Sotheby’s and Christie’s: The Witness Payment Was Severance

The Sotheby’s antitrust case concerned an agreement with Christie’s to fix the commissions sellers paid to auction their goods. The government’s brief in the criminal case shows how the houses moved from cutting fees to win business to coordinating rates that sellers could no longer negotiate. The evidence ran through handwritten notes, private instructions, draft schedules and the executives who put the agreement into practice. One cooperating executive’s payment had a different explanation altogether: his employer owed him severance.

Seller Commissions Were the Bargaining Point

Sotheby’s and Christie’s competed for sellers of art, jewelry and furniture by undercutting each other’s commission rates. In its May 2, 2001 indictment announcement, the Department of Justice charged that their former chairmen conspired to fix those rates from 1993 to 1999. The department said the houses charged U.S. sellers at least $400 million in commissions during that period and reportedly controlled more than 90 percent of the world’s live auctions of those goods.

The business earned money on both sides of an auction. Sellers paid commissions, and buyers paid a separate buyer’s premium. The government’s brief in the criminal case explains that by 1993 both houses routinely lowered or waived seller commissions to obtain business. Their auction revenue therefore came primarily from buyers’ premiums.

Winning a collection could mean giving up the seller’s commission altogether. The brief describes other inducements too, including contributions to a seller’s chosen charity and loans that put the auction house at risk if the art brought in less than it had advanced. A seller choosing where to place a collection could compare the money each house would leave in the seller’s hands.

That was the competition the agreement targeted. A published commission schedule already existed at each house. What the executives wanted to change was the willingness to bargain below it. Sellers lost their bargaining power: the rival that had been an alternative offer became a partner in refusing the discount.

How the Agreement Became a Published Rate

The government’s criminal-case brief traces the agreement from private discussions between the chairmen to instructions for the operating executives.

According to that account, the chairmen met privately in London and New York. They discussed commission waivers, financing and other concessions used to attract sellers. After an April 30, 1993 meeting, Christie’s chairman handed his chief executive handwritten notes describing what had been agreed. The notes captured what a seller asking for a discount should hear:

Sending a seller elsewhere had a different meaning when the other major house had agreed to the same approach. The brief says the chairmen delegated implementation to the operating executives, while keeping a role for themselves in monitoring progress and intervening when needed. Christie’s was to announce the change first, with Sotheby’s following.

The Sotheby’s executive described receiving the corresponding instruction from her own chairman. He told her to meet her counterpart at Christie’s, implement their agreements and work out the details. He also told her to keep the agreements secret. Both executives subsequently described meetings at which they worked on the commission change and reported their progress to their chairmen.

The Rate Still Had to Fit the Business

The brief describes the executives working out how to charge for a seller’s entire consignment instead of each individual object or lot. Christie’s eventual schedule charged on a sliding scale: the commission fell from 10% to 2% as total annual sales increased from under $100,000 to over $5 million.

Christie’s chief executive reported an estimate that the new schedule would add $15 to $20 million in annual revenue. That was the commercial attraction of ending the discounts sellers had been able to negotiate.

In February 1995, according to the brief, Christie’s chief executive showed his Sotheby’s counterpart the planned press release and commission schedule while they sat in a car in an airport parking lot. She said the schedule looked good but would need to go through Sotheby’s corporate process. She also raised the lack of an accommodation for dealers.

Christie’s announced its schedule first. Sotheby’s followed with lower rates for dealers and museums, and Christie’s revised its schedule to conform. By September, when the schedules took effect, the brief says the seller commissions were essentially the same.

The indictment also charged that the participants exchanged customer information to monitor and enforce adherence to the rates. That gave the agreement a way to police the very concessions that had previously won business. The public announcement was only the part sellers could see. Behind it were the agreement, the advance review and the effort to keep the rival from discounting.

How Notes and Insider Testimony Proved the Sotheby’s Price Fixing

The government’s criminal-case brief describes proof combining the chairmen’s meeting notes with testimony from the operating executives who implemented the arrangement. It reports that a jury found Sotheby’s former chairman guilty of conspiring to fix seller commissions.

The Department of Justice’s indictment announcement also records that Sotheby’s and its former chief executive pleaded guilty to fixing seller commission rates in October 2000.

The brief connects the executives’ accounts to the written notes, the delegation of responsibilities and reports back to the chairman as the pricing work progressed. The same sequence appeared in the accounts from inside both houses: an agreement at the top, instructions to the executives and a schedule that eventually reached customers.

The testimony explained what the shorthand meant and what happened next. A phrase about a minimum price list could be connected to the subsequent work on a fixed commission scale, then to the schedule the business published.

In the lysine price-fixing case involving Archer Daniels Midland, the court’s account of the criminal case describes an executive’s cooperation with the FBI and recordings. Here, handwritten notes and the implementing executives’ testimony supplied the inside view. In both, an insider turned a private agreement into proof.

The Severance Payment Was Not a Whistleblower Award

Christie’s paid its former chief executive $8 million in severance under his employment contract, according to the government’s criminal-case brief. Most of it had been paid before he testified. The payment came from Christie’s, not the United States.

The brief’s explanation of the payment answered a specific defense claim that Christie’s paid the witness to implicate Sotheby’s former chairman. The government identified the employment contract as the basis for the payment. Calling it a whistleblower award would change who paid, why the money was owed and what the payment represented.

Christie’s cooperation with the government was a separate arrangement. The Department of Justice confirmed that the company was cooperating under its Corporate Leniency Program. The brief says Christie’s agreement required its best efforts to obtain complete and truthful cooperation from its former chief executive and employees.

The employment contract explains the money. The notes and testimony explain the witness’s contribution to the case.

Commission Fixing and Whistleblower Rewards

We assess which reward program fits a commission-fixing whistleblower’s information. The Sotheby’s case shows the value of insider evidence, while its witness payment came from an employment agreement.

The Department of Justice’s Antitrust Division and the U.S. Postal Service have a whistleblower rewards program. For someone with evidence of a comparable agreement today, we assess the potential reward route alongside their role and what the evidence can establish. Questions about eligibility or your own involvement belong in that conversation with our whistleblower experts.

Where collusion also produces qualifying false claims for government money, the False Claims Act can apply. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. That is a share of a recovery pursued through a whistleblower case, a different payment from severance owed by an employer.

What an Insider Adds to the Price Sheet

An insider can explain how a published commission schedule came to exist: who proposed the change, who discussed it with a competitor and who instructed staff to implement it. In the auction-house case, the government’s brief follows that chain through the executives’ meetings, their reports to the chairmen and the schedules sent into the business.

In the auction-house case, sellers could see the new rates. The executives could explain the advance exchange of the draft, the decision about which house would announce first and the instructions behind the refusal to bargain. Their knowledge made the published price intelligible as the result of an agreement.

Someone working with commissions may recognize a rule that changed, an exception that disappeared or a rival’s draft appearing before a public announcement. We work with that person to connect what they know to the communications, decisions and charges customers actually faced.

You Know Who Stopped the Discount

If an auction-house commission instruction followed a rival discussion, explain the customer account and internal approval to our whistleblower experts.