This article serves as an update to a feature published one year ago (see Latest Version of New York State Assembly Bill A01730: Seeks Prohibition of Auction House “Sham” Bids Without Disclosure).
Maine Antique Digest reports in their latest issue that the legislation “has taken on a new life since Assemblyman Richard Brodsky (D-Westchester) made several amendments to make it more palatable for passage” (see New York Bill Would Tightly Regulate Auctions):
“This bill would provide statutory protections to auction participants,” explained Brodsky. “The world’s major auction houses are located in New York state and are an important source of economic activity and tourism. Thus, it is important that state law provide protections for all parties to auctions.”
Details of the current bill can be found on the New York Senate site (see Bill S4313B). The Bill passed the New York State Assembly and was delivered to the Senate on 01/26/10.
Below is the Bill Memo found on the link above (note: there does not appear to be any material changes to the “Summary of Provisions” when compared with the A01730 Memo published in the article one year ago).
BILL NUMBER: S4313B
TITLE OF BILL : An act to amend the general business law, in relation to auction requirements
PURPOSE : It is to prohibit acceptance of “sham” or “chandelier” bids by auctioneers without disclosure.
SUMMARY OF PROVISIONS : The Auctioneer will be held responsible for the truth of statements contained in any catalogue etc.
* The consignor must show that he or she has complete and lawful right, title, and interest in property being auctioned
* It must be disclosed if an auctioneer or auction house has any interest in an article being auctioned
* It must be disclosed if a consignor is to receive a rebate commission or when he or she will be allowed to bid upon and buy back their own article
* If there is a “reserve price” it must be disclosed that the item/lot is being sold subject to reserve
* If there is no reserve price there shall not be any indication given that the item/lot is being sold at reserve
* It must be disclosed if an auctioneer extends a loan to a purchaser
* Detailed information must be provided about any jewelry being sold
* The auctioneer shall issue an invoice to each purchaser with specific information
* Each auction sale must be advertised at least once in the seven days preceding the auction
* Prospective purchasers must be allowed to inspect articles for sale
* Checks must be sent to anyone entitled to proceeds of a sale within 14 days
* Except to implement the reserve price no auctioneer, consignor etc. shall make a bid unless their status as someone with inside information has been disclosed
* Whenever an estimated value of an item is posted a description of such estimate must also be provided
* Any advertisement indicating an auction for a business’ liquidation must state the name of that business
* If the reserve price is not bid, the auctioneer may withdraw a lot from sale
* The auctioneer may open bidding on any lot by placing a bid on behalf of the seller
* After the reserve price has been reached an auctioneer may not bid on behalf of the consignor
* The reserve price shall not exceed the minimum estimated value of the lot
* An auctioneer may not offer more than one article for sale at any time unless combining of articles/lots is indicated prior to the initial bid
* An auctioneer may not represent a manufacturer’s or owner’s guarantee unless such guarantee accompanies the article
* An auctioneer may not offer an article contained in a carton or package unless it is announced that the bidder can reject the item upon opening such package.
EXISTING LAW : The present law does not regulate the use of sham bids by auction houses.
JUSTIFICATION : This legislation grew out of an 18-month investigation into art market practices. The Assembly Committee on Oversight, Analysis and Investigation initially met with art market participants and then identified key issues, which were developed into a draft memorandum and study bills. These bills were the basis for a public hearing in New York City on January 30, 1991 held by the Assembly Tourism, Arts and Sports Development Committee. The hearing was followed by subsequent meetings with art market participants.
A sham or chandelier bid is any bid for which there is no bona fide offer or bidder.
At the hearing, the Committees received testimony that sham or chandelier bids are used by the auction houses as a means of obtaining bids that meet and/or exceed the reserve price. The Committees
received testimony that raised serious concerns over this practice.
Witnesses testified that sham bidding undermines confidence in the art market, and that such bids are deceptive and should be prohibited.
Sham bids create a false atmosphere of interest in offered work that may not actually exist and deprives the public of any real knowledge of the true level of interest for the work.
Testimony was received that a sham or chandelier bid is not an ethical bid, but is simply an inventive bid. Acceptance of a sham bid by an auctioneer on behalf of an auction house is essentially a deceptive practice. There is no justifiable reason to permit the taking of fake bids without disclosure of this practice to the public. The theatrical benefits created by this practice are far outweighed by the public’s right to be informed of the acceptance of such bids during the auction process. This theatrical game playing is akin to pulling the wool over the consumer’s eyes. Identification of the acceptance of such bids with the phrase “for the consignor” would put an end to the chicanery being perpetrated by the auction houses. The marketplace has no need for such a fraudulent and deceptive practice.
LEGISLATIVE HISTORY : A.1249 (1993-94), A.284 (1995-96), A.536 (1997-98), A.3847 (1999-2000), A.1317 (2001-02), A.1254 of (2003-04), A.3514 (2005-06). A.2442, Passed Assembly; (2007-2008)
FISCAL IMPLICATIONS : None.
LOCAL FISCAL IMPLICATIONS : None
EFFECTIVE DATE : This bill will take effect on the sixtieth day after it becomes a law.
Many of the details of this legislation, if passed, would have a dramatic affect on the operation of live auctions. However, very few “entertainment memorabilia” auctions take place in the state of New York, so it would have little to no impact on the original prop and costume collecting hobby.