A Bad Lot?

Next week, the most sensational art trial of our times begins in New York. At stake are the futures of some of the biggest players at both Sotheby's and Christie's - and perhaps of the auction houses themselves. Chris Blackhurst investigates
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The Independent US

They made the most unlikely pairing: the self-made American multi-millionaire and the upper-class English knight. But they had one thing in common, at least according to the US authorities: a desire to rig the market by ensuring that their businesses did not compete with each other. They met in New York, where such behaviour is a criminal offence. But next week, only one of them will stand trial for conspiring to fix prices. If found guilty, Alfred Taubman, one of the US's wealthiest tycoons, who made a fortune from developing real estate and building shopping malls, faces a possible three-year jail sentence and a minimum fine of $350,000. Of his alleged co-conspirator, the former chairman of Christie's auction house Sir Anthony Tennant – ex-Eton, Cambridge and the Guards – there will not be a sign.

The irony will not be lost on Taubman, who took over the rival auction house Sotheby's in 1983 and had to fight the snooty disdain of the art world in order to gain acceptance. One of his bug bears was always the way that Sotheby's had treated him and his wife Judy, a former Miss Israel, when they were buying art for their vast collection. And not just Sotheby's but Christie's, too. Now, 18 years on, it is Taubman who will stand in the dock in New York, while Sir Anthony continues to enjoy the life of an English gentleman in London.

Nor can Taubman, who remains the largest shareholder in Sotheby's, fail to notice that it will feel as though his company is the one being made to suffer. Already, Sotheby's former president and chief executive officer, Diana D Brooks (known to New York salon hostesses as DeDe), has pleaded guilty to fixing commission rates and fees with Christie's. She will be sentenced once the Taubman trial is over – and she, too, could be on her way to jail. But, again, Mrs Brooks's opposite number at Christie's, Christopher Davidge, has not been charged with anything.

Not that Christie's has escaped financial pain itself. In a separate legal action that was sparked by the price-fixing investigation, Sotheby's and Christie's have each agreed to pay $256m (£160m) to buyers and sellers who claim they lost out because the two companies were not competing for their business. Taubman has personally contributed $156m (£98m) towards the settlement. In addition, Sotheby's has already been fined $45m (£28m) for price-fixing. The sums seem unreal, but the business they are in often appears untainted by reality, too. Next Tuesday, the day after the trial opens, for instance, Christie's will hold a sale of Impressionist paintings in a New York still reeling from the World Trade Centre disaster: a single Renoir is expected to fetch $4m-$6m, and a Matisse, $8-$10m.

For Taubman and Brooks, the irony will be bitter. How is it that one of the US's richest men and a glamorous New York socialite and businesswoman are contemplating disgrace, while the British end of their joint operation walks away scot-free? Put simply, the answer is that the English toffs have played the Americans at their own game. Co-operating with the beaks may be frowned upon on the playing fields of England's public schools, with the sentiment prevailing that a man must take his punishment like a man. But when it comes to commerce, a different code applies.

According to the prosecution, Christie's and Sotheby's began to collude illegally in 1995. The authorities, noticing the way in which the two famous auction houses operated to a remarkably similar fee structure, began to investigate shortly afterwards. Progress was slow until Christie's, in the parlance of the underworld, did the dirty on its US partner. In January 2000, in return for an amnesty from prosecution, the London firm handed over documentation detailing the pact with Sotheby's and agreed to secure the co-operation with investigators of Davidge.

It was a remarkable deal: representatives of Christie's – which was founded in 1776 and had as its first big break the purchase by Catherine the Great of brilliant works of art that later formed the huge Hermitage collection – sitting down with US Justice Department lawyers and FBI agents. Even more remarkable was the purpose of the meetings: to humiliate Sotheby's – older than its rival by 32 years, the house that sold Napoleon's library, that advised the British royal family – in order to avoid being prosecuted itself. Christie's was confident of getting Davidge, who had left the firm on Christmas Eve 1999, to comply. He was owed a golden handshake of £5m, payable in instalments. Davidge must have felt under pressure: if he did not do what Christie's wanted and assist in the investigation, the auction house might not pay him his money.

Subsequently, not all Christie's personnel escaped the rap. Sir Anthony, who had retired from the company before the scandal erupted, was charged jointly with Taubman. But price fixing of the kind alleged in this case is not a criminal offence in Britain. Provided he does not go to the US or anywhere else the feds can arrest him (and provided they do not launch some dramatic commando-style raid to capture him), Sir Anthony is safe. Besides, his lawyers, CMS Cameron McKenna, insist in a statement that Sir Anthony has done nothing wrong: "Sir Anthony wishes to make it clear he is completely innocent of any involvement in price fixing. The investigation appears to relate in part to periods when Sir Anthony had no involvement with Christie's. As a UK subject, Sir Anthony is not subject to the jurisdiction of the US courts and accordingly will not be taking part in any of the pending proceedings. In the circumstances, it is inappropriate for Sir Anthony to make any further comment."

Taubman, too, maintains his innocence, blaming DeDe Brooks for acting on her own and without his authorisation. That was not the view of James Griffin, the US prosecutor. He blamed the two men once at the top and now indicted. "This case will show that these individuals mastered the art of price fixing," said Griffin.

In the early 1990s, Christie's and Sotheby's were at each other's throats. The one vied with the other to see which could hold the most glamorous and high-profile sales. Competition was fierce and each house would offer inducements to sellers to come to them. These included making substantial donations to their favourite charities, slashing the commission charged to the seller and making them large loans at favourable rates in advance of sales. Overheads, though, were soaring, and while celebrity jamborees drew publicity, the market was increasingly tight. Then, in March 1995, Christie's announced it would charge sellers a fixed sliding-scale commission. A month later, Sotheby's followed suit. Two years after that, in May 1997, the US Department of Justice launched an inquiry. Under US anti-trust law, prosecutors cannot just point to the fact that two organisations charge similar prices as evidence of an illegal cartel. They have to show a meeting of minds, that both sides talked and colluded to set the rates. In many suspected cartel cases, their efforts are hampered by the lack of written evidence: mindful of the severity of the law in this area, businesses tend not to record their conversations. But in this instance, both Sotheby's and Christie's kept notes.

Perhaps this reflected the art world's antiquated way of going about things, of keeping hand-written notes in carefully maintained ledgers. Perhaps those involved did not know they might be breaking the law, and felt free to jot the dealings down. Whatever the reason, the investigators came across a rare goldmine.

Whenever Sir Anthony and Taubman met, prosecutors will claim, the Christie's man went back to his office and wrote down what was discussed. Some of the notes have been seen by The Independent. One states: "CMD [Mr Davidge] now knows of these conversations. Perhaps DD Brooks should know too. Otherwise no one?" The note then appears to presents a list of terms agreed between the two auctioneers as to the way that they should conduct future business. These include: "no claims to press about market share; make no straight guarantees, make no advances on single lots, no more than 90 days' credit to trade buyers, cease to make charitable donations."

The note, apparently from Sir Anthony to Christopher Davidge, detailing his conversation with Taubman or someone else from Sotheby's, ends: "Accompanied by verbal assurance, we would like to go further if we can make satisfactory progress." Another filed memorandum describes how businesses in other sectors work together. "[They] all do it, without talking about it. We should set up our own schedules. They do not have to be identical but they could be, provided that we do not say we match one another. It is easier for us than for people dealing in goods which can be priced exactly. With a sliding scale based on sale, there should be no legal problem because you can't price fix a unique object."

The analysis was right: it is impossible to fix a price paid at auction. But it was also wrong: it is possible to fix the price, or rate, charged by the auctioneer.

This was Sotheby's and Christie's secret, ending competition between them and contemplating a more profitable future. At the scale agreed, the author notes: "At $1bn sales we would each make $50m."

They would also stop poaching one another's people. If a client tried to knock the scale down, both auctioneers were prepared to lose the business rather than jeopardise the hidden partnership. "If anyone wants to bargain on their new scale they will tell them to go elsewhere," continues the memo. Prosecutors will claim that the pact was concluded at the most senior level, and that Sir Anthony makes this clear in another note: "Everything should be monitored and checked back if needs be. He and I should now withdraw but stay in touch with a view to seeing how things go and intervening from on high if needs be."

DeDe Brooks pleaded guilty to one charge of price-fixing. She will be a star witness next week, when she is expected to testify against her former boss, Taubman. In return for her co-operation, she is likely to receive a reduced sentence. For his part, Taubman will continue to insist on his innocence, claiming that he has taken a lie-detector test that cleared him. The former Sotheby's chairman is likely to say that he told Sir Anthony that he could not be party to anything which ran counter to US law. As to the practicalities of co-operation, Taubman will maintain they were left to DeDe Brooks and Christopher Davidge.

Ranged against Taubman will be files of documents obtained by the investigators and the testimonies of Davidge and Brooks. It will be compelling theatre. One man, of course, will not be there: Sir Anthony Tennant. The trial will start on Monday, which just happens to be his 71st birthday. Perhaps he will raise a glass or two in Boodle's, his St James's club, to celebrate.

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