There were two items of interest in the auction collusion world last week. First, the Antitrust Division concluded its long running (it’s really not necessary to modify “antitrust investigation” with “long running”–just habit) tax lien auction collusion investigation last week with the sentencing of Robert E. Rothman. Mr. Rothman was an early cooperator in the investigation. He entered into a plea agreement in March 2012. Rothman was sentenced to probation and a $20,000 fine by U.S. District Judge Susan D. Wigenton of the District of New Jersey.
On March 29, 2016 James Jeffers Jr., a former bidder for a Pennsylvania tax liens investment company was sentenced by Judge Wigenton to serve a prison term of 12 months and one day and pay a $25,000 criminal fine. Jeffers was convicted by a jury on Oct. 2, 2015 on auction collusion charges after a multi-week criminal trial. I believe, but am not sure, that Jeffers was the only individual in the tax lien auction collusion case to be sentenced to jail. In its press release regarding Jeffers sentencing, the Division said: “Including Jeffers, a total of thirteen individuals and three companies have been convicted or have pleaded guilty as part of the investigation.” The press release doesn’t mention any previous sentences that included incarceration, but if anyone knows that there was, please comment.
Auction investigations can be frustrating for the prosecutors. They come around every couple of years, (there are still ongoing real estate auction investigation in Northern California where 56 individuals have pled guilty and another 19 are awaiting trial (here), and in Georgia where 14 defendants have been charged; and 12 have pled guilty (here). It seems like the opportunity to collude and the money that can be made is just too tempting. Bidders see each other at auction after auction and familiarity breeds collusion. On the other hand, because auction collusion is so ubiquitous and the offenders are typically first offenders with an otherwise clean record, it is not unusual for those who plead guilty and cooperate to get non-custodial sentences.
Despite the limited jail sentences, the tax lien investigation was a success for the Antitrust Division as Judge Wigenton acknowledged: “I do think that because of the prosecutions and pleas and trial that…culture has changed and this is certainly very important at the end of the day.” Nonetheless, it would not be surprising to see more auction collusion cases in the future. The lessons don’t seem to last long, or to ripple to other auction markets.
In the auction collusion case I prosecuted, there were many excuses given by colluding bidders as to why they shouldn’t be prosecuted. “Everyone does it so I didn’t think it was wrong,” is the number one answer on Collusion Feud. Another top response is “If we didn’t ‘joint bid’, we wouldn’t come to the auction because we couldn’t make money so this was actually a good thing.” Another related answer was “The auctioneers cheat so we are just protecting ourselves.”
How do auctioneers cheat? Law 360 reported on May 31, 2016 that U.S. District Judge Ronald A. Guzman sentenced Mark Theotikos, 55, to one year and one day in prison for helping Mastro Auctions place phony bids on sports memorabilia in order to drive up the prices. The scheme works this way: a bidder conspiring with the auctioneer drives up bids by posing as a competing bidder or allowing the seller of the merchandise to place their own bids under a concealed identity. If the legitimate bidders do not top the fraudulent bid placed by the planted bidder, the sale is canceled. There are a variety of other ways auctioneers can rig the bidding at an auction, but the auctioneer scheming is not a defense to bidders colluding. Instead this could make for an interesting pairing of cell mates.
No doubt everyone in the auction business could use some antitrust and ethics training. The temptation to collude may be great but the penalties are not worth it. Even those who get probation for cooperating with the government pay a heavy price. There are lawyer fees and there can be many, many, meetings with the government as part of the cooperation. It is emotionally taxing to cooperate against people you have dealt with for years. And some people do go to jail as Mr. Jeffers will, and I suspect many more will before the “long running” auction collusion investigations are over.
Thanks for reading.