The Auction House Scandal

By ROBERT HUGHES

Maybe it was Oscar Wilde, the greatest Irishman since the blessed Brendan, who said it best: "One must have a heart of stone to read [Dickens' description of] the death of Little Nell without laughing." Much the same is true of the latest story to convulse the art world: the travails of the world's two biggest art-auction businesses, Sotheby's and Christie's, rivals that now stand accused by the U.S. Justice Department of colluding to rig the auction market by fixing their sales-commission rates. The art market, particularly in its auction form, has always been secretive, manipulative and repellently sanctimonious, preaching the "objectivity" of auction prices. Sotheby's and Christie's, dealers and collectors know, are all-powerful. "They are the auction market," says Howard Read of the New York City gallery Cheim & Read.

It had long been taken for granted that the art-auction business, like the art business generally, was immune to criminal investigation. Why? Because, you boring philistine, it was about noble and holy art. To stand on the podium and receive bids for a Rubens Crucifixion or a still life by Van Gogh, who died for our sins, was not like buying a vanload of AWOL television sets or a few vials of crack. But, of course, it is just another business. The auction market shifts more than $4 billion a year, and its two powerhouses, Sotheby's and Christie's, control 95% of that. For decades, rising to a climax just before the great art-market crash of 1989, Brits with pinstripe suits and faces like silver teapots have been flogging the benefits of art ownership to the rich on both shores of the Atlantic: art as investment, art as social elevation, art as confirmation of status, art as relic-hunting--the whole rigmarole that has actually done more to debase the real messages and values of art than anything else in our culture.

Sotheby's, with Christie's not far behind, has led the field in this enterprise of simoniac strip-mining. No excess, no necrophiliac vulgarity, was too great--the $54 million Van Gogh Irises that didn't really sell, the degraded spectacle of Americans hyped into bidding tens of thousands of dollars for gewgaws that once reposed in Jackie O.'s lavatory, the nitwits scrambling for sole and unimpeded possession of Marilyn Monroe's faded frillies. So for many, the idea that the mighty auction duumvirate should find itself humbled for any reason was almost too delicious to contemplate.

But that's what's on the table, in such plain view that Christie's last month ratted on Sotheby's by providing "information relevant" to the Justice Department, just weeks after Christie's chief executive, Christopher Davidge, abruptly resigned. Last week Davidge was followed by the two top officials of Sotheby's, A. Alfred Taubman, the chairman and largest individual stockholder who bought the firm in 1983 and took it public in 1988, and Diana ("Dede") Brooks, its chief executive. A replacement team was hastily assembled. Former Columbia University president Michael Sovern took Taubman's role as chairman, and William Ruprecht, managing director of Sotheby's North and South America, stepped in for Brooks.

The Christie's surrender of information bought it conditional amnesty, but Sotheby's, slower off the mark, will get none. "The idea of the program is to get the first guy to break," notes Albert A. Foer, president of the American Antitrust Institute in Washington. Although Christie's may be off the hook, "Sotheby's could be required to pay a penalty. Some people could go to jail."

The feds' investigation did not, in fact, begin with the auctioneers. In the early 1990s, the Justice Department turned its scrutiny on private dealers in an effort to nail the ones who indulged in "ring" bidding--the technique of defrauding sellers by agreeing not to bid against one another in the auction room so that the low-balled object could then be sold by the ring at a second, informal auction of dealers only. About a dozen dealers and collectors were convicted. But Justice decided that the paper trail compiled in those cases might lead further--to Sotheby's and Christie's. It subpoenaed truckloads of letters, documents, phone books and sales catalogs from both houses, and started to dig.

Auction houses charge two commissions on sales--one from the buyer, the other from the seller. It's perfectly legal to drop or raise your prices after a rival does; gas stations facing off across an intersection do it all the time. What's illegal is for two or more rivals to form a "cartel" by agreeing in advance to fix a price. One of the signs that this may be happening is a close, copycat pattern of changes--and this, the Justice Department claims, is what has been happening for years between Sotheby's and Christie's. In 1992 Sotheby's raised its buyer's fee from 10% to 15% on the first $50,000 (on higher amounts the buyer paid 10%). After just seven weeks, Christie's announced an identical fee rate. Three years later, Christie's took the lead by changing its seller's fee from 10% to a sliding scale of 2% to 20%. After a few weeks, Sotheby's did the same thing.

Whether the feds' charges stick or not, the auctioneers' legal headaches have only just begun. The case has invited civil suits by disgruntled collectors alleging that the commission-fixing has defrauded them as sellers and buyers. And indeed, some 38 suits have already been launched, and last week they were consolidated into a class action. Under class-action rules, theoretically anybody who bought or sold art at Sotheby's or Christie's during the period of the alleged conspiracy could become a party to a suit. This could run into thousands of people and tens of millions of dollars in claimed damages.

The damage to the auctioneers' reputation could be equally severe. Their woes fall at a time when they seemed to be growing ever richer and more powerful. The art market had rebounded; sales were up. Both firms had invested in glossy and expensive new Manhattan headquarters. Sotheby's fortunes, particularly, were expansive, as it opened outlets in Amsterdam and Zurich and spent more than $40 million to make itself a presence on the Internet, including a partnership with Amazon.com Accordingly, Sotheby's has taken the greater fall. Its stock, which was at 47 last April, closed last Friday at 19.5, after sinking as low as 14.5 earlier in the week. And its tarnished image prompted rumors that it might be a takeover target for French financier Bernard Arnault, head of the luxury-goods conglomerate LVMH Moet Hennessy Louis Vuitton. If Arnault acquired Sotheby's, it would afford him yet another confrontation with his archrival, French investor Francois Pinault, who has owned Christie's since 1998.

What longer-term effect the scandal may have on the auction industry is far from clear. Christie's has already announced a new fee structure, raising the amount buyers must pay to 17.5% on the first $80,000 and 10% above that but reducing the seller's commission for customers who buy a lot of art. The art world awaits Sotheby's response. "We will not be underbid by Christie's," new chairman Sovern told TIME, "and we are reviewing our fee schedules to make sure that we are as competitive as we need to be."

Dealers of course hope that clients will buy more through them and less at auction. Collectors, says gallery owner Howard Read, prefer "a relationship with someone they know and can trust." Stephen Wirtz of San Francisco's Stephen Wirtz Gallery thinks the harm will be done by a free-floating unease. "Whenever there is some kind of seemingly blatant dishonesty, people will probably want to sell less at auction," he says.

But the houses are not without their defenders, like West Coast private dealer Aaron Shraybman, who says he is "saddened" by the affair and points out that "it's not like they tried to do something and cover it up. I don't think the Justice Department understands the breadth and scope of what the business is. They are just taking the law to its hardest form." Either way, the year 2000 opens a rocky time for art auctioneers, and it bids fair to let air out of, as well as into, their trade.

--With reporting by Daniel S. Levy and Aixa M. Pascual/New York

With reporting by Daniel S. Levy and Aixa M. Pascual/New York