far-reaching consequences on the prices of fine art and a host of other collectibles.

Sued by Consigner

Auction-house officials have joined in condemnation of the action of David Bathurst, former chairman of Christie’s New York and London operations, who lied after a 1981 auction by saying that three Impressionist paintings were sold when only one had been.

In what he said was an effort to prop up the paintings’ prices, he announced after a disappointing auction that Van Gogh’s “Houses at Saintes-Maries-de-la-Mer” had sold for $2.1 million and Gauguin’s “Still Life With Mangoes” had gone for $1.3 million. Actually, the bidding did not meet the reserve on these two paintings, so they were returned to the consigner, who sued Christie’s for failing to properly execute the sale.

Christie’s this month agreed to pay an $80,000 fine to the city. Bathurst, who remains a Christie’s director, agreed to surrender his license to conduct auctions in New York for two years. Meanwhile, Christopher Burge, president of the firm’s New York operations, agreed to give up his license for four months in light of the city’s finding that he took no action to correct Bathurst’s lie when he learned of it.

Critics of the houses’ practices seized on the incident as an illustration of seemingly small deceptions that they say could cost bidders dearly. In his investigation, Aponte is examining four key areas:

- The use of secret “reserve,” or minimum, prices.

- The use of estimated prices in pre-sale catalogues that are sometimes far lower than the ultimate sale prices.

- Auctioneers’ failure to immediately announce when a property has not met the minimum sale price and will revert to its owner.

- Bidding for properties by auction-house principals who may have inside information.

Auctioneers typically begin the bidding on a property below the reserve price, in order, they say, to engage the participation of bidders and create momentum.

“The fact is, that serves no purpose except theater,” says Robert Graham Jr. of New York’s Graham gallery, who is a fifth-generation art dealer and frequent critic of auction practices. “If the free market is operating, the property should find its own value without that created atmosphere.”

He maintains that auctioneers should begin bidding at the minimum price.

‘Bait and Switch’ Tactics

Auction houses respond that disclosure of the minimum would enable bidders to secretly agree on a price just above the minimum, purchase the property and resell it in their own “rump” auction.

Aponte said he is also concerned that auction houses might be setting low estimates to entice bidders in a tactic similar to retailers’ classic “bait and switch” techniques. He said that, at one auction early this year at Christie’s, the value of a painting by American folk artist Ammi Phillips was estimated at between $60,000 and $90,000. The painting sold, however, for $682,000.

Auction officials maintain that such disparities are rare and occur only when properties are so unusual that there is little information available on which to base a prediction of the sale price. Burge said that at the time of the Phillips estimate there had been no recent sale of a comparable Phillips work.

Many auction officials say they do not announce when a property has failed to bring the minimum price to avoid dampening enthusiasm of bidders for the properties that will be offered immediately afterward.

Aponte said he is concerned that auction-house principals may be using inside information much as some corporate officials use it to play the stock market.

Before a sale, auction houses receive advance, written bids. Such information, and information about reserve prices, could be used by an insider to win a property with a bid that is only slightly higher than competing offers, consumer affairs officials say.

Auctioneers “insist that they set up guidelines that would keep their people from knowing that information, but that’s difficult to swallow,” Aponte said.