Is collusion a common practice in numismatic auctions?

[MikeInFL]

In this thread ATS: http://forums.collectors.com/messageview.cfm?catid=26&threadid=631829

 

Rick Snow said the following:

 

At the FUN show I decided not to bid on a rare coin because the person who would have bid against me would have been the guy I would have sold it to! Do I buy it just so I can make a buck and cost my friend more. Seems like the gentlemanly thing to do at the time. He did buy me some beer (yeah, I work for beer, sometimes)

 

However, also at the FUN show, I was going to bid on a number of coins and another good friend had intentions on the same coins. I offered to bid for him for 5% rather than compete against him. (Hey - I'm there to feed my family! I can't lay down on all the coins I targeted.) I made $2K for 15 minutes work (yeah, work - raising my hand) and he saved himself about $5K.

 

Isn't that called collusion?

 

Is it fair to the seller and auction house?

 

Is collusion a common practice in numismatic auctions (i.e. is all fair in love and auctions)?

 

Your thoughts would be appreciated....Mike

[DC Dawg]

What's wrong either scenario? In the first case, you keep a friend, which would be more beneficial in the long run. In the second case, Rick has it right, he has a family to feed. He worked a deal and made money. No harm no foul!

 

Is it collusion? No. What was wrong of deceitful about what these people did?

 

Is it fair? Define fair! Is it fair for the auction house to pump up the prices of coins to gain a better profit? Is it fair for the auction house to collect both sellers and buyers fees? It's all business. As long as what was done is legal, all's fair in love, war, and making a buck!

 

Is it a common practice? I did sit with someone at the auction in Baltimore. He was giving me hints on working the auction. What was wrong with that? If two people worth together to buy at an open auction, then what was wrong? They auction, we bid, I think that's fair!

 

BTW: if you want to see people teaming up to work an auction, try going to a used car auction. No, not the fancy cars, but the auctions where they sell the car you traded in to least that fancier car. People make side deals all of the time. It is perfectly legal and the buyers get the inventory that they know will sell at the showroom at a good price to maximize profit.

 

Scott

[MikeInFL]

I honestly don't know if it is fair or not, Scott. That's why I'm asking the question....

 

To me it sounds shady, but I also realize that I have a higher/different ethical compass than many and just wanted to solicit the opinions of others before deciding for myself.

 

I put myself in the shoes of the seller or auction house and I wouldn't be happy -- at all. Putting myself in the shoes of the potential bidder/colluder and I see that side of the equation as well, but I would have trouble justifying it (and taking food away from someone else to feed my family is not a justification, to me).

 

However, and here's something you can relate to Scott, if I do the same thing and collude when bidding for government work I may be doing something illegal (a violation of federal anti-trust laws, IIRC) if not disqualified from winning.

 

Then again (and a sad comment on the coin game), the ethical standards in government seem to be higher than those of numismatics, where price fixing, market manipulation, and collusion seem to be the norm not the exception.

 

Am I wrong or just overly idealistic?....Mike

[realone]

MIke unfortunately this business is so corrupt it should make your head spin, but then again that can be said about ALL Business including government. When good easy money is involved for get every rule there is, everyone is out for themselves (except a select few who don't care about the money, they do exist, and we all know who they are and aren't).

 

But i do believe Rick on his 1st story because that allowed myself to pick up a spetacular gem once a while ago when he thought he was bidding against a client and therefore stopped and that bidder happened to be your truly.

[MikeInFL]

I have no reason to doubt that Rick is telling the truth. That's not the question. The question is the ethical implications of his statements...Mike

 

p.s. And yes, my head is spinning -- has been for some time.

[NoTwilight]

How about friends comparing bid lists so as not to bid against each other. Seems it would be unfriendly not to. I think that is different that your question though. I'm probably right there with you, unsure. --Jerry

[TomB]

I don't believe the cases presented are collusion, nor do I believe there is an unethical component to them. Of course, I hesitate to post to this thread in potential disagreement of someone who states "but I also realize that I have a higher/different ethical compass than many" since these types of statements can sometimes precipitate a contest of uber-ethics or uber-piety.

 

The initial statements by Rick Snow were likely written about the Heritage sales held in conjunction with the FUN show. These sessions are highly publicized and well-known within the hobby-industry and may even elicit on average the greatest level of participation relative to any other numismatic auction throughout the year. They are also open to floor bidders, phone bidders, mail bidders, internet bidders and professionally represented bidders. Given this scenario, a conversation between two friends who might participate in the same niche would in no way preclude aggressive participation by other members of the numismatic community.

 

Both conversations illustrate good business sense by all parties involved. In the first case Rick realized his competition would likely be his client and there is little to gain with much to lose if you bid past the client's comfort zone. In the second case he acted as professional auction representation, although he did not necessarily pre-screen the lots for the client, but similar to the first scenario Rick would have had to bid past the client's comfort zone to acquire the lot in question. However, in neither case was Rick assured that he would win any lots nor was he assured that the final winning bid would be less than if he had not had these conversations.

 

These were not cases of sealed bids or written contract proposals, but rather live, liquid, dynamic auction scenarios open to any interested party with relatively few hurdles to overcome in order to place a valid bid. In this instance I see nothing wrong with stepping aside to let a lot playout or in essentially pre-placing a coin if it can be obtained at a reasonable price.

[James_OldeTowne]

I think this falls just shy of being unethical.

 

An analogy: a dealer and a customer walking the bourse floor together find a coin in a dealer's case for $1000, and the collector needs it for his set. If the collector could get it for $900, but the dealer could get it for $800 (dealer-to-dealer transaction), what should they do? I would suggest they should step aside and let the dealer get it for $800 and "flip it" for $25 (let's say), saving the collector $75.

 

And, that coin may well have been on consignment to the seller.

 

I've done this for customer's on numerous occasions. I make a lot less, the seller makes less for his consignor, but I'm OK with that.

[MarkFeld]

In this thread ATS: http://forums.collectors.com/messageview.cfm?catid=26&threadid=631829

 

Rick Snow said the following:

 

At the FUN show I decided not to bid on a rare coin because the person who would have bid against me would have been the guy I would have sold it to! Do I buy it just so I can make a buck and cost my friend more. Seems like the gentlemanly thing to do at the time. He did buy me some beer (yeah, I work for beer, sometimes)

 

However, also at the FUN show, I was going to bid on a number of coins and another good friend had intentions on the same coins. I offered to bid for him for 5% rather than compete against him. (Hey - I'm there to feed my family! I can't lay down on all the coins I targeted.) I made $2K for 15 minutes work (yeah, work - raising my hand) and he saved himself about $5K.

 

Isn't that called collusion?

 

Is it fair to the seller and auction house?

 

Is collusion a common practice in numismatic auctions (i.e. is all fair in love and auctions)?

 

Your thoughts would be appreciated....Mike

I don't know that there is a clearly correct answer regarding whether each of the above situations constituted collusion or not, but here is my opinion....In the first scenario it sounds as if there was already an established relationship between Rick Snow and the other potential buyer and that Mr. Snow did not profit by not bidding. I don't think that qualifies as collusion.

 

In the second scenario, however, Mr. Snow apparently chose to make 5% in order not to compete against someone he otherwise would have. That sounds like collusion and unethical behavior to me.

 

That aside, I am under the impression that (at least) several dealers collude in major auctions on a regular basis and on a large scale. I expect that sometimes their actions don't end up negatively affecting the prices realized because two or more other bidders outbid them. But I would bet that other times it does result in lower prices realized, hence less money to the consignor as well as the auction house.

 

Those who collude would feel very differently if they were the sellers and became aware that they were netting far less for their coins than they otherwise would, because others were colluding on their coins.

[RWB]

The coin business deals with items that are largely unique. It is also very small compared to other businesses. These and other factors blur the separations between buyer, seller and agent much more than in other settings. (Used cars seems to be a good analogy.) A good client can quickly become an adversary if he learns you bid against him and pumped up the price, or caused him to loose the lot. A thinly traded market, such as rare coins, cannot be anonymously self-regulating. (With credit to The Prince.)

[DWLange]

A famous instance of such cooperative bidding is the Farouk Sale of 1954. The American dealers who attended that sale in Cairo largely agreed in advance who would get what to avoid bidding against one another.

 

Dealer Hans Schulman was owed a ton of money by King Farouk when the latter was driven into exile, and the Egyptian government refused to honor the king's debts in cash. Instead, it offered Schulman credit against purchases at the sale. Since the amount owed him was more than he needed for his own purchases, Schulman bid on behalf of the other dealers based on their pre-agreed breakdown, and they then bought the coins from him afterward. There were thus bargains galore.

[WinstonWare]

I’ve not bid on more than one coin on ebay after seeing that one of my friends here was already bidding on it.

[MarkFeld]

I’ve not bid on more than one coin on ebay after seeing that one of my friends here was already bidding on it.

That is very different from forming an agreement and accepting a commission from someone in order not to bid against him.

[James_OldeTowne]

Those who collude would feel very differently if they were the sellers and became aware that they were netting far less for their coins than they otherwise would, because others were colluding on their coins.

Hi Mark! There are a couple of assumptions here that may or may not be true. I'm not saying they are invalid points, just that they don't "prove" unethical behavior in the given scenario.

 

#1: Those who collude would feel very differently if they were the sellers

 

This assumes it's only all about the money. I can state for a fact that this assumption isn't always valid. I myself have frequently placed coins in auction with no care whatsoever what the coin closed at.

 

#2: they were netting far less for their coins

 

This assumes there aren't other bidders in the room who might be competing for the coin just as strongly as Mr. Snow and his buddy.

 

 

[IGWT]

I’ve not bid on more than one coin on ebay after seeing that one of my friends here was already bidding on it.

 

Reported.

[MarkFeld]

Those who collude would feel very differently if they were the sellers and became aware that they were netting far less for their coins than they otherwise would, because others were colluding on their coins.

Hi Mark! There are a couple of assumptions here that may or may not be true. I'm not saying they are invalid points, just that they don't "prove" unethical behavior in the given scenario.

 

#1: Those who collude would feel very differently if they were the sellers

 

This assumes it's only all about the money. I can state for a fact that this assumption isn't always valid. I myself have frequently placed coins in auction with no care whatsoever what the coin closed at.

 

#2: they were netting far less for their coins

 

This assumes there aren't other bidders in the room who might be competing for the coin just as strongly as Mr. Snow and his buddy.

 

James, in #1, perhaps this doesn't apply to you, but I believe that most consignors who think a coin will bring $20,000 in auction, WOULD care if it brought $15,000, instead, due to collusion. And collusion IS about the money. Scenarios that don't involve money/profit probably/possibly don't amount to collusion. Regarding #2 - yes, collusion certainly doesn't always end up making a difference in the prices realized. However, in Mr. Snow's example it sounds as if he was the winning bidder to the tune of $40,000 (hence his $2000 commission based on a 5% fee). He didn't actually state that absent his agreement, he would have bid higher for his own account, but I believe it was at least implied. In any event, collusion clearly can/has result/resulted in significantly lower prices to consignors/sellers on countless occasions.

[braddick]

If the two (in this case, Rick and a fellow collector) whom had a mutual agreeement were the only two in the room, then yes, it's collusion. But of course, they were not.

 

Many other collectors/dealers were bidding also thus the act of the two, with some prior arrangement is negated.

 

Now, in the scenerio Mark brings up, that is absolute collusion.

 

I'd allow each individual to determine if, under the sitsuation as to why the back room deals were made was ethical or not.

Personally I have no problem with any and all of the examples brought forth, so far (each for different reasons).

[James_OldeTowne]

In any event, collusion clearly can/has result/resulted in significantly lower prices to consignors/sellers on countless occasions.

I certainly agree. I just think it needs to be understood that "collusion" doesn't automatically lead to lower prices.

 

Perhaps an additional side of the discussion would involve "shilling", which is in essence the opposite of the collusion described (though, by the way, I don't think "collusion" is quite the right term, but it works).

[cressjl-migration]

...However, and here's something you can relate to Scott, if I do the same thing and collude when bidding for government work I may be doing something illegal (a violation of federal anti-trust laws, IIRC) if not disqualified from winning...

I'm not so sure I understand this, Mike. Teaming arrangments in bidding for government work is a matter of fact nowadays.

 

I fail to see how teaming arrangements in auction bidding is somehow lacking in scruples. In fact, isn't bidding on commission a common practice on the floor of every stock exchange in the world?

[CHABSENTIA]

Government Contracts are not that cut and dry anymore.

 

Recently with the deal regarding the Security Firm, Black water, in Iraq and its problems an article gave the pay of the Guards under Contract. Some of these Supervisors got about $600.00 a day or more and the regular U.S. Guy got a few hundred less.

 

A Guard from Trinidad or one of the Caribbean Uslands got $50.00 a day for the same job. You would think that everybody would get paid equal pay for the same job but apparently Firms like Blackwater etc can pay whatever they need to pay and the Government goes along with it at least if they are out of the Country etc.

[World Colonial]

There were two different auctions were a dealer who has bid for me told me that another dealer had a collector who had a "bid to buy" on two coins I wanted. In the first auction, I did not bother to bid because I did not believe I would have won the lot, and I would not have because the coin sold for $2990 and I could not pay that much for it. In the second instance, I was able to bid online and I said "screw it, I am going to bid against this person my self anyway". I do not know if I could have eventually won the lot, but I did not because the darn computer I was using was too darn slow...Ouch.

[MikeInFL]

...However, and here's something you can relate to Scott, if I do the same thing and collude when bidding for government work I may be doing something illegal (a violation of federal anti-trust laws, IIRC) if not disqualified from winning...

I'm not so sure I understand this, Mike. Teaming arrangments in bidding for government work is a matter of fact nowadays.

 

I fail to see how teaming arrangements in auction bidding is somehow lacking in scruples. In fact, isn't bidding on commission a common practice on the floor of every stock exchange in the world?

 

There's a big difference between teaming and colluding, IMO.

 

In a teaming agreement, two companies (generally with complimentary products/services) team up to respond to a government RFP. Typically each company takes a piece of the required products/services. They bid as a "team" with a single bid. Everything is transparent and above-board, and many times a formal agreement is made between the companies teaming.

 

In collusion, two competing teams agree to generally either set a price or one not bid in trade for another uncontested bid on a later deal. They don't "team" up and divide the bid up, they set price or don't bid (generally). They don't (generally) advertise their actions and there is no written agreement.

 

By way of example, here's a paragraph from a city government RFP that discusses this issue, which responders (offerors) are required to sign (bold emphasis mine, pay particular note of the last one):

 

The party making the foregoing proposal hereby certifies that such proposal is geniune and not collusive or sham; that said offeror has not colluded, consipired, connived or agreed, directly or indirectly, with any offeror or person, to put in a sham proposal or to refrain from proposing, and has not in any manner, directly or indirectly, sought by agreement or collusion, or communication or conference, with any person to fix the proposal price, or of that of any other offeror, or to secure any advantage against the Owner or any person interested in the proposed contract; and that all statements in said proposal are true.

 

Source: http://www.spotsylvania.va.us/emplibrary/PropertyAcquisition070726RFP.pdf

 

Virtually every public sector bid you will see has similar terms. Many municipalities also have laws/ordinances against collusion in public contracts. Federal contracts are typically worded even more strongly.

 

All IMHO and respectfully submitted...Mike

[carson city]

Numismatic ethics in many instances equate to; The end justifies the means---Machiavelli !

[DJCoinz]

IMO this qualifies as a rather large gray area...it really just depends on the situation.

[MarkFeld]

IMO this qualifies as a rather large gray area...it really just depends on the situation.

I agree. But what about a situation where a person accepts a 5% commission not to bid on items he would otherwise bid on?

[cressjl-migration]

...There's a big difference between teaming and colluding, IMO...They bid as a "team" with a single bid. Everything is transparent and above-board, and many times a formal agreement is made between the companies teaming....Mike

I appreciate the good input.

 

I just don't see how the 5% commission for bidding turned this teaming arrangement into collusion. Our small company of about 12 employees has played the prime contractor role before, having subcontracted the Lockheed Martin behemoth. We have also been subcontracted under them. In these arrangements it was only the funding vehicle in place and other mere conveniences that made the "teaming" arrangement necessary in the first place. The prime contractor in both cases made a commission for doing very little.

 

In both arrangements, either the prime or sub could have done the entire job by themselves. They could have competed against each other. If the truth were known, typically the government preferred the arrangement in spreading work around, or taking advantage of the aforementioned "conveniences."

 

Anyway, as was said earlier, collusion would have occurred if there were only two bidders and one refrained with the full intention of ripping off the auction and splitting the profits with his partner. Since the two had no control over the other bidders, nor attempted to sway or suppress other bidders' bids, I see nothing improper here.

[MarkFeld]

...There's a big difference between teaming and colluding, IMO...They bid as a "team" with a single bid. Everything is transparent and above-board, and many times a formal agreement is made between the companies teaming....Mike

I appreciate the good input.

 

I just don't see how the 5% commission for bidding turned this teaming arrangement into collusion. Our small company of about 12 employees has played the prime contractor role before, having subcontracted the Lockheed Martin behemoth. We have also been subcontracted under them. In these arrangements it was only the funding vehicle in place and other mere conveniences that made the "teaming" arrangement necessary in the first place. The prime contractor in both cases made a commission for doing very little.

 

In both arrangements, either the prime or sub could have done the entire job by themselves. They could have competed against each other. If the truth were known, typically the government preferred the arrangement in spreading work around, or taking advantage of the aforementioned "conveniences."

 

 

Anyway, as was said earlier, collusion would have occurred if there were only two bidders and one refrained with the full intention of ripping off the auction and splitting the profits with his partner. Since the two had no control over the other bidders, nor attempted to sway or suppress other bidders' bids, I see nothing improper here.

What difference does it make if profits are paid/split in the way you described, or if a person is paid (a profit in advance) not to bid?

 

Hypothetically, would you feel differently if one bidder paid 5 other would-be bidders not to participate, to try to ensure that he won a number of lots for considerably less than he otherwise would? What about paying 10 other bidders or 3 other bidders?

 

By the way, personally, I don't buy the subcontractor analogy. Working together on a job isn't the same as paying a competitor not to compete, in order to make $ by buying something for less.

[cressjl-migration]

...would you feel differently if one bidder paid 5 other would-be bidders not to participate, to try to ensure that he won a number of lots for considerably less than he otherwise would? What about paying 10 other bidders or 3 other bidders?

I think that this goes without saying, doesn't it?

 

Did I misread the account in that the two were friends? I could see many reasons to not want to have to bid against a friend.

 

How about this...would it have been unethical if the one hired his friend at a 5% commission to go to the auction and shop for him, the day before the auction? Some of you folks make a living on brokerage services no doubt!

 

Then, what if you met a customer at an auction? Would you offer to shop for him to keep him from both getting ripped off and getting in your way? Same situation.

[BillJones]

If I were in Rick Snow's shoes, I would have done the same thing he did in case #1. If I know that a customer is bidding against me, and I'd be selling the coins to him, I'd lay off and let him have them. Bidding against the customer would be like running him up with no other competition. It seems that the customer is making the market, and bidding against him would be creating an artificial market becasue the customer would really be bidding against himself.

 

The second case is also similar. Many dealers go to auctions and bid on behalf of their clients. I think 5% is pretty close to the going rate.

 

I’ve seen coins sell at auction to a dealer who asked that the final bid be raised after the hammer fell? Why? The dealer had two customers who left him bids on the same lot, and the under bidder in on the “dealer’s book” had bid more than the hammer price. There is nothing unethical about that.

 

[MarkFeld]

...would you feel differently if one bidder paid 5 other would-be bidders not to participate, to try to ensure that he won a number of lots for considerably less than he otherwise would? What about paying 10 other bidders or 3 other bidders?

I think that this goes without saying, doesn't it?

 

Did I misread the account in that the two were friends? I could see many reasons to not want to have to bid against a friend.

 

How about this...would it have been unethical if the one hired his friend at a 5% commission to go to the auction and shop for him, the day before the auction? Some of you folks make a living on brokerage services no doubt!

 

Then, what if you met a customer at an auction? Would you offer to shop for him to keep him from both getting ripped off and getting in your way? Same situation.

Below is the original quote (and situation) which I believe clearly constituted collusion. Apparently Mr. Snow made $2000 for not bidding, his "good friend" saved "about $5000" and the consignor thereby received several thousand dollars less for his coins than he otherwise would have. How is that not collusion?

However, also at the FUN show, I was going to bid on a number of coins and another good friend had intentions on the same coins. I offered to bid for him for 5% rather than compete against him. (Hey - I'm there to feed my family! I can't lay down on all the coins I targeted.) I made $2K for 15 minutes work (yeah, work - raising my hand) and he saved himself about $5K.