The scandal around Auction Alliance’s business dealings could unleash a slew of investigations into a wide network of banks, liquidators, property companies and finance houses, it has emerged.
The rumblings began in December when mega-wealthy Wendy Appelbaum questioned whether the auction of a Cape Winelands estate, Quoin Rock, had been run ethically and legally – specifically, whether she had bid against legitimate or fake fellow bidders.
Since then, various individuals have surfaced with allegations that Auction Alliance was in the habit of a range of suspect business practices – including illegal commissions paid to liquidators, attorneys and bank staff – and further allegations that illegitimate bidders were used to drive up prices at auctions.
Auction Alliance has vociferously denied the allegations.
A number of investigations have now kicked off.
First, the SA Institute of Auctioneers plans to convene an urgent meeting today to discuss the allegations and to announce possible investigations into the allegations.
Second, the Estate Agency Affairs Board has reportedly announced an investigation insofar as the allegations pertain to property matters.
Third, the payment of commissions to liquidators may be investigated – as this is, in many instances, illegal.
The professional body governing liquidators in SA is the Association of Insolvency Practitioners of Southern Africa.
The association was not able to comment, but one source described such an investigation as “necessary”.
Fourth, the payment of commissions to attorneys is only legal if lawyers disclose such payment to their clients, so the allegations surrounding Auction Alliance could result in investigations by law societies, a legal source said.
Regarding the validity of prices at auctions, the scandal hinges on whether Auction Alliance was morally and legally permitted to use “vendor bidders”, embedded bidders representing the auction house and/or the seller, who bid not with the intention of purchasing, but to drive prices up.
In a statement on Saturday, Auction Alliance wrote: “Vendor bidding (the practice of accepting bids from the seller or someone appointed on his behalf to raise the price of a particular lot to the reserve price) is both internationally and nationally regarded as an acceptable and lawful auction industry practice.
“We advise all our bidders whether an asset is to be sold with or without reserve and, if it is the latter, we advise all bidders that vendor bidding may take place on behalf of the seller.”
A senior industry source, who spoke on condition of anonymity yesterday, said: “This confirmed a long-held view by the public that at many auctions there are bidders on the floor there to drive prices up, and not to actually attempt to purchase.”
While Auction Alliance may be correct that this was legal, the source described this practice as “unethical”.