CAVEAT EMPTOR AT AUCTIONS

The Keeneland September Yearling Sale is about to begin and that brings to mind a television program I watched recently on CNBC’s series “American Greed” about shill bidding.  Ebay defines the practice as follows:

“Shill bidding happens when anyone—including family, friends, roommates, employees, or online connections—bids on an item with the intent to artificially increase its price or desirability… Shill bidding is…illegal in many places and can carry severe penalties.”

(“Ghost bidding” is a term sometimes used to describe both shill bidding and “ceiling bidding.”  In shill bidding, an actual person colludes with the auctioneer to drive up the price, whereas in ceiling bidding, the auctioneer pretends that a real bid has been made.)

The American Greed episode pertained to Bill Mastro, who operated an Illinois auction house that sold baseball cards and other sports memorabilia.  CNBC explained how Mastro defrauded his clientele out of at least $1 million by rigging auctions, which got him a 20-month prison term:

“In 2013, [Mastro] admitted using a system of so-called shill bidders whose sole purpose was to drive up prices and bring him higher commissions.  He also tried to pass off a baseball that he falsely claimed was from America’s first professional baseball team, the Cincinnati Red Stockings.  And in a collector’s sacrilege, he trimmed the edges of a rare Honus Wagner baseball card in order to make it look more attractive to bidders.  Had they known the card was altered, it would have drastically reduced its value.  But Mastro failed to disclose it.”

CNBC concluded: “…the industry he helped create remains loaded with pitfalls.

A cursory Internet search revealed that shill bidding is a problem in auctions tendering all kinds of goods and services.

While Keeneland, Fasig-Tipton, and the other well-known horse auctions have endeavored to increase transparency, unscrupulous sellers can sometimes game the system.  Caveat emptor is truly sound advice when it comes to selecting honest bloodstock agents who know what they are doing at auction and to buying racehorses at their fair auction value.

Copyright © 2017 Horse Racing Business