Mastro/Legendary Article in Today's NY Daily News

[oldjudge]

Personally, I think people are barking up the wrong tree here. The auction house, by sending out lots to winners before payment is received, is simply making a credit decision that they are willing to trust that bidder. If they are wrong they must suffer the consequences. Credit is extended in all businesses. When you charge something on a credit card the bank is allowing you to take delivery of goods before they are paid for. Our society is built on people getting items before they pay for them. Mastro obviously made some poor credit decisions. REA may send out some items early but, if they are better at assessing the creditworthiness of their customers, they may not be subjecting themselves to any appreciable risk while at the same time generating considerable good will.

[sportscardtheory]

Originally Posted by oldjudge

Personally, I think people are barking up the wrong tree here. The auction house, by sending out lots to winners before payment is received, is simply making a credit decision that they are willing to trust that bidder. If they are wrong they must suffer the consequences. Credit is extended in all businesses. When you charge something on a credit card the bank is allowing you to take delivery of goods before they are paid for. Our society is built on people getting items before they pay for them. Mastro obviously made some poor credit decisions. REA may send out some items early but, if they are better at assessing the creditworthiness of their customers, they may not be subjecting themselves to any appreciable risk while at the same time generating considerable good will.

They are not the ones suffering the consequences.

If they are selling their own product, this would make sense. But this is consignment, the items are not theirs to take such outlandish risks. This has nothing to do with credit.

[oldjudge]

Of course it does. Once the auction house sends out the lot/lots they are implicitly taking on the responsibility to pay the consignor. If they do not they are legally liable. This is exactly a credit decision.

[Peter_Spaeth]

I agree with Jay. I am sure, at the time, Mastro had good reason to extend credit to Dave, for many possible reasons as to which I would be speculating. It is only in hindsight that, of course, it looks bad. Indeed, it may be unrealistic to run an auction house at that level without extending credit to certain bidders.

[sportscardtheory]

Originally Posted by oldjudge

Of course it does. Once the auction house sends out the lot/lots they are implicitly taking on the responsibility to pay the consignor. If they do not they are legally liable. This is exactly a credit decision.

Okay, so if they don't pay, they should go to prison for theft. The consignee is the one that the theft is perpetrated upon. To simply have them go through the court system to get their money back is preposterous. If I go to a casino and they offer me credit, and decide I don't want to pay, I go to jail. They don't simply keep asking me for the money I owe them.

[sportscardtheory]

The moral of the story is, if you don't want to get screwed over by people who like to pass off blame (auction houses), don't use them. I know I never would.

[Exhibitman]

Originally Posted by oldjudge

Personally, I think people are barking up the wrong tree here. The auction house, by sending out lots to winners before payment is received, is simply making a credit decision that they are willing to trust that bidder. If they are wrong they must suffer the consequences. Credit is extended in all businesses. When you charge something on a credit card the bank is allowing you to take delivery of goods before they are paid for. Our society is built on people getting items before they pay for them. Mastro obviously made some poor credit decisions. REA may send out some items early but, if they are better at assessing the creditworthiness of their customers, they may not be subjecting themselves to any appreciable risk while at the same time generating considerable good will.

An auctioneer can do what it wants with stuff it owns. It cannot do the same with stuff it does not own. Mastro did not own those lots; the consignors did. They furnished them to Mastro under certain contractual terms, none of which included the right to send the items to bidders without payment. One of the actual contract terms stated that unpaid items could be reclaimed 60 days after auction (go check your small print in your consignment contract). If Mastro agreed in its contract that the consignors of unpaid items could ask for their return, then Mastro undertook the duty to hold those items, not send them out in the hope of future payment.

What is being described here is looking more and more like a Ponzi scheme where current sellers' proceeds were used to pay earlier sellers and/or where current sellers' items were used to fund large customers' businesses as no-cash-down inventory.

[Exhibitman]

Is anyone else thinking that this is going to be a real interesting National dinner?

[Leon]

Originally Posted by Exhibitman

Is anyone else thinking that this is going to be a real interesting National dinner?

The way it's going there will be like 10 people at it.....

[Rich Klein]

Then Leon can spring for Steaks for all of us

[botn]

Dave is a very successful and seasoned dealer and hobby veteran. I think the shill bidding defense is weak unless of course the FBI investigation goes someplace. Right now it has not been proved they have shill bid.

As far as Mastro running a Ponzi scheme that is also a bit absurd. I don't think Mastro was engaged to do business simply to pay off past consignors. However they may have exercised poor judgment in extending credit to certain customers to the detriment of certain consignors. In both Bill Fisher's and Dave Forman's circumstances I suspect both showed the ability to make good on the credit which was extended to them. Not a unique situation where one day someone is a good customer and the next a bad creditor and as an auction house it can be tough to know when that is going to take place. I think Mastro got caught up in the feeding frenzy and was attempting to get the most they could for their items and the best way in which to do that is to extend credit.

I too would like to understand the arrangement Dave had with Mastro. Something very unsettling about this whole thing.

[spacktrack]

Hi Everyone,

Hopefully everyone had a nice, safe holiday weekend. I wanted to take the time to address some questions that have arisen on the board. It's unfortunate that Dave Forman and Mastro Auctions could not resolve their differences outside of court, but this personal matter between these two parties does not impact SGC's day to day operations or policies.

I want to stress the fact that SGC employees and/or owners are not able to submit cards for grading. All grading decisions and policies are under the sole discretion of the Director of Grading and his senior grading team. SGC has the industry's only "real" guaranty and stands behind every single card that we've graded.

Anyone having any further questions or concerns is welcome to contact me during normal business hours.

Thank you,

Brian Dwyer
SGC
1-800-742-9212 x114
bdwyer@sgccard.com

[oldjudge]

Adam--If the consignment agreement says that the consignor has the right to request the return of unpaid items after 60 days I still don't see where that prohibits Mastro Auctions from sending out the lots before payment is received. However, by doing this they are taking on the responsibility to pay for the item regardless of whether the buyer pays or not. By sending it out they are implicitly saying two things:

1-Consignor has been paid and we owe the consignor his money
2-We have entered into an interest free loan (or perhaps not) with the buyer to pay us the amount due

Therefore, if the consignor is not paid his or her claim is against Mastro, not the buyer. Mastro must file claim against the buyer.

Adam--Obviously, I am not a lawyer and I didn't even stay at a Holiday Inn last night, but where am I wrong?

[slidekellyslide]

I thought I read on this board or maybe another years back when Forman took control of SGC that he was divesting his collection so as not to have any conflicts of interest as a collector/dealer and grading company owner. Am I wrong about that?

[Rob D.]

It goes without saying that if Mastro wasn't liquid enough to pay consignors before receiving payment from buyers, then it was incredibly stupid to deliver items before receiving payment.

But for people to post today how terrible such a practice is in theory when previously praise was heaped on REA for doing the exact same thing (that is, shipping before receiving payment), that's the very definition of Monday morning quarterbacking.

[Exhibitman]

Originally Posted by oldjudge

Adam--If the consignment agreement says that the consignor has the right to request the return of unpaid items after 60 days I still don't see where that prohibits Mastro Auctions from sending out the lots before payment is received. However, by doing this they are taking on the responsibility to pay for the item regardless of whether the buyer pays or not. By sending it out they are implicitly saying two things:

1-Consignor has been paid and we owe the consignor his money
2-We have entered into an interest free loan (or perhaps not) with the buyer to pay us the amount due

Therefore, if the consignor is not paid his or her claim is against Mastro, not the buyer. Mastro must file claim against the buyer.

Adam--Obviously, I am not a lawyer and I didn't even stay at a Holiday Inn last night, but where am I wrong?

If you grant a consignors the contract right to exercise an option to recall their items after 60 days, you are impliedly representing that (1) the items will still be there and (2) you won't do anthing to make the right unenforceable. Sending out an item w/o payment in that context removes the item from Mastro's possession and destroys that right, which is precisely what happened here. If Mastro knew that it routinely sent out items without receiving payment, then it knew that it did not comply with the terms of its contracts on a regular basis, yet it told none of its consignors and certainly never obtained their permission to repudiate portions of their contracts. Or, to put it another way, show me the part of the Mastro contract that says Mastro had the right to send out the items w/o payment and to pay the consignor "whenever." It doesn't say that because no one would be stupid enough to agree to it. Yet if that is what Mastro was doing, which appears to be the case, any consignor would have wanted to know. Or, to place it in a slightly different context, what happened is the equivalent of if you listed your house with a realtor and the escrow agent then gives the keys and title to a buyer without getting the money for the house. The fact that the escrow agent may be able to rustle up the cash from somewhere else to pay you off doesn't make it right.

As far as a Ponzi scheme goes, the essence of the colloquial term "Ponzi scheme" is taking funds earmarked for one purpose and using them to pay off earlier "investors." I am not saying Mastro was a pure Ponzi scheme; it did more than simply pay earlier investors with money from later investors. However, it appears to me that given the increasing scale of unpaid but shipped items as the deals worsened/soured in 2007-2008 Mastro increasingly relied on credit lines and/or consignors' money to paper over its unpaid consignments. The extent to which that happened could be untangled from its accounting records. What is apparent is that at the end the cash needed to pay the last group of consignors and their items both went missing. I know some of the consignors who are unpaid have been told, in effect, "tough ***t, no money and no item" and have to watch their items being resold on Ebay.

[sportscardtheory]

Originally Posted by Exhibitman

If you grant a consignors the contract right to exercise an option to recall their items after 60 days, you are impliedly representing that (1) the items will still be there and (2) you won't do anthing to make the right unenforceable. Sending out an item w/o payment in that context removes the item from Mastro's possession and destroys that right, which is precisely what happened here. If Mastro knew that it routinely sent out items without receiving payment, then it knew that it did not comply with the terms of its contracts on a regular basis, yet it told none of its consignors and certainly never obtained their permission to repudiate portions of their contracts. Or, to put it another way, show me the part of the Mastro contract that says Mastro had the right to send out the items w/o payment and to pay the consignor "whenever." It doesn't say that because no one would be stupid enough to agree to it. Yet if that is what Mastro was doing, which appears to be the case, any consignor would have wanted to know. Or, to place it in a slightly different context, what happened is the equivalent of if you listed your house with a realtor and the escrow agent then gives the keys and title to a buyer without getting the money for the house. The fact that the escrow agent may be able to rustle up the cash from somewhere else to pay you off doesn't make it right.

As far as a Ponzi scheme goes, the essence of the colloquial term "Ponzi scheme" is taking funds earmarked for one purpose and using them to pay off earlier "investors." I am not saying Mastro was a pure Ponzi scheme; it did more than simply pay earlier investors with money from later investors. However, it appears to me that given the increasing scale of unpaid but shipped items as the deals worsened/soured in 2007-2008 Mastro increasingly relied on credit lines and/or consignors' money to paper over its unpaid consignments. The extent to which that happened could be untangled from its accounting records. What is apparent is that at the end the cash needed to pay the last group of consignors and their items both went missing. I know some of the consignors who are unpaid have been told, in effect, "tough ***t, no money and no item" and have to watch their items being resold on Ebay.

Don't forget the fact that when things got hot, they simply closed down shop and started anew while saying "Sorry about your bad luck!" to those they owed money too. It WREAKS of Ponzi scheme. Maybe not in the true definition of the phrase, but it is something very close.

[sportscardtheory]

Originally Posted by Exhibitman

An auctioneer can do what it wants with stuff it owns. It cannot do the same with stuff it does not own. Mastro did not own those lots; the consignors did. They furnished them to Mastro under certain contractual terms, none of which included the right to send the items to bidders without payment. One of the actual contract terms stated that unpaid items could be reclaimed 60 days after auction (go check your small print in your consignment contract). If Mastro agreed in its contract that the consignors of unpaid items could ask for their return, then Mastro undertook the duty to hold those items, not send them out in the hope of future payment.

What is being described here is looking more and more like a Ponzi scheme where current sellers' proceeds were used to pay earlier sellers and/or where current sellers' items were used to fund large customers' businesses as no-cash-down inventory.

And how would anyone know if Mastro/Legendary isn't in on the whole thing? "Hey, buy this from us for $500,000, don't pay us. Then sell it somewhere else and we will split the money." Sound crazy? Sounds like easy money to me.

[byrone]

On SGC's website, their home page has a section for "Prices Realized", touting the high prices paid for SGC graded items. Seems harmless enough, unless a grading company employee or owner is a bidder/owner of said item.

[tbob]

Originally Posted by oldjudge

Personally, I think people are barking up the wrong tree here. The auction house, by sending out lots to winners before payment is received, is simply making a credit decision that they are willing to trust that bidder. If they are wrong they must suffer the consequences. Credit is extended in all businesses. When you charge something on a credit card the bank is allowing you to take delivery of goods before they are paid for. Our society is built on people getting items before they pay for them. Mastro obviously made some poor credit decisions. REA may send out some items early but, if they are better at assessing the creditworthiness of their customers, they may not be subjecting themselves to any appreciable risk while at the same time generating considerable good will.

Couldn't have said it better. Agree 100%.

[rhettyeakley]

James, I could be wrong, and may have missed where it was specified (but I'm not going back and reading the whole thing again), but it seems as though Mastro sent the items to Dave and he is now not paying them for the items, because he may (or may not) have been shilled. If I am wrong I will stand corrected, but that is what seems to be being implied here. If that is the case I hope Dave has some good evidence of shill bidding or this could get really ugly.

Corey, I agree with your last statement, well put.

-Rhett

[tbob]

From the Daily News article: " In the message, Allen claimed that his former colleague Bill Mastro had gone "completely insane" with anger over Forman's debt and would damage Forman's reputation and report criminal activity allegedly committed by Forman to the same FBI agents who are investigating Mastro Auctions."


I can't wait to see what these allegations of alleged criminal activity by Forman are.