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News Article
Non-paying online bidders wound auctioneers, sellers
By Eric C. Rodenberg

Non-paying bidders, or “those mean-spirited monsters” as LiveAuctioneers CEO Julian R. Ellison refers to them, hardly initiate a “victimless” act when they bid at online auctions.

The non-paying bidder harms the auctioneer, the seller and the underbidder. In short, it destroys the integrity of the auction.

But, is it a crime?

“Well, first off, it would have to be investigated,” said Robert K. Wittman, former FBI agent and founder of the Bureau’s Art Crime Team. “I can’t say it is a crime until it is investigated. You would have to examine if the overt acts of the fraud fit the elements of a crime.”

Some of the elements of a crime would be whether it was a bidder “who got in over his head” or whether there was a conscious, ongoing pattern.

In the Tabbi Karim case (see related story on the front page), he bid at 13 auction houses during a March weekend, and then vanished.

That could be a crime, Wittman said.

However, there was no trade of goods – no money proffered or item exchanged.

“But, there is a loss,” Wittman countered. “The auction house lost in the deal. They were to get a percentage of the sold item from both the buyer and seller. So, yes, there is a loser.”

And, if the person – such as Tabbi Karim – used the Internet to make these bids, he could be guilty of mail fraud, “using the wires in the furtherance of their crime.”

Now retired from the FBI after a highly decorated career, Wittman is the president of Robert Wittman Inc., a consulting firm actively involved in art crime investigations, security and recovery. In the past, he has been hired by auction houses to find these “missing bidders.”

Whether federal or international authorities would pursue such a crime depends on the amount involved, and whether such “malicious action” can be shown to explain the elements of a crime.

Most of the 1 million-plus transactions that take place each day are legitimate, according to FBI statistics. Just a fraction actually results in some type of fraud. But even that fraction adds up. According to the latest report of the Internet Crime Complaint Center (IC3), more than 70,000 complaints made to IC3 last year – about one in ever four – involved online auction scams.

Due to its evolving prominence in the art and antique world, Internet auction investigations will be one of the subjects of Wittman’s annual Art Crime Investigation Seminar, which is from June 10-14.

What types of non-paying bidders are there online?

Wittman divides them into three categories.

“You have the legitimate buyers who get in over their head,” he said. “These are the bidders that get caught up in the excitement of the auction … they’re overcome by their emotions.

“Then you have the people who get a ridiculous enjoyment out of doing these things. They’re usually these people who get some kind of thrill out of acting like a big buyer, and they don’t realize what they’re doing.”

Other motives could be more sinister, Wittman said.

“I don’t have any knowledge of this happening, but competitive auctioneers could influence this type of activity,” he said. “The Internet, with its anonymity, lends itself to the possibility.”

The meteoric rise of a particular lot at auction not only gives the auction house good publicity, but also “pumps up” the market.

A case in point was the Qing dynasty vase sold by Bainbridge Auctions in London for $83 million. At the time of auction, it was touted as the most expensive Chinese piece ever sold. However, it remained unpaid for nearly two years following the sale. It was later reported to have privately sold for less than half of its $83 million.

Auction houses are quick to report a record sale. Journalists are as quick to report the results. However, charge backs, stop payments on checks, wire transfer delays – and even the “vanishing act” of Tabbi Karim – are all methods used by non-paying bidders.

Christie’s auction house in New York offers their bidders a 35-day “window” in which to pay for items. Many other auction houses have followed suit, in order to stay “bidder friendly.”

The management of auction houses may be loath to admit its “star” item didn’t truly sell. Perhaps, it is sold later at a “private” sale for a fraction of its bid price. But, the piece remains on the record books, skewing the “prices” of the item.

In the end, even collectors lose when instances of non-paying bidders are not disclosed, but “swept under the rug.”

2/1/2013
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