Wednesday, October 15, 2008

Minor Disagreement

In response to this post about his dispute with Sotheby’s, Halsey Minor sent me the following email (and permission to print it):

"Donn, just a few small facts you may wish to bear in mind. I do not live in New York. I split my time between San Francisco and Los Angeles. I have 5 kids in 2 cities and I have 10 companies and I like to collect — in many areas.

"The way I thought it was supposed to work was that people like me would not need to read every periodical on the planet so that we would have the background on the owner of every work of art we may wish to buy. I thought the millions of dollars I pay the auction houses every year was because they did the research for me. According to you its my responsibility, yet I pay Sotheby’s 15%. If you are right I need to stop collecting because I don’t have the time to do the research.

"I probably bid on 25 items that auction season across contemporary, design and American in New York, London and Paris and if you want me to be responsible for what I considered to be their job then you can kiss 95% of the auction buyers goodbye. We have lives and we pay the premium to be informed and protected. Clearly you think the auction houses should get paid for just existing (why call your people specialists then?) and people like me should dedicate our lives to reading every conceivable article, blog, tv show, etc. Because auction houses really don’t have specialists, it’s buyer beware. If your opinion prevails then there is no art industry any more. The more busy you are the more likely you are to have the money to buy art.

"I am quite frankly shocked that you don’t hold auction houses accountable for providing the most basic information to their customers."

I wrote back that I thought my post was pretty neutral, but that I would be remiss if I did not mention the fact that the auction house's interest had been publicly disclosed ahead of the sale; readers can make up their own minds as to what difference that should or should not make. I also said the point I was making at the close of the post was not that he had an obligation to "read every conceivable article, blog, tv show, etc," but rather that -- to the extent one buys into some version of the efficient market hypothesis for artworks -- we can assume that this widely publicized piece of information was fully reflected in the price of the work. What makes this case worth following is that it presents two questions that, to my knowledge at least, have not been answered before: (1) Is Sotheby's correct that a lot-by-lot disclosure of security interests is not required? and (2) Does the kind of relationship he had with his contact there give rise to the sorts of duties he claims Sotheby's owed to him? It’s clear Halsey thinks those are easy questions, but I'm not so sure.

To which he gave the following response (and I’ll stop here because this post is long enough):

"You must remember that for there to be an efficient market the market maker cannot withhold at their discretion information relevant to price. If you were to see the emails the court will see, what I believe is an obvious case will only become more so. How can they disavow a ‘financial interest’ when they needed the money to get repaid in what is clearly a very dicey situation? Lastly, you have not looked at the law on the books but if you do you will see that even when they claim to disclose, their disclosure is inadequate. If you want to see it done right, then look at Christies’ disclosure. Why the difference?

"Sotheby’s has subjected themselves and their shareholders (hence the steep decline in stock price) to massive liability all because they could not admit they were wrong and discuss a solution like gentlemen. I didn’t file the lawsuit. I was just waiting for them to prove their case with documents which they claimed they were going to send. Instead of getting documents I was blindsided with a Federal lawsuit and a bunch of PR hyperactive people describing conversations they never took part in and were simply white boarded over the weekend as ‘a pr strategy.’ I am afraid the government only cut the head off of this snake. I think they have now set themselves up so that the rest of their behavior, well known to the industry, can get cleaned up. Its just too bad stockholders had to pay for so much hubris."