Trouble at the Auctions
Buying at Auction: Part One
Have you been reading about the troubles at Sotheby’s over the past two years? Are you wondering why A. Alfred Taubman, chairman of Sotheby’s, went to jail, and under what circumstances both auction power houses, Sotheby’s and Christie’s, were fined $512 million to settle civil claims against them? What follows is a brief synopsis of the chain of events of the past ten years that led to the eventual demise of some of the most influential people in the art world.
A. Alfred Taubman, a shopping-mall mogul worth $770 million, bought the suffering auction company in 1983. He turned it into a successful commercial enterprise, expanding its clientele from art dealers to the moneyed elite through a careful marketing campaign and through popular sales, such as the Jacqueline Kennedy Onassis estate sale in 1996. The self-made Taubman is also a major philanthropist, donating to the arts, education, medical research, and religious charities. He appointed D. Diana "Dede" Brooks president and CEO in 1994. Brooks came to the company from a successful banking career, and during her six-year tenure at the company, she was arguably the most successful and influential woman in the art world.
After a series of closed-door meetings between the houses’ two chairmen, A. Alfred Taubman and Anthony Tennant, orders were given to the companies’ chief executive officers, D. Diana Brooks and Christopher Davidge, to end the houses’ competition by fixing commissions and eliminating discounts to clients. Brooks and Davidge came up with a plan to charge sellers the same standard, non-negotiable fees in order to eliminate the fierce and costly competition to attract consignments. They also agreed to keep quiet about their plans. Soon after, Sotheby’s raised the buyer commissions on the first $50,000 of the final purchase price of an item from 10% to 15 %. Six weeks later, Christie’s followed suit. In 1995, Christie’s took the lead by instituting a sliding scale for its fees. Sotheby’s adopted the practice soon after. This was price-fixing, pure and simple, and it attracted the attention of the U.S. Justice Department, which began an investigation in 1997.
In January, the Justice Department’s probe went public with the announcement that Christie’s was cooperating in exchange for conditional immunity from criminal prosecution. Davidge confirmed price-fixing and anti-competitive activities; Taubman and his protégé Brooks resigned from Sotheby’s, with Taubman denying any knowledge of the escapades and implicating Brooks as the mastermind. In September 2002, both auction houses agreed to pay $512 million to settle a class action civil suit. Taubman agreed to pay $156 million of Sotheby’s share from his own pocket. He also paid $30 million to settle shareholder lawsuits, which resulted from the plummeting stock of the company once the scandal broke.
In turn, with testimony provided by his former star, Brooks, a federal grand jury indicted Taubman and his counterpart at Christie’s, Anthony J. Tennant. Tennant, a citizen of Great Britain, was not extradited. Taubman stood trial in New York, was found guilty, and was sentenced to one year and one day in prison and a fine of $7.5 million. He is currently serving his term.
In addition, Sotheby’s was fined $45 million for price-fixing, and Brooks was also convicted for her role in the scandal. She was fined $350,000, ordered to serve 1,000 hours of community service, and sentenced to three years’ probation, the first six months of which she would spend in home detention. Her term ended on November 8, 2002, and she is currently serving the remainder of her probation.
Amazingly enough, the scandal has not crippled the houses’ ability to do business. While total revenues have dropped somewhat from the heady days of the 1990s, this past July, Sotheby’s sold Peter Paul Rubens’ The Massacre of the Innocents for $76.7 million, the third highest price ever paid for a painting at auction. The paintings keep coming, and the customers keep bidding, and it seems that Sotheby’s and Christie’s will emerge from the scandal basically unscathed.