By Zachary D. Roberts
By Anna Merlan
By Jon Campbell and Laura Shunk
By Albert Samaha
By Amanda Dingyuan
By Anna Merlan
By Anna Merlan
By Albert Samaha
By now, everyone has heard that the U.S. Department of Justice Antitrust Division is investigating Sothebys and Christies, the two-pronged backbone of the worlds auction market. By treating the auction houses as it would any other industry, the federal investigation marks the beginning of the end for a set of antiquated practices surrounding the sale of art. Its primary target, whether intended or not, is the cult of secrecy that still pervades the art market.
The investigation began in 1997 and floundered for two yearsuntil Christopher M. Davidge, Christie's CEO, resigned in December, turning over documents as part of his firm's deal to cooperate with Justice in exchange for immunity from prosecution. By mid February, Sotheby's CEO, Diana D. Brooks, and its chairman and chief stockholder, A. Alfred Taubman, were also gone. Though neither Christie's nor Sotheby's has admitted culpability, the resignations have led to the most negative inter- pretation of the shady facts.
No one in the art world seems too shocked that Christie's and Sotheby's may have colluded, a violation of the U.S. antitrust laws. The antitrust charges stem from a moment in 1992 when the two auction houses raised their commission rates. At the timethe very bottom of the '90s art marketthe two firms allegedly conferred with each other before taking an action calculated to boost profitability and jump-start prices. Whether it was conspiracy or mere coincidence, the tactic worked. By the end of 1995, both firms reported a 20 percent jump in income, widely touted at the time as an upturn in the art market.
"If I were an auction house, I probably would want to make sure we are all on the same page." This view, shared by many other dealers interviewed, reflects the art world's usual approach to the power of the Big Two, who control 95 percent of the international auction market. The auction records have become our Dow Jones average.
What hasshocked the art world is the fact that the federal government has decided to treat Christie's and Sotheby's as it would any other business. At the opening of the Armory Show, the most overheard remark was, "Can you believe it?" Many of the dealers were gleefully adding rumors of their own. "This is just the tip of the iceberg," one proclaimed. "Wait until the feds find out about the private sales," remarked an art consultant. A prominent collector speculated, "This is reallyabout money laundering." The truth of such rumors isn't the point; it's alarming enough that Christie's and Sotheby's are caught up in the already public allegations. The federal investigation is serious, in and of itself, even if its scope is not broadened to include every other worrisome practice in the art market. The fact that a paper trail was left at all demonstrates that the firms never believed that anyone would even bother to look.
"This levels the playing field," states Gagosian Gallery's Robert Monk, former head of Sotheby's contemporary art department, who regards the shake-up as healthy for the art market. More to the point is the comment made by a Wall Street analyst, "Let the dukes and duchesses bid on eBay like the rest of us!" The analyst's offhand joke reflects what the Internet has wroughtan age when any form of private transaction appears outmoded. "If you look at the number of marketplaces that have been impacted by the Internet, the art market fits the profile of an industry ready to be walloped," claims Andrew Schoelkopf, former head of business development at Christie's, now CEO at Onview.com, an online art enterprise. "The art business has prospered for centuries on the basis of incomplete or inaccurate information. Now companies are making it much more efficient and easy for collectors and scholars to access information in a timely fashion." One such company, artnet.com, founded in 1989, went online in '95 under the direction of Hans Neuendorf and is well on the way to creating the first comprehensive database of worldwide sales, a real Dow Jones of the art market.
Of course, the art market is no Microsoft. The entire art industry is estimated at $7 to $10 billion, of which auctions make up $4 billion. But this alleged collusion took place exactly at the moment when Sotheby's and Christie's were modeling themselves after industrial giants, branching out into real estate, financing, private sales, and Internet servicesall underwritten by publicly traded stocks. (And let's not forget Sotheby's recent merger with Amazon.com and its earlier acquisition of the Andre Emmerich Gallery and 50 percent of Jeffrey Deitch's business.)
Once the auction houses were operating like multinational corporations, it was impossible for them to avoid the scrutiny. In addition to the Justice Department's investigation, they are being investigated by trade commissions in the U.K. and Australia. They are also the subjects of over 40 lawsuits brought by U.S. clients and shareholders. "Sellers and buyers were hurt because anticompetitive behavior means they had no choice and could not get the best deal," says John Halebian of Wechsler Harwood Halebian & Feffer, one of the firms representing the plaintiffs. "Stockholders allege that the revenues Sotheby's reported were inflated because they were generated by an illegal agreement."