Allegations that "sham" bids drove up prices on a Minnesotan's rare wood boats put a large national auction house on the defensive.
The $4 million auction of Lake Minnetonka denizen Todd Warner's collection of vintage wooden boats was a historic event in the rarefied world of classic and antique boating.
Eighteen months later, the auction is still making waves.
A lawsuit accuses Warner and Mecum Auctions Inc., an Illinois-based auction house, of soliciting bids from friends who didn't really intend to buy, solely to drive up prices on certain boats. The parties settled earlier this year, though they say final papers have yet to be signed.
Meanwhile, Mecum, which holds regular televised classic car auctions on Discovery's Velocity Network, is set to auction at least 500 classic cars at the Minnesota State Fairgrounds later this month and just finished an auction in Indianapolis that brought in $52 million.
Classic boat collector Lee Anderson, owner of the Api Group, a New Brighton-based conglomeration of 32 construction-related companies, claimed in the suit that Mecum used sham bidders to force Anderson to bid $285,000 to win a rare 1929 Dingle Triple Cockpit runabout. It was the highest price paid at the auction.
The other plaintiff, John Allen, president of Industrial Equities LLP, a Minneapolis real estate development and investment firm, claimed his $50,000 bid for a 1949 Hacker-Craft named Thunderballs was the highest legitimate bid, but he claimed auction house owner Dana Mecum then solicited dummy bids by telephone. Allen lost the boat.
The pair said Mecum Auctions and Warner lured a lot of bidders to the boat sale by falsely advertising it as a "no-reserve auction," meaning items were supposed to go to the highest bidder, even if the bid was lower than desired or expected.
"All the who's who of anybody who's involved in antique boating was there," said Mitch LaPointe, a Spring Park, Minn., antique boat dealer and restorer who attended the October 2010 auction in a cavernous warehouse in Winsted, about an hour west of Minneapolis.
The auction house and Warner, owner of a boat restoration business called Mahogany Bay, denied the allegations.
"A lot of people got a lot of great deals on a lot of great boats that day," said Warner, who had the nation's largest private collection of classic boats before being forced to auction 126 of them, to avoid losing them to foreclosure by a bank.
Warner said that although he doesn't know everything Mecum Auctions did, he believes the company is above board, and he's happy with how the sale was conducted. "I'm sorry that guys of integrity have been hurt," he said.
But, earlier this year, to settle the suit short of a trial, the defendants gave Anderson his money back in return for the Dingle and gave the plaintiffs an additional $100,000 for their trouble, according to Mecum.
Solicits bids from friends
Mecum admits he telephones well-heeled friends during his auctions to invigorate the bidding, but he asserts there's nothing wrong with it.
"Damn right we're trying to drive up the bidding -- that's our job!" he said in a telephone interview last week. "The auctioneer's job is to get the most money for the seller that he can. If an auction company didn't work to create value, people would make agreements not to bid against each other and bid a dollar for something worth a hundred grand."
Warner dismissed the suggestion that dummy bids inflated the prices.
"The auction sold boats at an average of 10-50 cents on the dollar from market value," he wrote in an e-mail. "Most boats were bought by dealers who have since resold at handsome profits."
The suit got the boat and auction worlds buzzing, particularly after Classic Boating magazine ran in its current issue a story, with no byline, containing unanswered allegations of "puffers" inflating prices at the auction.
"There are some people that are very, very rich, and they're involved in antique boating, and I think they were set up as marks, you know?" LaPointe said. "They were waiting for them."
Louis Spiro, a wholesale car dealer and convicted white-collar felon from Seminole, Fla., testified in a deposition that Mecum called him during the auction and persuaded him to bid for Thunderballs, even though Spiro wasn't present, hadn't planned to bid and didn't have any interest in antique boats.
"He thought if I bought the boat that [we] could have the possibility of making some profit," Spiro said, according to a transcript of the sworn testimony. "He was trying to make sure the boat didn't get given away at a lower figure."
Spiro's $155,000 bid won the boat but he decided the next day that he didn't want it, he testified. He called Mecum, who said he didn't have to take the boat.
"He said, 'Since you're not going to, you know, pay for it, I'll have to figure out somewhere else or something to do with it,''' Spiro testified.
No longer into boats
Mecum said it's "uncommon" for him to let a winning bidder out of a purchase, as he did with the three friends who bought boats.
"It depends on who they are and what the [auctioned] product or asset is," said Scott Ales, who was in charge of the Mecum company's boat-auction program and planned the Warner auction. Ales said that if the high bidder is someone with whom Mecum has done business a long time and prospects are good for reselling the item, the company would consider letting them out.
"Each of these guys had relationships with Dana in excess of 15 years," Ales said. "In that case, you can do deals like that. It happens all the time."
Mecum said the company ended its short foray into the boat business partly because of its experience in Minnesota. He said he learned classic boaters are a small community of mostly wealthy enthusiasts who don't appreciate an auction company coming in, promoting the hobby to new people and driving up prices.
"It's where the collector car world was 40 years ago; it's not commerce oriented," Mecum said. "We wanted to try to create a marketplace, but after looking at the pieces of the challenge, it's no fun. ... If they don't want me in their boat community and think I'm a scoundrel, so be it."
The suit's plaintiffs, Anderson and Allen, largely declined to comment. Anderson didn't respond to phone and e-mail messages, and Allen said this in a short e-mail: "We've fulfilled our objectives and closed the chapter on our involvement in this matter."
Warner said that despite the economic setback, he hasn't given up his life's work.
"I started when they were still burning these old boats behind marinas," he said. "I've survived where many in the industry died. If I have to gather up more boats to tell the story, I will. I believe in preserving it for future generations."
Staff writer Jane Friedmann contributed to this report
Larry Oakes • 612-673-1751