Published: October 10, 2000
NEW YORK CITY – Sotheby’s Holdings, Inc. and its former chief executive pleaded guilty Thursday, October 5, to fixing commission prices and fees with rival Christie’s.
Former CEO Diana D. Brooks, the first woman to head a major auction house and one of the most powerful figures in the art world over the past decade, faces up to three years in federal prison when she is sentenced on January 5.
Christie’s, which earlier confessed to its role in the scheme and cooperated with investigators, will not face criminal charges.
Federal prosecutors also promised not to charge any current or former employee of Sotheby’s other than Brooks and her one-time boss, former Sotheby’s chairman A. Alfred Taubman. Both resigned in February.
In her plea, Brooks said she met with Christie’s officials to fix prices “at the direction of a superior.”
Taubman, who remains the controlling shareholder of the auction house, has not been charged.
“Whatever Ms Brooks chose to do she did completely on her own without my knowledge or approval,” Taubman said. “If the need arises, I will vigorously defend myself against any charges.”
In separate one-count felony charges filed in the US District Court in Manhattan, Sotheby’s and Brooks were each charged with participating in a conspiracy lasting more than six years, from April 1993 to December 1999, to suppress and eliminate competition by fixing prices in violation of the Sherman Act. The conspirators also agreed to limit or eliminate other inducements to sellers, such as interest-free loans and charitable donations.
Sotheby’s and Christie’s International, its chief competitor, control more than 90 percent of the world’s auction business. The firms provide substantially the same services to sellers and, prior to the introduction of the fixed, non-negotiable commission rates, they competed primarily on the basis of price, undercutting each other’s offers to sellers. As a result of the conspiracy, sellers lost their principal bargaining tool.
The guilty plea by Sotheby’s Holdings Inc. was not immediately accepted by US District Judge Lewis Kaplan, who also is presiding over a civil damages case brought by victims of the scheme.
The judge said the agreement was unusual because it carried a mandatory $45 million fine for Sotheby’s and a promise of no restitution.
The judge said he did not want to give up that option in the civil case, and would decide whether to accept the plea after the company describes the losses it caused and its ability to pay damages and restitution.
According to prosecutors, Brooks and other co-conspirators agreed to raise pricing by fixing sellers’ commissions; agreed to publish non-negotiable sellers’ commission rate schedules; agreed to the order in which each co-conspirator would publish its non-negotiable sellers’ commission schedule; issued sellers’ commission schedules in accordance with the agreements reached; exchanged customer information for the purpose of monitoring and enforcing adherence to the non-negotiable seller’s commission schedules; agreed not to make interest-free loans on consignments from sellers; and agreed not to make charitable contributions as part of pricing to sellers.
The pricing scheme impaired the ability of sellers to achieve the best price terms through negotiation, as had been possible under the conspirators’ previous commission structures.
From April 1993 until February 2000, Sotheby’s made more than $225 million from seller’s commissions, court documents say. The co-conspirators were not named. As part of her plea agreement, Brooks may be asked to provide information under oath about Taubman, who agreed to pay $156 million of the initial $256 million fine owed by Sotheby’s for its share of the civil case.
Christie’s also will pay $256 million to buyers and sellers under the proposed settlement; Melamed said it also must provide “full restitution to victims.”
William Ruprecht, president and CEO of Sotheby’s Holdings, apologized to clients and said “the behavior that led to today’s plea was wrong and is unacceptable. On behalf of Sotheby’s, I apologize to our clients for this breach of the standards of trust that they have the right to expect from us and assure them that no member of Sotheby’s current management played any role whatsoever in these events or was aware at any time that they were taking place.
“We are committed to ensuring that our business is conducted according to the highest principles of honesty and integrity. [This] action, following on the civil settlements Sotheby’s announced [previously] allows the company to move forward with these matters behind it,” Ruprecht continued.
This article is composed of information provided by the Associated Press and the US Department of Justice.
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