This article appeared recently in Maine Antiques Digest, August, 007. --ECW
http://www.maineantiquedigest.com/stories/index.html?id=88
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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."