Shill Bidding by the Seller's Cousin
At a public consignment auction, the auctioneer notices that a man in a green cap bids on nearly every lot but never buys. A clerk recognizes him as the consignor's cousin. When confronted privately, the consignor admits she asked him to 'keep the bidding lively' on slow lots and promised to cover any purchases he accidentally won. The auctioneer has already sold six lots where the green-cap bidder was the underbidder, and two bidders who lost those lots have left the sale. The auctioneer's contract with the consignor is silent on shill bidding. The auctioneer has taken no money from the cousin and has not yet settled with the consignor.
1. What has gone wrong and what must the auctioneer do about the six affected lots?
Read the worked answer
The cousin's bidding without intent to buy is shill bidding, which is deceptive and undermines the integrity of the auction. The auctioneer is responsible for the conduct of the sale and must not knowingly allow it. The auctioneer should immediately bar the cousin from bidding, stop the practice, and document what happened. For the six lots, the auctioneer should identify the winning bidders and the amounts, then determine whether the shill bids artificially raised the price. If so, the auctioneer should contact the affected winning bidders, disclose the issue, and offer to rescind or adjust the sale to the price that would have prevailed without the shill bid. The auctioneer should not settle with the consignor until the lots are resolved and the consignor acknowledges the conduct in writing.
2. Can the auctioneer simply keep the proceeds and say nothing because the buyers already paid?
Read the worked answer
No. Silence would compound the deception and expose the auctioneer to license discipline and civil claims. The auctioneer has a duty of honesty to bidders and cannot retain a benefit produced by fraudulent bidding. The auctioneer should make restitution where prices were inflated, report the matter to the Commission as required, and preserve all records. Keeping the money after learning of the shill bids could be treated as participation in the scheme.
3. What should the auctioneer change in future consignment contracts and sale announcements?
Read the worked answer
Add an express term prohibiting the consignor, its agents, and family members from bidding unless clearly disclosed and permitted by the terms, and reserve the right to reject any bid. Announce at the start that shill bidding is prohibited and that the auctioneer may void sales affected by improper bidding. Require consignors to disclose any related parties who may attend. Keep a written record of the announcement and the consignor's acknowledgment so the auctioneer can show the rule was communicated and enforced.