In the sea of tacit collusion at the Heritage auction....

RYK · April 12, 2006 11:58PM

there was an island of honesty.

I spent some time at the floor session of the Heritage Signature auction last week in Atlanta. Watching the auction was mostly about as exciting as watching grass grow, with the excpetion of the Duke's Creek bidding and the controversies surrounding Lot #666 (discussed in my show report thread).

As I was being lulled to sleep from the lack of activity from the floor, one bidder jumped the bid from $800 to $2500, explaining that he personally had two competing bids for the same coin. I almost fell of my chair. While the purist in me knows that this is the legitimate way to handle the situation, I also know there are ways of discouraging one client from bidding on a coin so that another may get it.

I have never personally seen a bid jumped in this fashion. How often does this occur?

PerryHall · April 13, 2006 12:13AM

Julian discussed this situation several months ago. If a dealer is representing two good customers, he takes each of their maximum bids. He then bids one increment higher than the lower of the two maximum bids. This is fair to all parties including the seller.

Longacre · April 13, 2006 12:20AM

Yes, Julian has done this in the past and had an explanation for it. I don't remember the details, and I don't recall whether I agreed with the theory.

morgannut2 · April 13, 2006 12:20AM

I don't see how an agent can ever represent or two opposed parties in a financial matter requiring objective opinion and description. In lawsuits, real estate, finance there are always other professionals qualified to assist parties, and the dealer should respectfully tell the second client first come, first serve.

291fifth · April 13, 2006 12:22AM

It's business.

smiles72 · April 13, 2006 12:23AM

Dual-agency in Real Estate is becoming a thing of the past.

Texas recently made it illegal and most states already have.

I agree completely.

How can you possibly hold the fiduciary interests of two parties in the same transaction.

The simple answer is that you cannot.

MrEureka · April 13, 2006 12:27AM

Julian discussed this situation several months ago. If a dealer is representing two good customers, he takes each of their maximum bids. He then bids one increment higher than the lower of the two maximum bids. This is fair to all parties including the seller.

Why should a bidder's agent care about what is fair to the seller?

GOLDGUY · April 13, 2006 12:31AM

"Why should a bidder's agent care about what is fair to the seller?"

Perhaps because its "fair" for the integrity and ethics of the numismatic industry as a whole?

coinguy1 · April 13, 2006 12:35AM

When an agent has two competing bids to execute, here's the tough/interesting choice/dilemma to deal with......

Should he 1) Immediately jump the bid by one increment over the lower of the two bids, or 2) Bid normally, and if/when he wins the lot, then ask the auctioneer to change/raise the winning bid amount to one increment over the lower bid?

In the former instance, jumping the bid might intimidate some other bidders somewhat and cause them not to bid when they otherwise might have. OR, it might make them think you know something that they don't, and/or generate additional excitement, thus causing someone to bid when they otherwise would not have.

MrEureka · April 13, 2006 12:35AM

Perhaps because its "fair" for the integrity and ethics of the numismatic industry as a whole?

I would prefer to work with an agent that pursues my best interest, not that of the industry.

IrishMike · April 13, 2006 12:39AM

Just curious if you are acting for an agent for more than one bidder, do you disclose that to the parties you are representing?

MrEureka · April 13, 2006 12:40AM

Along the same lines, I often have clients give me bids for coins that I would otherwise try to buy for my own inventory. Sometimes, the client will get to buy the coin for less than I would have paid for myself. In those cases, should I have jumped the bid (above my own bid) and forced my client to pay more than was necessary?

coinguy1 · April 13, 2006 12:43AM

<< How can you possibly hold the fiduciary interests of two parties in the same transaction. >>

<< I don't see how an agent can ever represent or two opposed parties in a financial matter requiring objective opinion and description >>

I think it can be done fairly and ethically. The agent lets each person know that another party is involved, doesn't disclose anything else about the other party and provides the identical information about the coin to each person. Such an arrangement also avoids colllusion.

RYK · April 13, 2006 12:45AM

Along the same lines, I often have clients give me bids for coins that I would otherwise try to buy for my own inventory. Sometimes, the client will get to buy the coin for less than I would have paid for myself. In those cases, should I have jumped the bid (above my own bid) and forced my client to pay more than was necessary?

I have been on the client side of that situation and have not been so jumped.

I do not believe that is right for one dealer to represent two separate parties. When I have asked to be represented on a coin and the dealer has already made a commitment to bid on it for another party, he usually tells me that he likes the coin, he is already bidding on it for someone else, but if I am interested in it, I should feel free to bid on my own (or through someone else). Frankly, I think that is the best answer.

morgannut2 · April 13, 2006 12:45AM

<< Perhaps because its "fair" for the integrity and ethics of the numismatic industry as a whole?

I would prefer to work with an agent that pursues my best interest, not that of the industry. >>

That's the point-- and if not in agreement re: industry, then be transparent with the seller---Just as the dealer would if he had an "implied interest" such as selling the coin retail in the first place.

ziggy29 · April 13, 2006 12:45AM

<< Along the same lines, I often have clients give me bids for coins that I would otherwise try to buy for my own inventory. Sometimes, the client will get to buy the coin for less than I would have paid for myself. In those cases, should I have jumped the bid (above my own bid) and forced my client to pay more than was necessary? >>

Personally, if you wanted the coin too, I would think you should "recuse" yourself from representing this client because there is a potential conflict of interest in this case.

I don't think there's any conflict in representing two different clients as long as you disclose all the pertinent facts to them, including the fact that you may also be representing someone who is willing to go higher.

RYK · April 13, 2006 12:52AM

On another related topic, if shilling is acceptable, why is collusion unfair? Shilling is done to artificially raise the price, and collusion results in artificially lowering the price.

GOLDGUY · April 13, 2006 12:54AM

"I would prefer to work with an agent that pursues my best interest, not that of the industry."

And when it comes time for you to become the seller, just how important to you is a buying agent's integrity?

coinguy1 · April 13, 2006 12:58AM

<< I do not believe that is right for one dealer to represent two separate parties. When I have asked to be represented on a coin and the dealer has already made a commitment to bid on it for another party, he usually tells me that he likes the coin, he is already bidding on it for someone else, but if I am interested in it, I should feel free to bid on my own (or through someone else). Frankly, I think that is the best answer >>

But isn't that (the agent's letting potential competition know that he likes the coin) unfair to the client the agent is already representing?

RYK · April 13, 2006 1:03AM

But isn't that (the agent's letting potential competition know that he likes the coin) unfair to the client the agent is already representing?

Actually, that is a good question, Mark. Unless it is a coin that I really, really, really need I will usually back off (ie. collusion

).

ScarsdaleCoin · April 13, 2006 1:04AM

If you want to use Real Estate as an example....

The Definition: A dual agent is a real estate agent who has signed a buyer agency agreement with a buyer who wishes to purchase a listing held by the agent or the agent's firm. A dual agent must be loyal to both the buyer and the seller.

In states where dual agency is allowed, it must usually be agreed to by all parties--in writing.

The key that I think is missed is that the coin dealers to try to me loyal to both parties, but I doubt that they mention to either party that they have multiple clients.....that is the part that is missed.... Mark feel free to correct me if you think the other bidding dealers do disclose, my feeling is that they do not....

Longacre · April 13, 2006 1:23AM

Maybe the bid was increased at the Altanta auction to prevent a violation of Section 1 of the Sherman Antitrust Act? I believe that this section prohibits bid rigging or pooling arrangements among competitors if they affect or restrain interstate commerce (i.e., allowing the purchase of items at noncompetitive prices). Query, however, whether you can have a pooling arrangement when it is one dealer bidding, although he is representing two independent parties. Disclaimer-- I know as much about antitrust law as the guy on the street, so I could be offbase on this one; are there any antitrust lawyers in the house?

GOLDGUY · April 13, 2006 1:40AM

"Maybe the bid was increased at the Altanta auction to prevent a violation of Section 1 of the Sherman Antitrust Act?"

Yeah. And does anyone remember what happened the last time Sherman's brother was in Atlanta?

rays · April 13, 2006 2:13AM

I have personally seen many instances where the bid was jumped at the floor, such as from $200 to $1400. Sometimes it is to save everyone time, if the coin is really worth that amount or higher.

rec78 · April 13, 2006 2:50AM

f you want to use Real Estate as an example....

The situation discussed here is with two buyers and one seller .
True that an agent should only represent one client on a single lot-But this is not always the case in reality- The agent in this case must jump the bid as he did because the underbidder is represented also and would certainly want to know why the coin sold for less than his maximum bid if he did not win it. If it was me i would be totally devastated if i really wanted a coin and my agent let it go for less than my maximum bid just because someone else had a higher maximum bid. Right or wrong-This is how it must be done. I do not think the Sherman antitrust act has anything to do with individual purchases at auctions. JMHO Bob

Julian · April 13, 2006 3:53AM

I have and can represent more than one client on the same coin.

The method has been previously stated, but I will restate that I give the same information to both and request that they give me the absolute top price that they are willing to pay. If I am successful in purchasing the coin, I then adjust the final bid to one increment above the second bidder's bid. In this day and age, it is highly unlikely that I will receive the two high bids on any given lot, but it can happen and that's the way that it is properly done.

The reason that I do it is that both customers want my professional counsel and know that I will represent them properly. If the second bidder goes to another agent, then the results will still be the same, but he will not have gotten my counsel. I wish to serve my clients to the best of my ability and I want to keep them as my clients. I normally do not refer clients to other agents if I can be of service to them.

As for Andy's comment about why a buyer should care about fair practices. Todd answered quite appropriately. Most buyers today are going to be sellers another day and would not like their items to be colluded on at that time. What's fair is fair. I hope that Andy was just trying to stir things up. If not, I am disappointed in that attitude.

We have chosen numismatics as a profession. We can all do our part to keep the numismatic auction process as clean as possible.

Collusion is also illegal.

ziggy29 · April 13, 2006 3:55AM

<< The method has been previously stated, but I will restate that I give the same information to both and request that they give me the absolute top price that they are willing to pay. If I am successful in purchasing the coin, I then adjust the final bid to one increment above the second bidder's bid. In this day and age, it is highly unlikely that I will receive the two high bids on any given lot, but it can happen and that's the way that it is properly done. >>

Just a question out of curiosity, if I may:

What if they both give the same "absolute top price?" What if one bidder's top bid is less than a full increment over the others?

MrEureka · April 13, 2006 4:15AM

And when it comes time for you to become the seller, just how important to you is a buying agent's integrity?

When I am the seller, the buying agent owes me nothing. Would I like him to jump the bid? Of course. In fact, I hope he jumps the bid all the way to his client's limit, just to maximize his commission.

BTW, is it OK to lay off a coin for your best friend? Your brother? Where do you draw the line? Do you run them all up just to help maximize the consignor's proceeds?

mozin · April 13, 2006 4:17AM

Representing more than one client on the same auction lot looks to me as just another example of greedy dealers. I firmly believe it is wrong, and I read this entire thread.

Julian · April 13, 2006 4:45AM

What if they both give the same "absolute top price?" What if one bidder's top bid is less than a full increment over the others?
Realistically, what are the chances of that. If that happens, I would ask both bidders to give me another amount.

BTW, is it OK to lay off a coin for your best friend? Your brother? Where do you draw the line? Do you run them all up just to help maximize the consignor's proceeds?

Legally, IMHO, if you have no financial interest in the results, now or in the future, you do not have to bid on anything. Collusion comes into play when financial results for the purchasers are affected. In the most famous case of numismatic collusion, the Pennypacker large cent auction, there were participants that ended up with no coins, but did end up with a handful of cash.

Mark · April 13, 2006 4:53AM

Julian:

You made a cryptic comment about the Pennypacker large cent auction. Can you please give some more details?

Thanks in advance.

Mark

MrEureka · April 13, 2006 5:03AM

Legally, IMHO, if you have no financial interest in the results, now or in the future, you do not have to bid on anything. Collusion comes into play when financial results for the purchasers are affected.

If you lay off a coin for your buddy today, he will be more likely to lay off a coin for you tomorrow. So there may be a financial benefit to laying off a coin, even if it's not explicitly stated.

MrEureka · April 13, 2006 5:06AM

You made a cryptic comment about the Pennypacker large cent auction. Can you please give some more details?

GOLDGUY · April 13, 2006 5:07AM

"BTW, is it OK to lay off a coin for your best friend? Your brother? Where do you draw the line? Do you run them all up just to help maximize the consignor's proceeds?"

It's got nothing to do with a desire to mazimize a consignor's proceeds. If I have legitimate / competing bids on an item, then I "run them all up" to maximize the integrity of the auction platform.

GOLDGUY · April 13, 2006 5:09AM

PS: I LOVE the can of worms image -- Well done!

Julian · April 13, 2006 6:05AM

As for the Pennypacker auction, I was not there. I believe that it happened in the late 50's or early 60's.

Many large cent afficianado's showed up, as well as some dealers.
They decided to purchase all of the coins as one group and have a subsequent auction later.

FYI, when I was a much younger dealer, I did participate in this one time over thirty years ago, but have not done so since.

Collusion is not to be confused with dealers buying items jointly for subsequent re-marketing to the public. It is collusion when you divide it up, i.e., one takes the even lots and one takes the odd lots.

As for laying off a coin for your brother, if there is no prior agreement and there being no guarantee that he will lay off one for you, then I cannot see it being collusion.

BigMoose · April 13, 2006 6:54AM

Julian, you are correct as usual. The Pennypacker Auction is famous in Early Copper collector lore. It took place in 1959 and was run by the Pennypacker Auction Company of Reading, Penna. This auction contained the Large cent collection of Leonard M. Holland, a total of 103 lots of Early Copper dating from 1793 to 1851. It was sold by order of the Peoples Trust Company of Wyomissing, Penna. I believe the collection was used as collateral for a loan that could not be repayed.

Several Early Copper specialist dealers and collectors attended the sale which was not well publicized nor particularly well run as the Pennypacker Auction Company did not regularly deal with rare coins. The small group of dealers and collectors got together before the auction and colluded to buy up all the choice coins, then held a second auction in a hotel room later on that day! I happen to own Louis Helfenstein's personal sale room copy of the Pennypacker Sale. To the left of each copper lot is a number which I presume is the sale price of the coins. To the right of each lot is a higher number which I believe is the sale price of the coins in the second auction which occured in the hotel room after the small consortium of Early Copper dealers/collectors got together after the initial sale.

Of interest is the sale price of the 1823 Gem Unc. Large Cent which sold for$525.00 in the first auction, then sold to Louis Helfenstein later that day in the second auction for $750.00. That very same coin turned up in Lester Merkin's Helfenstein Collection Sale in 1964( lot 97 ) where it realized $3000.00. So it would seem that it may indeed be very profitable to collude!!

Mark · April 13, 2006 7:04AM

Thanks to both Julian and BigMoose. I had not heard that tale before. It was interesting.

Mark

relayer · April 13, 2006 7:41AM

It's easier to say $2,500 then to say $800, no $900, no $1000, no $1100, no $1200, $1300, $1400,$1500,$1600,$1700,$1800,$1900,$2000,$2100,$2200,$2300,$2400,$2500

see it is easier

gemtone65 · April 13, 2006 8:15AM

Leaving aside the ethical implications and the adverse effects on the seller, conducting himself in any other way than Julian has described will not, it seems to me, result in an unambigous improvement to one buyer without leaving the other worse off. For example, one option is for Julian to tell the second customer that he has another bidder for the coin. Not only does the second customer go away unhappy, as Julian pointed out, but he now has information that the first customer does not, and could use that information strategically. Relating this information to both customers could still make at least one of them worse off.

If Julian tells one of the customers explicitly that he has another with a higher bid, he thereby could make the higher-bid customer pay more for the coin. If he conducts a private auction among his customers, with each agreeing to abide by the results, the loser may secretly place a bid elsewhere.

So, I have a hard time thinking of a way to make this work so that both customers are assured of being no worse off than under the practice that Julian now follows.

morgannut2 · April 13, 2006 9:55AM

I'm no expert on bidding strategy-- but this all seems much to do about nothing. Any dealer doing representation should state first thing that his expertise is to the first regular (and qualified) customer who asks. I would fully respect the statement by Julian that he has been retained for a coin and "some others", but in the future he is always willing to devote his full effort and expertise to my employ. It makes me feel much better to have one agent totally on my side exclusively. And he certainly can say he can't recommend another dealer better than he is, in his stead!! Looking at the recent ANR or the standard Heritage Auction action, I fail to see how the second or first bidders would be influenced/disadvantaged knowing there's one more bidder now added to a preexisting list of 10 or 20 other serious competitors.

FatMan · April 13, 2006 10:34AM

Thanks for the very interesting thread. What I have learned here is to inquire with my agent if he is representing anyone else with the same coin, and if not, would he if asked. I too was in the auction when the bidder jumped the bid to $2500 and the first thing that went through my mind was why would represent two parties on the same lot. After reading this thread I have found out it is not uncommon, but my initial impression was it seemed a bit unethical.

When I confer with an agent I often ask what he believes the lot will sell for. Obviously, if he is representing another party it would be ethically difficult to answer that question.

In the sea of tacit collusion at the Heritage auction....

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