Probe Hangs Over Lively Auctions

NEW YORK —  The annual spring art auctions got underway here this week with bidding on more than Renoir oils and Rodin sculptures.

This year, there also is bidding to see who may take money away from the two giant auction houses, Christie’s and Sotheby’s.

Oh, those very proper British firms are still putting on their usual high-class--and priced--shows in their Manhattan headquarters. Christie’s launched the seasonal sales Monday by getting $21 million for a Monet water lily painting sold at its Rockefeller Center digs, then brought in $28 million on Tuesday for a portrait that Picasso churned out in two hours back in 1932. Sotheby’s got into the action at its East Side office tower on Wednesday, finding a bidder willing to pay $24 million for its top Monet, this one of the Rouen Cathedral.

But the most unusual auction is taking place downtown, at the federal courthouse, where U.S. District Judge Lewis A. Kaplan has requested sealed bids by today from dozens of lawyers. Their prize? The right to represent the 1,000-plus plaintiffs expected to be part of a class-action lawsuit accusing the two dominant auction houses of price-fixing and other unfair practices going back to 1993.

The case is a consolidation of dozens of suits already brought by clients of the firms in the wake of the stunning disclosure by Christie’s this year that its top officials had begun cooperating with an investigation of auction practices by the U.S. Justice Department’s Antitrust Division, which has the power to bring criminal charges.

To the art world’s amazement, the 234-year-old auction house has rolled over, as they say in less genteel realms--turning over incriminating evidence in hopes of gaining more lenient treatment, according to court papers.

Christie’s and Sotheby’s control more than 90% of the world’s $4-billion-plus auction trade. These days they peddle Grand Cru wines, cat-themed jewelry and Hollywood memorabilia in addition to Impressionist landscapes.

At issue is whether officials of the two firms met secretly in an attempt to increase their take at both ends of the auction process after the fine art market slumped in the ‘90s: first increasing in 1993 the “premium” that buyers pay on top of winning bids, then in 1995 changing the way they took cuts from sellers. They also allegedly agreed that neither would negotiate any discounts with people seeking to auction off their art--except for a select list of elite customers, who sometimes were charged nothing.

The investigation has claimed three of the biggest names in auctioneering since last fall’s season. Christie’s CEO Christopher M. Davidge resigned the day before Christmas. But it was not until the end of January and into February that the art world learned why--Christie’s was cooperating with the Justice Department in return for “conditional amnesty,” a status granted suspects who report “illegal activity . . . with candor.”

With their counterpart apparently having surrendered notes and phone records to help make the government’s case, the top two officers of Sotheby’s submitted their resignations Feb. 20. Chairman A. Alfred Taubman and President Diana D. Brooks said they were acting in “the best interests of the company.”

Court records indicate that a grand jury has been convened to hear evidence, but a Justice Department spokeswoman says only that an investigation is ongoing into “the possibility of anti-competitive practices in the fine art auction business.”

On top of the government scrutiny and the civil suits--which seek triple damages--the two auction houses face an additional challenge this week: a would-be rival.

Phillips Auctioneers, another British firm but a distant third in grosses, is trying to step up in class, and dollars, to compete with the Big Two.

Phillips is backed by a new deep-pocket owner, Bernard Arnault, the French entrepreneur whose parent firm, LVMH, owns such upper-crust brands as Dom Perignon, Louis Vuitton and Parfums Christian Dior. Phillips has rented for three weeks a major part of the American Craft Museum--half a block from Fifth Avenue--and reportedly promised top-dollar guarantees to art sellers to lure their “lots” away from Christie’s and Sotheby’s.

It also promised to contribute to charity 3% of the winning bid price for each object at its marquee sale Thursday. No less than Sharon Stone agreed to accept the donation on behalf of AmfAR, the AIDS research organization.

Phillips’ ‘Repositioning’ Began Last Fall

Phillips’ CEO, Chris Thomson, said the auctioneer began plotting its “repositioning” last fall, prior to the unexpected turmoil at Christie’s and Sotheby’s. But he is not averse to exploiting any resentment among art patrons who may believe the dominant houses took more than a fair cut from past sales.

“Those other houses have given us an opportunity,” Thomson said. “People are ready, without question, for a strong third house.”

All this comes during an expansionist time for Christie’s and Sotheby’s: Both have renovated their headquarters here to fit more bidders in their main auction rooms ringed by private suites. Both are poised to gain the right to operate in Paris, after centuries fighting protectionist French policies. And both are making increasing use of the Internet--Sotheby’s actually selling through a dot-com unit and Christie’s offering “live Web casts” of its auctions here.

But as visible as the action seems, this luxury-goods business has long thrived on secret bidding signals, secret reserves, secret guarantees and other clandestine financial agreements.

A case in point was Sotheby’s loaning money to Australian mogul Alan Bond so he could pay a then-record $53.9 million in 1987 for Van Gogh’s “Irises,” using the painting as collateral. The arrangement was disclosed three years later when Bond defaulted on the payments, setting the stage for Los Angeles’ Getty museum to get the painting.

It’s certainly no secret that Christie’s and Sotheby’s long have cooperated on some matters, such as auction scheduling. That seemed logical, though, as it enabled buyers to make the rounds of sales.

Nor was there anything automatically suspicious about the fact that the two firms imposed the same fees on buyers. Until 1993, winning bidders paid a flat 10% surcharge to the auction houses above the “hammer price.” Then, within less than two months of each other, Sotheby’s and Christie’s adopted a new sliding scale--15% on the first $50,000, and 10% for amounts above that.

Two years later, both changed fees charged to sellers, abandoning a flat 10% commission.

This seemed little different than airlines matching one another’s price changes.

Indeed, the auction houses had reputations as fierce competitors, particularly when it came to wooing the society families and great art patrons with treasured collections. The two firms tried to distinguish themselves with charm, expertise, exhibitions, parties and publications, putting out art book-like catalogs for exhibitions.

But the complaints filed in federal court here allege that the surface of fine manners masked a crude collusion.

Officials of the two firms allegedly met in London and New York to work out price schemes and pacts not to give discounts, except to that select few.

“In fact . . . both established a system of referring any attempts to negotiate or reduce rates . . . to the highest levels of the respective companies,” says the latest amended complaint, filed April 5. Those top officials, Brooks and Davidge, would then hold tough, refusing to undercut each other, the plaintiffs allege.

The result was that buyers and sellers paid more “than would have been paid in a free and competitive market . . . [and] to inflate the revenues of Christie’s and Sotheby’s,” the complaint says.

“Nobody had any understanding that there was anything illegal going on,” says Washington, D.C., attorney Michael Hausfeld, who represents both buyers and sellers in the case. He said his clients reacted with “surprise and anger” to conduct of “two institutions which publicly had the image of trust.”

The resigned auction house officials have refused to comment. But in a memorandum filed last month, Sotheby’s argues that while there may have been “conscious parallelism” in pricing, that “does not prove a violation of the antitrust laws.”

Some Fear Harm to Art Market

Amid the federal investigation, both Christie’s and Sotheby’s changed their rate schedules in February. They are no longer identical.

Some arts professionals fear the scandal could damage the whole art market, making potential buyers and sellers ever more suspicious. Some art dealers, meanwhile, are quietly gloating--in the hope that collectors will abandon the auction houses and take their trade to galleries.

But as this week’s sales began, others sensed the fascination with great art--or simply expensive art--would overshadow any taint.

“I don’t think it’s going to change the hunger of collectors and trophy hunters,” said veteran Old Masters dealer Eugene Thaw. “If the economy doesn’t take a nose-dive, everything that’s good will be sold--and sold well.”

A standing-room-only crowd descended on Christie’s opening sale Monday night to see tuxedoed chief auctioneer Christopher Burge direct bidding on 47 lots.

Some 90 minutes later, 42 of the works had sold for just over $104 million, including the auction house commission. There was one record price for an artist’s work--$14.3 million paid for the portrait by Gustave Caillebotte of a top-hatted businessman looking over Paris from his balcony. But other works fell short of their pre-sale estimates in tepid bidding, and it took the auction house commission to bring the price for the prized Monet, the 1906 “Nympheas,” above its low estimate of $20 million.

“It’s not a crazy boom market,” Burge said after the action, enjoying a glass of wine while facing the art press. “It’s a sensible market.”

Had the downturn in the stock market had an impact? Or the lack of new estates--loaded with art--available for auction?

Burge spent more time addressing such issues than the impact of the antitrust investigation. There was none from that, he concluded. “You saw it--there was not an empty seat,” he said.

They were back Tuesday night for $72.9 million more in purchases, anchored by the 1932 Picasso. Then the crowds moved Wednesday to Sotheby’s, where 42 lots of Impressionist and modern art were sold--out of 50 offered--for $140 million.

Phillips’ Thursday auction revolved around an early abstract by the late Russian painter Kazimir Malevich. Until last year, the 1919-20 work showing an angled cross, “Supremacist Composition,” hung across the street in the Museum of Modern Art. But it was returned to 31 of Malevich’s heirs in a settlement in which the museum was allowed to keep 15 pieces by the Russian, who lost many works after leaving them in Germany for safekeeping in 1927.

Phillips, whose previous high price for a work at an auction was $2.5 million--for a Monet landscape in 1998--hoped to get well over $10 million for this one, perhaps up to $20 million.

On the docket today is the hearing before Kaplan for lawyers seeking to direct the class-action.

The irony of the process--that this too has become an auction--is not lost on the lawyers. But their bidding has hardly been genteel.

At a meeting Feb. 8, the initial antitrust lawyers filing cases against auction houses selected five firms to spearhead the effort. Other lawyers complained that the winners “bargained for their positions by promising specific committee chairmanships to firms that would support them.”

Soon after, Kaplan appointed an interim executive committee of six lawyers and requested bids for getting the permanent lead counsel, presumably to maximize the take to clients and not eat up all of a settlement with legal fees.

But groups of lawyers have submitted memos from law professors (one paid $400 an hour for her time) arguing that the “sealed bid auction” is a bad idea.

“The cheapest counsel is rarely the best counsel,” one wrote. “Patients facing brain surgery do not conduct auctions for their surgeon.”

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Times art writer Suzanne Muchnic contributed to this report.