Mastro and FBI

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Posted By: Jim Crandell

Peter,

I care. I would like to know grading history and believe the seller if he has this knowledge has an obligation to disclose it.

Jim

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Posted By: Dan Bretta

I for one think there is a huge difference in shopping around a baseball card which everyone can at least agree the card is a card of the person pictured, and shopping around a jersey which belonged to a specific person when one company says they don't believe the jersey belonged to that specific person. It's like sending a Heinie Wagner card to PSA and having them certify it as a Honus Wagner card. You must also consider that a prominent forum of experts have already provided evidence that the jersey was not what it was claimed to be, and then be prepared to believe that nobody at Mastro reads that forum. Of course after the debacle with the football helmet in April maybe Mastro doesn't read that forum?

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Posted By: PS

Jim, I am curious, before you buy or bid on a card do you ask?

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Posted By: Dave

If Mastro acted "as best as they could" in this situation....that's just plain pathetic. why can't people just call a spade a spade anymore ? Mastro auctions has been exposed again....this is so transparent.

as far as autographed and game used stuff goes. My advice is to not spend a load of money on any of it unless you have 1st hand knowledge of the items history. My brother will not even buy PSA DNA stuff anymore , and that's a whole other thread of horror stories !

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Posted By: PS

Dan I understand your distinction but I am not sure if it holds up. Why isn't an opinion that a card is trimmed (which, if true, would render most cards relatively worthless or certainly worth only a fraction of their value if they were not trimmed) just as relevant as an opinion that there isn't enough evidence to authenticate a Babe Ruth autograph or Michael Jordan jersey?

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Posted By: Jim Crandell

Peter,

For any card of significant value I do.

Jim

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Posted By: PS

So long as a seller honestly answers inquiries from people like Jim to whom grading history matters, and I cannot think of a context where there is not opportunity for such communication, I am not sure there is an affirmative obligation to disclose it. I guess one possible response might be that all buyers are not as sophisticated as Jim and would not know of the issue and therefore would not know to ask. I would think most people buying expensive cards DO know, but I am just speculating.

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Posted By: peter chao

I know you guys demand high standards. However, I will tell you what the California Evidence Code requires and you can say whatever you want. The California Evidence Code does not require disclosure. For instance if you were trying to prove your case and you got 3 medical reports, two medical reports were favorable and the third wasn't. You are not required to produce the third report. However, if you are asked a direct question, you are required to answer that you obtained a third opinion.

Peter C.

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Posted By: PS

Peter I am confused what relevance that has to whether a fact is "material" for purposes of a fraud claim?

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Posted By: peter chao

All I'm saying is that in California, it would not be material because you are not legally required to produce evidence of a contrary opinion.

Peter C.

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Posted By: PS

I am not sure I follow, the contexts seem unrelated to me, but if you have the Code provision handy maybe the fog would lift.

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Posted By: peter chao

Since this auction wasn't conducted in California, it really doesn't matter. I'm suggesting that perhaps we are asking for too much from our auctioneers.

Peter C.

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Posted By: Dave

Peter or other lawyers on the board....I'm just curious as to how courts of law view baseball cards. I've always been under the impression that no matter what you pay for a card or piece of memorabilia that it really has only an intrinsic value.

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Posted By: JK

Peter,

I believe that in California there is a specific state statute regarding the sale of collectibles such as cards. Adam W. has posted it several times and I believe that it does specifically require disclosure.

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Posted By: JK

Dave,

If you are suggesting that a baseball card, in the eyes of the court, can only be worth a few cents because its only cardboard, I think that is incorrect.

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Posted By: Corey R.Shanus

Interesting perspective that perhaps (at least at the expensive level) buyers know the games that are being played and really don't care about grading history as long as the card ends up in a graded slab. I would think if that is indeed the case then auction houses would be bending over backwards to disclose grading history. After all, what would be the harm, not to mention it would forestall any claim by a disgruntled buyer that all material facts were not disclosed. Or, to put it another way, if your perspective is true either we are dealing with auction houses that have not been legally advised or by their actions of nondisclosure feel that buyers would in fact care about grading history.

I can't wait to see the first case of some buyer trying to cross over a six-figure card only to find out that the company he just sent it to had rejected the card as altered a few years prior. Word then gets out what happened and then, presto, when the guy tries to sell it it is regarded as tainted goods and he takes a whooping loss. He then sues the action house for failure to disclose a material fact (i.e., the card's grading history). I believe a case such as this is destined to show up, and boy will I love to read the auction house's brief explaining why the card's grading history was not material information.

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Posted By: barrysloate

And I am curious to see how the grading services respond when they discover that cards they graded years ago, and are worth five-figures today, have been deemed altered. How will the unlucky owner of the altered card be compensated? This hasn't happened yet to my knowledge but it will become an issue in the future.

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Posted By: Cobby33

Peter C-

Your scenario is not necessarily governed by the Evidence Code. In the course of discovery, if you are asked to produce ALL information pertaining to a certain category of documents/information, you are legally AND ethically bound to produce ALL of them.

With regard to duties of discloure, both common law and statutes require full discloure and the failure to fully disclose with the intent to deceive, is actionable, both civilly and criminally.

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Posted By: Pas

Your argument seems to proceed from the premise that avoiding legal liability is what drives auction houses. To summarize: 1) It is in their interest to disclose as much as possible that people don't care about; because that will minimize their chances of being sued. 2) Ergo, if they aren't disclosing grading history, it can only be because people DO care about it.

I don't think that sort of proof by inductive reasoning works here. I prefer the logic that if this really mattered to bidders, they would be pressuring auction houses to disclose it, and competition would require them to do so. Therefore, the fact that auction houses are not disclosing it must mean that bidders don't care, in general.

EDITED TO ADD There may indeed be such a lawsuit, but how would the plaintiff respond if cross-examined as to why he didn't simply inquire as to grading history if it mattered to him? Surely, given the industry practice not to disclose (I have NEVER seen such a disclosure) the buyer could not reasonably assume there was no prior history.

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Posted By: Todd Evans

I am not a Mastro apologist nor am I a Mastro hater, but I can tell you the situation with the Jordan shooting shirt is not right. I have had been a customer and consignor with Mastros for 8 or 9 years now and I have also had an experience with them knowingly selling a bad item.

I was the one who called and questioned Mastros on the Darrell Griffith University of Louisville game used jersey" that was in the October of 2006 auction. When I saw the auction I called up and spoke to Brian Marren and told him why I thought this item was no good and that I wanted to see documentation on what Lou Lampson used to authenticate this particular jersey. I also provided him with pictures detailing that Griffith did not wear this type of jersey while playing at U of L. I was told that he would get with Lou and pass on this info to him. A couple of days later which was well before the auction was supposed to end I inquired about the findings and was told that Lou is staying with his opinion that the jersey was good and that he would not pull the auction. I was also told that they couldn't pull the jersey as it could cause legalality issues. I then contacted a person within the sports department at U of L and provided her with pictures of the jersey. It just so happened that the particular day I sent this Darrell Griffith was in her office where she showed him the pictures and he told her that they did'nt wear mesh jerseys while he played there. In fact they did not begin wearing mesh jerseys until 2-3 years later well after his #35 was retired by the university. This info and email from the university was passed on to Mastros and Lou Lampson but the jersey was still sold in that auction. When an auction house wants to side with a person that has experienced questionable abilities to properly document authentic jerseys to the person that actually supposedly wore the item then I have a big problem with it.

Take this latest information about the Jordan jersey for what it's worth but I highly question what really happened. I can also tell you that alot of the questionable things that has happened concerning Mastros has caught the attention of the FBI as I was contacted just this week by an agent from Chicago concerning the Griffith jersey. Hopefully Mastros will take greater steps in the future to authenticate ALL items before someone pays alot of money for something worthless.

Todd Evans

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Posted By: Jeff D.

I'm not sure what "it" refers to in your statement "...the fact that auction houses are not disclosing it," but there ARE auction houses that do in fact disclose cards as possibly trimmed and recolored. I've seen REA do it. Here are just two such examples:

http://s210975194.onlinehome.us/auction/2006/167.html

http://s210975194.onlinehome.us/auction/2005/208.html


In this description, the cards returned by SGC and not slabbed are disclosed in the "Four Ungraded:" section about halfway down.

http://s210975194.onlinehome.us/auction/2006/90.html

I would be surprised to hear anyone say that they are not interested in knowing if a raw lot they are bidding on has ever been returned because of some kind of alteration.

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Posted By: Corey R. Shanus

What drives any rationale profit-maximizing auction house is the desire to maximize future net income stream. That net income stream is impacted both by money going in (consignment fees and buyers premiums) and money going out (a component of which are future liabilities). So of course avoiding future legal liability should be part of current considerations. If there is to be no reduction to the inflowing income stream by disclosing a card's grading history, then in my view it would be irrational not to make the disclosure. There is no downside. The fact that they don't do it I believe means more than their perception that their customers don't care. Maybe they don't care now, but they sure as heck might when down the road they take some huge economic hit on some altered cards, and a company acting rationally would take this future change of heart by their customers into consideration. I believe that the reason companies don't make the disclosure is because they feel both (1) they can get away with not doing it because nobody else does and (2) disclosure can be the economic kiss of death for a card. Both factors are at play here and a company could rationally feel that the future legal liability resulting from their current no-disclosure policy is more than outweighed by the big boost to current inflowing income allowed to take place by the no-disclosure policy.

In regard to a company's defense against a future lawsuit predicated on no disclosure, your argument seems to be that provided everybody else does not disclose material information, the burden has shifted to the buyer to make the inquiry. So my response then on cross examination would be twofold: (1) just because other sellers breach their duty of disclosure doesn't mean that I should assume you will, especially given the barrage of advertising that you do extolling how you hold yourself to a higher ethical standard than your competition, which advertising I reasonably relied on; (2) by law the duty is on you to disclose, not on me to ask, and the fact that others might be breaching this duty doesn't relieve you of your obligation to comply.

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Posted By: Peter S.

Jeff D. -- what I have never seen is an auction house saying "this card previously was rejected by PSA/SGC," or "this card previously was graded ---".

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Posted By: Jeffrey Lichtman

Todd, are you sure your name isn't O'Keefe? Only Michael O'Keefe would state such awful things about Mastro and the FBI.

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Posted By: Todd Evans

I think we are talking apples to oranges when talking about cards to game used material. It would be almost impossible to know if a card was earlier graded or rejected by someone like PSA or SGC and then have the auction house print those findings. You have cards that have been submitted multiple times to try to achieve higher grades by the same company as well as different ones so there could be no possible way for an auction house let alone a consignor to know unless they were to one that submitted it to be graded. Sure it probably could be done with some of the more rare cards but to do it on a 1956 Topps Mickey Mantle would be virtually impossible.

When it comes to game used it's much easier as their are far less quantities of like game used items although with as many game used jerseys now being used and marketed it's becoming more difficult. When a auction house has an item authenicated by two different companies then they should be required to disclose the findings of both companies and not the favored one which is the case with the Jordan jersey. You can't tell me that if MEARS would have signed off on the Jordan jersey that Mastro still would have given this to Lou Lampson for his opinion.

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Posted By: Todd Evans

No affilitation but thanks for asking. I'm just someone that has a story to share for the believers that this could have just been an oversight with Mastros.

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Posted By: JK

Who is Mastros?

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Posted By: Pas

Good points certainly, but (and this reminds me of our prior discussion on a related point) I do think a tribunal trying to decide whether there was a "material" omission might pay at least some attention to prevailing standards in trying to decide whether certain information met the litmus test. It would be a pretty cynical view (although not out of the question I suppose) that every single auction house, card show dealer, and ebay/internet seller regularly commits fraud by omitting known information about grading history (including bumps and rejections). And it seems to me at least in the present environment, you either have to draw that conclusion or you have to conclude that at least the majority of buyers do not consider this sort of information to be material to their purchasing decisions, and THAT (not a widespread pattern and practice of fraud) explains why the industry practice is one of non-disclosure. I don't see a middle ground on how else to explain it. Also, I repeat my view that this is a highly competitive market and if customers were demanding that information, sellers would get that message and start providing it. I believe in the free market, and if this information really mattered to the majority of people, sellers could not continue not to disclose (conceal?) it.

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Posted By: Jeffrey Lichtman

Todd's story makes clear, again, that one would have to be out of his mind to buy a game used or autographed item from any auction these days.

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Posted By: Pas

Jeff, how about a PSA 8 prewar card?

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Posted By: E, Daniel

What seems different to me between hawking baseball cards between grading companies and this jersey between the two named authenticators, are the players involved.

The equivalent in terms of hobby respect between Mears and Sampson is SGC versus Pro.
If a card turns up in a PRO holder, having been rejected by SGC, there is absolutlely every ethical requirement to mention its history. Too few people trust and believe in PRO's judgements and give great weight of trust to SGC's. Similarly with Mears and Sampson.
Of course If the card had failed PSA testing but passes SGC, we're more able to make a judgement that the opinion was probably borderline for both but fell on either side of the fence between the two respected companies.

It all comes down to the credibility of the players involved who are giving judgement. IMO, Mastro knows the competence and credibility perfectly well of the two authenticating agents who looked over the jersey, and chose the money-making avenue. The rest of the story is run-around.



Daniel

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Posted By: Jeff D.

It seems appropriate to mention that wrt keeping track of items that fail authentication, MEARS does keep such a record. This record is available to members on their website in their bat/jersey trade index area.

Along these lines, MEARS is getting serious about cleaning up the memorabilia business, particularly as it pertains to auction houses. Although somewhat lengthy, check out the new requirements auction houses are going to be forced to comply with if they want to submit to MEARS:

http://www.mearsonline.com/news/newsDetail.asp?id=302


A follow up with some commentary about this new policy (and mention of Mastro) can be found here:

http://www.mearsonline.com/news/newsDetail.asp?id=303



I suppose it should be mentioned that I have no affiliation with MEARS (although I respect them tremendously), but I do currently own one (1) MEARS authenticated g/u item.

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Posted By: Todd Evans

Cost is another difference between MEARS and Lou Lampson. Sure a company like MEARS is going to charge more for actually taking the time to inspect and do research on an item compared to Lampson who is more cost effective but also passes almost every item that is put before him. Another difference is that MEARS is readily available to dicuss the facts of their findings to where it is impossible to even track Lou Lampson down. Why any auction house would want to put themselves in this position is beyond me. The money made off those items can never replace the respectability and confidence that is lost in the collecting community.

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Posted By: Corey R. Shanus

This again might be a point on which we agree to disagree.

Commiting fraud may be a perfectly rational economic decision to make (though ethically reprehensible). Ever see the movie "Class Action"? In it an automobile manufacturer makes a cold-hearted decision not to order the recall of a car with a propensity to explode under certain conditions. The company knew that down the road people would die and they would have significant legal payouts. However, they rationalized that the present value of those payouts would be less than the cost of the recall. So too (though thankfully on a much less morbid scale) with an auction house's non-disclosure policy. The anticipated future legal payout, factoring in the evidentiary problems of proving the auction house knew the card's grading history and the reluctance of people to sue due to the inhibiting legal expense, could be insignificant compared to the hit to inflowing income.

So you see from this perspective one could forcefully rebut the presumption of non-materiality created by industry practice of non-disclosure by establishing the economic rational behind the fraud. And it seems to me it would be one terrific argument. "So please, Your Honor, do not give this greedy auction house a windfall by not imposing on them the legal payment they rationally expected to pay when they made the decision to commit the fraud!"

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Posted By: peter chao

Unfortunately many of our states go through the same analysis in deciding whether to make our highways safer. A particular turn may kill a dozen people a year but in order to make that turn safe it would cost $500,000.

Peter C.

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Posted By: Peter S.

I am familiar with the Ford Pinto. That type of cost/benefit analysis goes on all the time, in many contexts, to be sure. However, how do you respond to my point that if the market were truly demanding this information, sellers facing robust competition would have no choice but to provide it? EDITED TO ADD Also, Corey, I doubt the auction companies go through the sophisticated calculations to which you allude. These are not huge public companies. I would guess the thought process is more along the lines of well no one else does it and no one is pressuring us to do it, and it might affect some sales, so why do it?

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Posted By: Corey R. Shanus

Auction houses factor in the needs of both buyers and consignors. Inasmuch as nobody seems to disclose this info at present, an auction house will not lose a buying customer to their competition over the issue. However, they will lose consigning customers. In addition, even if an auction house wanted to make the disclosure, how would it be able to if the consignor pulled the item (which almost certainly it would) and gave it to another auction house that did not disclose?

Also, and I say this very respectfully, simple common sense screams out that a person about to plunk down 100 grand on a SGC 88/PSA 8 piece of cardboard, the overwhelming majority of its value being tied up in the perception that the card is not altered, would be keenly interested to know there is split opinion as to whether the card might be altered.

I do have a question for you, Peter. In deciding issues of materiality, would a legal tribunal interpret the law as favoring disclosure in cases where the issue is not so clear cut?

EDITED TO ADD: Peter, think about what you just said in your "edited to add". If auction houses really do think in their truncated calculations that disclosure might affect some sales, isn't that a criteria for materiality!?

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Posted By: Peter Spaeth

If you are correct, and buyers were so keenly interested, they can (and would, in my opinion) just ask. Maybe they do. Or they can (and would) demand better disclosure. They haven't, as far as I know, at least not in compelling numbers.

As for your other points, I would guess you are right that most tribunals would in close cases err on the side of requiring disclosure. I don't think I have contradicted myself although of course I understand the tension. Materiality is not judged on a buyer by buyer basis but on an objective standard. Obviously some buyers want to know more than others, and there is almost nothing (for example, soaking) that SOMEONE wouldn't want to know about. So the mere fact that an auction house might not disclose grading history because SOMEONE might be dissuaded from bidding does not necessarily translate into that information being material to the objective composite reasonable buyer.

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Posted By: Corey R. Shanus

This sort of takes us back to where we started. Of course they can ask, and perhaps some/many do, at least for the high-priced cards. But the fact that someone didn't and down the road is stuck with a card that will not cross over, a card that he would not have purchased had disclosure been made originally, should not preclude him from bringing an action for fraud.

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Posted By: Peter Spaeth

It might add to the discussion if other folks related their experiences. As a buyer, have you asked for a grading history (and did you get it)? As a seller, have you been asked to provide a grading history (and did you give it)?

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Posted By: Peter Spaeth

In the action you describe, Corey, what are the damages? You aren't out the value of the card, presumably it has the same worth as an ABC 8 (or more, in a rising market) as when you bought it. Perhaps you wanted to cross it over and couldn't, but how have you been harmed economically?

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Posted By: Corey R. Shanus

I can no longer stand to look at the card because every time I do I conjure up images of a scissor. So I decide to sell the card. Being the ethical person I am I insist that the auction house disclose the grading history and the fact that the card will not cross over. The card then sells for 10% of what I bought it for.

To anticipate a response (and an auction company's defense) -- Well, why were you so stupid to disclose the grading history when you went to sell it? My response -- I was not aware the law required me to commit fraud to mitigate my damages.

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Posted By: Peter_Spaeth

Do you REALLY think if I had (just by way of example) a PSA 8 Goudey Ruth, and I disclosed that SGC had rejected it, it would sell at a 90 percent discount? I don't for a minute. Indeed, and this goes back to where we started probably, I think most buyers of PSA 8 Goudey Ruths today recognize there is a possibility that precisely that has happened (or that the card used to be a 7) and don't care. EDITED TO ADD In my opinion people are buying the opinion of the grading service whose name is on the flip, period. Not some implicit assurance that the other grading service would see things the same way.

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Posted By: Kenny Cole

Peter,

I don't necessarily agree with you that materiality is always based on an objective standard. At least where I practice, our civil jury instructions define materiality as folllows:

A fact is material if a reasonably careful person under the circumstances would attach importance to it in determining [his/her] course of action.

A fact may also be material even though a reasonably careful person might not regard it as important, if [(the person stating it knows)/(a person conceals it knowing)] the person with whom [he/she] is dealing will very likely regard it as important in determining [his/her] course of action

The first definition is rather clearly based on an objective standard. Therefore, I suppose evidence that the industry standard is non-disclosure is arguably relevant to the issue of what the mythical "reasonable buyer" would think is important when making a purchasing decision.

However, under the second definition, materiality could very well be judged on a buyer by buyer basis, particularly when expensive/high end cards are involved. IMO, someone who is thinking about plunking down $100,000 on a card would almost certainly attach importance to information tending to indicate that another (undisclosed) grading company has previously deemed the card to have a problem. That seems to me to be true regardless whether the industry standard is non-disclosure, and regardless whether buyers of less expensive cards would care or even think about the issue. Moreover, while buyers can always ask such questions, I don't think they have any obligation to do so. Rather, the disclosure obligation rather clearly rests upon the seller who has the knowledge.

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Posted By: Peter S.

Kenny that is interesting, but would that apply in an auction where the seller isn't dealing one on one with buyers and indeed doesn't know until it is over who won? It sounds to me like that provision applies or certainly was intended for the special circumstances of direct dealing where the seller knows particular characteristics of the buyer.

Also, and forgive the defense bias here, wouldn't the fact that the buyer never inquired suggest the information really wasn't that material to him? I know there generally is no duty to investigate etc. etc. but it just strikes me as common sense that if someone is spending 100K on a card, in an industry where no one discloses grading history, and it is obvious there MIGHT be grading history, and he doesn't even ask, that suggests to me it wasn't so important.

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Posted By: Corey R. Shanus

First, to clarify, I'm talking here about an instance where the card doesn't cross over because of concerns the card is altered, not because the 8 should be a 7. My view is that in such an instance (i.e., a split decision among the grading companies) it could sell for much less than it would had the cross-over rejection not been disclosed. We can argue as to how much less, but I firmly believe it will be a material reduction, especially if the card received its original numerical grade from PSA, say, ten years ago and was only recently rejected by SGC.

In regard to your other point that there is never an assurance that another grading company would see the card the same way, on that one I agree. But it's all a probability game. It's one thing to talk about the risk abstractly, quite another to say it already happened and it is now a known fact that other experts believe the card to be altered. The latter instance in my view to the reasonable buyer would be regarded as material information.

Peter, if you owned an auction company and there is documentary evidence that a card's grading history has been provided to you, would you make the disclosure? Let's assume we are talking about a PSA 8 Plank originally slabbed in 1998 and only last year rejected by SGC as being altered?

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Posted By: Peter S.

Corey your example is interesting. Typically I would think of the sequence as card gets rejected, THEN slabbed. SGC refusing to cross-over a card ALREADY in a holder, without cracking it out, means very little to me. SGC would be crazy to cross over a card worth that much just looking at it in the holder, without being able to examine the edges. Indeed I think they have a policy that they typically won't do it over a certain value.

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Posted By: davidcycleback

In the end, the arbiter is whether or not the item matches the sales description. If a Near Mint card is being sold as Near Mint, it doesn't matter if someone else incorrectly said it was trimmed-- the sales description is accurate. If this someone else correctly said it was trimmed, then there would be an issue with the sales.

If the North Carolina shirt was Michael Jordan's, there would be no need to mention that MEARS wouldn't authenticate it. If it turns out not to be Jordan's shirt, then that seller didn't mention MEARS' opinion, and MEARS qualms were correct, would become an issue.

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Posted By: Peter S.

Corey, I think we are back where we started, or at least I am. The very first thing I said was that at first blush grading history at least in certain circumstances would seem to easily meet the definition of materiality, but I questioned whether it really was material in light of what seems to be happening in the marketplace, namely that sellers don't tell, people generally don't seem to ask, and cards keep selling for more and more. I understand your points and certainly one could make out a strong plaintiff's case for the reasons you and Kenny state. But I keep coming back in my mind to the notion that very few people seem to care, and I am trying to assess what impact that has on the legal analysis.

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Posted By: Corey R. Shanus

We can play around with different sequences. I chose that one, but the issue remains the same -- disclosing what the other grading service thought of the card.

BTW, my understanding of what SGC will do is as follows. They will not officially opine a card is good without seeing it out of the holder. However, they can in certain instances tell you a card is no good by examining it in the holder. True, perhaps there is a margin of error to the in-holder examination that would not be present if the card was cracked out, but they still can give you a pretty good idea. Also, some alterations do not involve trimming (e.g., rebacking) and my understanding is that in certain instances you can see clear evidence of that with the card in the holder.