Lawsuit Claims Heritage Auction Galleries Uses Fake Bidder to Manipulate Auctions
A former senior Civil War consultant for Heritage Auction Galleries alleges the Dallas-based company uses a fake bidder to defraud customers. A lawsuit filed May 22 by Gary Hendershott against Heritage and six others also claims the world's third largest auction house has violated the Racketeer Influenced and Corrupt Organizations Act, Texas Administrative Code and Texas Pawnshop Act.
Greg Rohan, president of Heritage Auction Galleries
"Heritage and its owners use N.P. Gresham -- a non-existent, fictitious entity -- to act as a shill/sham bidder at their auctions," says Mark Senter, Hendershott's attorney.
Heritage has denied the accusations in court, and while company president Greg Rohan acknowledges that his company has been using the pseudonym N.P. Gresham for approximately 25 years to place bids in its own auctions as well as others, he stresses that there's nothing "sinister" about Heritage's bidding practices.
"The claims made by Hendershott are a complete distortion of the facts and the law," Rohan says.
Rohan says an accounting clerk developed the fake name when Heritage needed a mechanism for invoicing between its two companies -- the auction house and its direct purchase and sale company -- and it uses two account numbers for Gresham to keep some transactions separate "for internal reporting reasons." He claims the N.P. stands for "new purchase" but doesn't know the significance of Gresham.
"The characterization fake bidder is entirely Hendershott's and his attorneys'," he says, "and is utterly false and misleading."
Although Rohan argues that while it's "perfectly legal" for an auction house or its affiliates to bid in its own auctions without disclosure, Heritage discloses its interest at the back of auction catalogs and online in its listed terms and conditions. The terms read: "The Auctioneer or its affiliates may consign items to be sold in the Auction, and may bid on those lots or any other lots."
"There's nothing illegal or unethical about us placing a bid prior to the auction starting," Rohan says, adding that Heritage doesn't compete or bid during auctions.
Steve Bruno, the government relations officer at the Texas Department of Licensing and Regulation, says Heritage is allowed to bid in its own auctions -- even if it uses a false name -- provided that it's announced. "As long as they've said that their people will be bidding, then they're allowed to do that."
However, Hendershott's lawsuit claims the pseudonym's use is illegal because it's being used to manipulate auction prices, engaging in what's known as shill bidding -- an illegal activity that involves bidding without the intent of buying. Placing bids in an attempt to drive up the prices of items, which Hendershott alleges Heritage has done, and withdrawing bids because someone else failed to bid higher are considered shill bidding. In theory, an auction house bidding in its own auctions could bid with the intent of driving up the price and then withdraw the bid if someone doesn't outbid them before the auction ends so it doesn't win.
Rohan says Heritage only affects the price of items when it's the immediate underbidder or top bidder, and it only wins between one and two percent of the auctions it bids on. He also stresses that Heritage doesn't engage in shill bidding.
"It's like Bernie Madoff. You think he put all 13,000 of those statements in envelopes every month? No. Somebody else is guilty there," Rohan says. "If we were running bids up, if we were putting in bids and withdrawing them, there has to be somebody in the data processing department that knows about it; there has to be a clerical person in the bidding department that knows about it. Somebody would see it in the last 35 years and feel like they were wrongfully terminated and scream bloody murder. We don't do that."
The TDLR regulates auctioneers, not auction houses. So while Heritage is required to hire licensed auctioneers to conduct its auctions, the company's practices as an auction house are not regulated. A statement from Tom Kelley, a spokesman for the Texas Attorney General's Office, says "nothing in the law addresses the licensing of auction houses."
Christie's and Sotheby's, the world's two largest auction houses, are regulated by the New York City Department of Consumer Affairs. Toby Usnik, head of communications for Christie's, says a "third-party guarantee" is utilized on occasions when his company bids in its own auctions. This practice involves Christie's guaranteeing a seller that an item will reach a minimum price at auction, selecting a third-party buyer to place bids on its behalf. If the third party doesn't win the item, they share in some of Christie's proceeds from the sale as compensation.
"It's very rare that we would have any interest in any kind of bidding in our
saleroom, but in those instances when we do, it's indicated in our catalogs next to the lot that's being auctioned off, and it's very transparent to anyone in the saleroom, online or by telephone," Usnik says.
Christie's wouldn't bid as often as Heritage does -- Rohan claims it bids on "a lot of things" -- and wouldn't use a pseudonym because "that would be illegal," according to the New York City Department of Consumer Affairs, says Usnik. "You would be bidding up the price of something artificially, and others in the auction room who are competing for it would not know that it's you who is bidding or that you have a special interest in it."
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