Recognizing and Stopping Bid Rigging:
Your Career Could Be At Stake
How much damage has been done to the auction industry by bid rigging is impossible to gauge. Because bid rigging lowers the sale price, discourages those outside the ring to bid and is illegal, bid rigging negatively affects everyone who attends and conducts auctions.
The good news is that there are ways to reduce and stop it from happening. But doing so demands knowledge and constant awareness by the auctioneer and staff. It's a difficult job, but in a business where reputation is everything, your career as an auctioneer depends on it.
Trying to define bid rigging is difficult. Although bid rigging may be as simple as two friends who agree not to outbid each other, larger and more organized rings of dealers and wholesalers are the ones that drastically impede the fair market of the auction process.
While the forms bid rigging takes are constantly evolving, the primary goal remains the same; to illegally control prices to save money. And any method is considered fair game.
As part of their activity, rings may spread false information about the auction to discourage attendance by those not in the ring; pressure other buyers, especially those who refuse to participate; and even go as far as to damage purchases made by non-participating dealers before the buyer can get the items home.
Usually, rings show up at auctions where many like items are for sale. The group, comprising a loose knit but well-organized group, agrees ahead of time not to bid competitively against one another. Each member of the group decides to buy certain lots of items and to be the sole bidder on different portions of the inventory.
After the auction, the group meets with a list of what they bought. They then hold another auction among themselves, selling the newly acquired property. The difference between what the ring paid for each item at the first auction and what a member of the group bids for it at the secondary auction is divided proportionally.
The approach is usually subtle, making it hard to detect. However, there are certain behaviors to look for before, during and after the auction.
In The Official Government Auction Guide by George Chelekis, several obvious red flags that bid rigging may be occurring are noted.
But ignoring these warning signs is done at the auctioneer's peril. Both buyers and sellers are quick to sense something's not quite right and, at the least, may decide to take their business elsewhere.
They may also
register a complaint with the National Auctioneers Association or Auction
Marketing Institute against the auctioneer, or even press charges against
the auctioneer who lets bid rigging continue.
Fighting bid rigging is made difficult by the fact that many that participate in this crime often don't think of it as illegal. They have participated in rings, in some cases for years, and view it as the way business is done.
Which makes knowing your customers and their bidding styles an important step in preventing bid rigging from happening. A sudden change in bidding style, especially among dealers, could be a signal that things aren't right.
each auction also helps prevent the possibility of bid rigging. If enough
people are in attendance, especially non-dealers, a ring will almost certainly
be broken. Ring members look for small auctions with little competition
from private individuals, who often are willing to pay higher prices.
Education about the items being sold is another important preventive step.
Rings often look for young, inexperienced auctioneers and frequent their auctions because of the belief these auctioneers may not recognize the value of an item they are auctioning.
Although this may or may not be true, these auctioneers are seen as easy marks by ring members. Learning the value of items discourages that thought.
Proactive approaches before the auction help reduce the chances of being a victim of bid rigging.
If a known or suspected ring shows up at the auction, the auctioneer can simply approach the members before-hand and tell them there will be no bid rigging that day. Chances are, if they know someone is watching them closely, they will modify their behavior.
If bid rigging is observed during the auction, there are options.
If the auctioneer is certain bid rigging is taking place, he or she can announce to the audience that a crime is occurring, and that it will not be tolerated. Selling items with a reserve, contingent upon the auction company's policy on reserve auctions, is an option also.
As a last resort, the auctioneer can stop the auction. In the case of a reserve auction this is easy; in the case of an absolute auction it's more difficult but can still be done. According to the Uniform Commercial Code Section 2-328, if the items for absolute sale are offered in individual lots the selling of each lot constitutes a separate auction. In short, it works like this. If concerned that bid rigging is taking place, the auctioneer can stop an absolute auction and refuse to sell any additional items. However, an auctioneer cannot stop selling an item in mid-auction, as the absolute auction must continue to completion. Again, once that item is sold, the auctioneer can refuse to conduct any additional auctions of the individual lots because of bid rigging concerns.
But the greatest weapon the auctioneer has in the fight against bid rigging is that it's a federal crime that the United States government punishes very severely.
If found in violation of the Sherman Anti-Trust Act, title 15, Section 1, individuals are subject to a maximum fine of $250,000 and/or three years imprisonment. Corporations are subject to a maximum fine of $10 million.
Over the years, more than a few individuals have been prosecuted under the law and more than a few are still cooling their heels in a federal prison.
An auctioneer announcement, along with a few signs announcing bid rigging penalties placed around the sale location, lets potential criminals know they're being watched and will be punished.
Even if you only suspect you've been the victim of a bid-rigging scheme, auctioneers are encouraged to contact the Justice Department.
Have some specifics - the date of the auction; names, if possible, of those suspected; the activities they appeared to be performing to cause suspicion; and anything else that relates to the crime.
The legal liability of auctioneers who let bid rigging go unchecked at their auctions is vague. While there have been investigations and prosecution of auctioneers who let bid rigging go unchecked, they are rare.
However, the threat to the auctioneer's reputation and business that bid rigging can cause is more than enough reason to take the steps to stop it. If buyers and sellers alike are unsatisfied with the prices, you may find yourself looking for another line of work.