Regulate Art Sales? It’s Being Debated in New York : Auctions: A legislator’s proposal to treat transactions like commodity trading sparks discussion among dealers. A hearing begins today.

Goaded by the assertion that they deal in a glamorized version of pork bellies, the city’s art dealers and auctioneers are engaged in a lively debate over the suggestion that art sales should be regulated like commodity trading.

Assemblyman Richard L. Brodsky, a Westchester Democrat, has questioned a number of sales and financing practices that flourished in the art market’s boom years, saying they contributed to inflated art prices and, in effect, drove public institutions from the market.

At the heart of the debate is a fundamental transformation of the art market during the go-go ‘80s. Art collecting was no longer the lofty pursuit of art devotees, but an upscale investment game that attracted a new sort of collector. Prices rose 100% every year starting mid-decade, and New York toppled London as the commercial center of the art world. Along the way, art dealers and auctioneers in search of a competitive edge turned to some of the practices now being weighed.

The questioning reflects the complex and sometimes oblique nature of art sales, involving such practices as “chandelier” bidding (when an auctioneer enters a non-existent bid to bring the price up to the lowest a seller will accept) and making “guarantees” (agreements to buy items that don’t sell at auction).

The most comprehensive airing of the debate is to take place today at a legislative hearing in Manhattan. Brodsky, chairman of the Assembly’s Committee on Oversight, Analysis and Investigation has invited art dealers, representatives of auction houses, art appraisers and consumer specialists to testify.

While no one has yet raised a voice in support of Brodsky’s most extreme proposal--regulating the art market like a commodities market--some people who plan to testify say the debate is a chance to restore order in the art market, especially now that the industry has fallen on hard times.

“I think the confidence of the consumer has to be supported because it has been sorely buffeted,” says Richard L. Feigen, a Manhattan art dealer. “A lot of these people laid off from Wall Street are finding out now that the painting on the wall isn’t worth what they thought.”

Brodsky’s inquiry into the art market was prompted by the revelation in 1989 that Sotheby’s auction house had loaned Australian businessman Alan Bond $27 million of the $53.9 million the tycoon paid for Vincent van Gogh’s “Irises” in 1987. Bond defaulted on the loan, and the painting was sold to the Getty Museum for an undisclosed price.

The “Irises” deal raised a number of issues. Brodsky wanted to know whether such loans were common and, if so, were they proper? Should auction houses and art dealers--ostensibly, disinterested middlemen--help to finance their sales? Brodsky also wondered whether other bidders on “Irises” were put at a disadvantage because Bond was bidding with a pre-approved line of credit. Did the loan inflate the price of “Irises,” then a record for a painting?

“When a dealer puts together a syndicate of his best collectors to invest in a painting, is that painting a commodity, or isn’t it?” asks Brodsky, who says he has not yet answered that question for himself during his 18-month inquiry. However, given the investment-minded nature of many art deals, Brodsky says there’s only one difference between fine art and less glamorous commodities: “You can’t hang a pork belly over the fireplace.”

Brodsky’s musings inspire fear that any further regulation would kill the art market in New York. City regulations governing auctions and art sales were amended as recently as 1987, after the Department of Consumer Affairs conducted an inquiry similar to the current state review.

At that time, the issue of “reserve prices” was studied. The department concluded that paintings for sale subject to a reserve--a minimum price predetermined by the seller and the auction house or dealer--had to be designated as such for potential buyers, but that the actual reserve price could be kept secret. The practice is under scrutiny again, with some people calling for full disclosure of the reserve price.

“That sounds nice--buyers will know what the minimum price is,” says Mitchell Zuckerman, president of Sotheby’s Financial Services. “But sellers won’t bring their art here (to New York) because nowhere else in the world is that required. We serve a very mobile constituency.

“If you don’t have good things to sell, you don’t get the buyers,” says Zuckerman. Sotheby’s sold $2.4 billion worth of art, jewelry and decorative objects worldwide last year, more than half of it in New York.

Because many of the practices being studied apply mainly to auctions, the debate is sometimes characterized as a fight between art dealers and the large auction houses. The Art Dealers Assn. of America has diplomatically avoided taking sides in the debate.

David Tunick, a New York City art dealer, says he takes issue with some auction practices, such as “chandelier” bidding, which he says is “fraudulent” and “undermines confidence in the art market.”

But others, he says, are dictated by the market. “I maintain that ‘guarantees’ are private contractual matters between the seller and an auction house. They take food off my table. They take pictures off my walls. But I can think of nothing morally or ethically or legally against guarantees. I think they’re a valid competitive tool,” says Tunick, who says the dealers and auction houses have to stick together.

“I’m a New Yorker, so I will stay here,” says Tunick. “But I don’t know that the guy who wants to consign a piece to me or an auction house will if it has to be disclosed what his reserve price is. As much as we might want to regulate the auction houses or want full disclosure, we must be mindful of keeping New York’s preeminence as an art center.”

After the dust from today’s hearing settles, and Brodsky gets down to shaping any legislation he might introduce, there will be one score left to settle. A turf war appears in the offing over who will ultimately watch over the city’s art market, the state or the city Department of Consumer Affairs.

“We will probably have to look at the regulations again,” says Carole Beroff, the agency’s director of legislative and intergovernmental relations. “Our concern is that we don’t want to be preempted. We feel that we should be the ones to regulate. They don’t auction art in Schenectady.”