Morality, legality and auction collusion

I've seen a few discussions about making agreements to step back from coins of mutual interest that come up at auction. I think we need to be really careful about that. At one extreme, holding back because you notice the high bidder is a friend, but you haven't discussed the lot or made any agreement, is obviously unobjectionable. At the other extreme, clubbing together in a 'ring' to agree to pool resources and then auctioning off the won lots secretly, splitting the difference in price between the ring, is obvious illegal and I hope obviously immoral. It defrauds the sellers and the auction houses. But there's a grey area in between.

In the US the Sherman Anti-Trust Act makes it a felony to collude or rig bids. The statute is broadly worded, and case law has established that bid rigging cannot be justified as reasonable. It doesn't matter that no payment passes between parties. In the 1960s electric company executives were imprisoned for taking it in turns to bid for contracts, with no actual consideration passing between them. If you agree to hold back this time, and there's an explicit or implicit quid pro quo that the other guy will hold back next time, you might be guilty of a crime.

I don't suppose coin auctions are a high priority for the justice department and I don't expect CoinTalkers to be carted off to jail. But it's not hard to imagine an aggrieved seller suing over a coin that's sold cheap because of an agreement between the two or three collectors who really wanted it. And some of us will be sellers from time to time. It undermines the whole auction process if the likely buyers have decided in advance who will bid on which coins. At a time when the public associates our hobby with looting and terrorist financing (however unreasonably), we should ensure we're being seen to do the right thing.

I'm not a lawyer and I'm not offering legal advice, although I have had legal advice on anti-trust law from leading law firms and everyone receiving the advice was surprised by the law's scope so I now err on the side of caution. But even if it's on the right side of legality, there must be a point where colluding against the interests of the seller offends against morality as well as legality.

Justice department guidance can be found here: https://www.justice.gov/atr/price-fixing-bid-rigging-and-market-allocation-schemes

 

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I had the unfortunate need to sue two companies under the Sherman Act several years ago. Not related to auctions or coins. Once you read through and understand the concepts of anti-trust, collusion, business interference, and price fixing, it really opens your eyes as to how much of this goes on. I had a couple lawyers tell me, after showing some of our documentation, "price fixing happens all the time, but nobody's stupid enough to write it down". To your auction scenario, my suspicion is a lot of folks don't recognize this is illegal. But if I were a seller, and saw the collusion written down, I would be seriously pissed and likely to make some sort of formal complaint to the auction house to ban the bidders at a minimum.

 

Hmm. Never in a million years would I have thought discussing potential purchases with friends was illegal in any way. Are you guys sure about this??

Here are some scenarios. I don't see how these scenarios are unethical or illegal.

Me: "Hey Z... Here's my first-pass list for CNG. Any conflicts?"
Z: "Lots 2, 4, and 7 are also on my list"
Me: "I want lot 7 to go with my Winged Boar Biga set"
Z: "Yeah, you're right. It belongs in your collection. I really want lot 2 and 4 though"
Me: "Sounds good. I'll be broke by then anyway... hopefully. I won't bid on lots 2 and 4 if you stay away from lot 7."

...

X: Man I want that quadekadrachm with Pan driving a biga of winged boar cupids
Me: Over my dead body . It's coming home with me. I will bid whatever it takes.
X: Okay, clearly I won't win it so I won't bid against you and drive it up.
[probably a moot point since a highly desirable coin is going to have many other bidders anyway, but you never know...]

 

It would be helpful for an actual attorney who is knowledgeable about this law to chime in on this topic.

I'm very skeptical that the Sherman Anti-Trust Act applies to coin auctions and discussions among potential bidders on those coins. Here is an excerpt from the government's website:

"Bid rigging is the way that conspiring competitors effectively raise prices where purchasers — often federal, state, or local governments — acquire goods or services by soliciting competing bids."

Clearly, this excerpt is referencing companies who bid on contracts to PROVIDE goods or services to entities, and the above quote clearly means collusion that RAISES prices to the entity requesting the bid. This is VERY different from an open auction of art, or coins, or antiquities.

Any experts on this law want to help elucidate?

 

Exactly.

I too look forward to hearing from an expert in this matter.

I'm willing to bet that what we do in our private messages is in no way illegal. Oops, I guess betting on that might be illegal

 

There are a ton of legal references that come up on a Google of "auction bidding collusion". The Wikipedia entry (https://en.wikipedia.org/wiki/Bid_rigging) has, as the first form of bid rigging:

 

Here is the text of the Act itself. It's been amended slightly (e.g. changed to felony) but actually the Act is written about 'persons' and clarifies that 'persons' includes corporations, so it starts out from individuals rather than companies. The Act is very broadly written and I see no reason why it would exclude coin auctions or discussions between private individuals. A classic example of collusion is sole-trader antique dealers forming an auction ring.

https://www.ourdocuments.gov/doc.php?flash=false&doc=51&page=transcript

 

Isn't my duty as a buyer to get the best deal possible? I often (and probably stupidly) err on the side of caving in and being to generous with my offers (example: not haggling, with a fixed price sale).

Regarding "bid suppression" in the setting of ancient coin auctions, what is illegal about a person changing their mind about bidding?

Also, if auction companies don't like their customers actually talking to one another and risking losing a bid, they can convert to a fixed price store. Problem solved.

Also also , for bid suppression to be a problem in coin auctions, virtually every possible bidder would have to be in on the plan. Not possible.

 

I don't mean to disrespect the individuals who have commented on the forum, but if I was the seller and I read some of the posts here, I would sue without hesitation and with great confidence.

 

Absolutely. Some of the legal aspects are not intuitive, and some of the advice I received (in a very different context) was really surprising. But I've also been surprised by the outcome of quite a few recent white-collar criminal cases, too. At the very least I would be really, really careful about what you write down on a public forum.

 

Oh I agree, my only hesitation is of course the balance of cost and trouble of the lawsuit versus the potential gain. Though the Sherman Act is one of the few areas where the winner is allowed to include his legal costs in the remediation.

 

As a legal professional I have to disagree with that other attorney. You'd be surprised what people will write down. I've had cases made 50x easier when the Defendant sent texts or email to my client acknowledging their wrongdoing in detail and promising to pay. But then again, I deal with the little people and not massive corporations. Maybe at the corporate level things are different.

Now, I don't practice in Federal Court, so my knowledge of the Sherman Act is limited, but if I remember correctly from my days in law school, I think the Sherman Act only applies to businesses, enterprises, and corporations, and not to private individuals, and it definitely only applies to interstate and cross-border trade. So at least in one of those two things you'd be safe, probvided the people agreeing to do these activities at auctions are not dealers of some sort. It could still be unethical, but probably not a federal crime.

However, I think your local coin show is safe as even if the coin used the instrumentalities of interstate commerce to get there in the first place, the act is so remote from the potentially criminal activity (ie. you didn't speial order the coin from out of state, but rather showed up to a local show to buy a coin that is just going to sit idly in your safety deposit box), that the Sherman Act should not apply. Besides, the activity seeking to be regulated clearly falls within the 10th Amendment powers delegated to the states, and in light of United States v. Lopez, 514 U.S. 549 (1995), I would argue that there are not substantial contacts between the act and interstate commerce, and it is the type of activity that falls within the law and order powers delegated to the States. *Check your local laws though.

* This oppinion is made as a private individual not acting in his professional capacity, and should not be construed as legal advise or an offer of representation. You should seek the advise of an attorney licensed to practice in your jurisdiction before engaging in any of the activities given as examples in this post. If you choose to engage in the above mentioned activities, you hereby aknowledge you and your estate do so at your own risk and agree to hold the poster harmless from any and all of the consequences of said activities.

 

That would be a great way to run yourself out of business. Collectors talk and I'd absolutely tell everyone I knew if I got wind of a seller acting like that.

 

Right, but if you're a private individual who has consigned to auction rather than a dealer, you have nothing to lose.

 

The text of the Act clearly refers to individuals. Section 8: "That the word "person," or " persons," wherever used in this act shall be deemed to include corporations and associations" - so it starts from natural persons and then expands to include legal persons. Agree on inter-state point. Would add that European jurisdictions have equivalent laws, too. At a very minimum - even if you all think it's fine to agree in advance and are convinced that it's legal - I'd urge caution about what you write down on the forum, as reasonable people (including aggrieved sellers) might take another view.

 

Read all my disclaimers, starting with the one where I say I don't practice in federal court and I'm not too familiar with the act but simply going from memory, and my massive disclaimer at the end saying that I am writting this as an individual and not in my capacity as a legal professional, and that you should not rely on this post as legal advise but should rather seek legal representation in your jurisdiction before engaging in any of these activities.

I thought that was clear enough, but if it wasn't, I can copy paste in here a standard 2 page disclaimer I have handy in my computer.


If it does apply to individuals, then yeah, I guess you could be in trouble if the auction was across the border in another state. In that case, best stick to local shows...and even then it could be illegal depending on the local and state laws in your particular location.

 

It's tricky TIF, it really is, and mostly various shades of grey. The more formal an arrangement is, the less grey it becomes. I doubt any arrangement you'll be party to will be unethical in many people's eyes, let alone illegal. As Nerva notes in the OP, no one will object if you refrain from bidding against a friend on one or several lots. (I'll mention in passing though that imo no friend has a valid complaint if you do bid against them. It is an auction, after all.)

At the other extreme, there's a famous story of an auction of US coins 100 or more years ago. I don't remember the collector or auction house involved or know how this story was exposed. I'm pretty sure it isn't apocryphal though. This was pre-Internet obviously, and before even the wide distribution of printed catalogues. Auctions were attended almost exclusively by dealers. The handful of dealers physically attending this auction pre-arranged the entire sale; Dealer A would buy lots 1, 3 & 5; Dealer B would buy lots 2, 4 & 6, etc. These guys duly won all or almost all of the lots at the minimum opening bid. That evening, they got together in a hotel room and held the real auction, bidding like crazy against each other, but with none of the proceeds going to the auction house or consignor.

Presumably no one will defend that sort of collusion, but again, there's a lot of grey between that on the one hand and you and Z agreeing not to bid each other up on a handful of lots on the other. Picture yourself as the consignor some day; how would you react if you learned that your proceeds had been dramatically reduced because all of the most active collectors had agreed beforehand on who would win which lot?

Phil Davis

 

I will add something else. The average person commits several federal felonies and state felonies every day. The Federal Code is thousands upon thousands of pages, and there are tons of laws that are obsolete or no longer enforced, but they are still in the books as no one has bothered to remove them. The same can be said of many states and cities. I'll give you an example. In Jacksonville, FL a teenager was arrested a few years back for cursing in front of a woman when he hit his foot against a rock at a local park. A police officer who had read about some old law prohibiting men from saying obscene words around women, heard it and arested the teen. The ammount of ridicule from the press and the fact that this was clearly old garbage law that no one probably even remembered existed, caused the case to be dropped and the law to be done away with. But I guarantee you if you comb thorugh the local laws there, you could probably still find a bunch of unenforced and outdated laws in those books that people are technically in violation of every day.

 

Very true. Three felonies a day, by one estimate: https://mises.org/library/decriminalize-average-man
Didn't mean any disrespect with last post, btw. Just that I happened to have read the statute today. It's from the days when a major piece of legislation could fit on a single page!