WHAT ARE LOUISIANA'S LAWS ON SHILL BIDDING?

HAVE ATTEMPTS BEEN MADE TO STRENTHTEN THEM?
 

Shill bidding is ILLEGAL in Louisiana!!!  The problem, however, is that the maximum penalty is only a $500 per item fine (ABSURDLY low for real estate auctions) and a misdemeanor conviction.

 In short, far from discouraging the practice, the ABSURDLY low penalty for engaging in the practice comes close to actually ENCOURAGING the deployment of shill bidding, particularly if an auctioneer is close to meeting the property's reserve.

To illustrate how tempting shill bidding can be for an auctioneer, suppose a real estate property being auctioned has a reserve (the minimum the seller will accept) of $500,000, and the bidding is at $460,000 with a 10% buyer's premium and the legitimate bidding has completely stalled.  Factoring in the 10% buyer's premium, the contract price is $506,000 ($460,000 x 1.10), which IS ENOUGH to meet the reserve of the seller.  The only problem for the auctioneer is that would mean having to collapse his/her commission from $46,000 down to $6,000.

Suppose, however, that a shill bid is utilized to get the bid from $460,000 to $480,000, with the hope of getting the legitimate bidder "back in" at $500,000.  If the ploy works, the contract price becomes $550,000 ($500,000 x 1.10), which means the auctioneer's commission SKYROCKETS from $6,000 to $50,000!!!  That's EXACTLY what may motivate an auctioneer to engage in this practice.  When an auctioneer gets within striking range of the reserve (i.e. within the buyer's premium range), he/she has reached "pay dirt territory," meaning that everything obtained from that point forward until the reserve is met is essentially coming to him/her!!!  What's the downside?  As mentioned above, a misdemeanor conviction (which most DAs won't likely pursue due to the time and energy required to get a shill conviction) and a $500 fine!! 

A focus on shill bidding in Louisiana transpired when, in November of 2009, a Louisiana State Representative, Rep. Damon Baldone, registered as a bidder at a high-profile real estate auction in Thibodaux, Louisiana.  Rep. Baldone alleged a shill was deployed in an attempt to inflate artificially his bid from $675,000 to $725,000.  The alleged shill bid was for $700,000, and Rep. Baldone steadfastly refused to go to $725,000.  After several minutes, an announcement was made stating:  “It turns out the $700,000 bid was NOT from a qualified bidder so, sir, you’re back in at $675,000.” [Note:  Rep. Baldone also noted that a $50,000 certified check was required to "qualify" and be assigned a bid card.]

Convinced that a shill bid had been utilized for the purpose outlined above, the episode infuriated Rep. Baldone.  He responded by introducing legislation (HB 1439) in the 2010 Louisiana Legislative Session to criminalize the practice of shill bidding.

Feeling shill bidding represents an insidious cancer for the auction industry, ASF's Robert Burns testified in favor of Rep. Baldone’s bill on May 18, 2010 at the Louisiana House Criminal Justice Committee.

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Note:  If you’d like to watch Committee testimony regarding the bill, here’s all you have to do:

1. Go to this link:  http://house.louisiana.gov/H_Video/2010/May2010.htm.
2. Scroll down to May 18, 2010, and click on “Criminal Justice.”
3. Advance the tape to the following mark, depending upon what you'd like to see:
   
        55:18 mark to see Rep. Baldone presenting the bill to the Committee,
      1:08:55 mark to see ASF's Burns pose arguments in favor of the bill to the Committee,
     1:21:52 mark to see three LA licensed auctioneers argue against the bill to the Committee,
     1:38:00 to hear the Chairman read into the record the names of nineteen (19) other
                        auctioneers appearing before the Committee (but not speaking) in opposition to the bill.

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The Louisiana House Criminal Justice Committee ultimately killed Rep. Baldone's bill by a vote of 8-3.

Those voting in favor of Rep. Baldone's bill to criminalize shill bidding include:  Rep. Damon Baldone (D-Houma), Rep. Gary Smith (D-Norco), and Rep. Charmaine Staies (D-New Orleans).

Those voting against Rep. Baldone's bill to criminalize shill bidding include:  Rep. Mickey Guillory (D-Eunice), Rep. Lowell Hazel (R-Pineville), Rep. Frank Howard (R-Many), Rep. Joseph Lopinto (R-Metairie), Rep. Barbara Norton (D-Shreveport), Rep. Jonathan Perry (R-Abbeville), Rep. Ricky Templet (R-Gretna), Rep. Bodi White (R-Denham Springs). 

During this same timeframe, at the Louisiana Auctioneer's Association (LAA) 2010 Convention, a resolution was proposed to vigorously oppose Rep. Baldone's bill.  The LAA membership voted 27-1 (with 4 abstentions) in favor of the resolution.  Soon after the convention, ASF President Rev. Freddie Phillips opted to form a second auction trade association in Louisiana:  The Louisiana Association of Professional Auctioneers (LAPA).  LAPA membership requires signing an oath to adhere to six (6) fundamental tenets, and # 1 on the list is adamant opposition to shill bidding.  CLICK HERE to view Rev. Phillips LAPA profile.  To view Rev. Phillips' signed LAPA Oath, CLICK HERE. 

Also during this same timeframe, Rev. Freddie Phillips ASF's Burns, was one of only two (2) members of the Louisiana Auctioneer's Licensing Board to support a motion at the May, 2010 LALB meeting to propose a statute to go before the Louisiana Legislature to increase the maximum fine for shill bidding for real estate auctions from $500 to $10,000.  ASF's lead bid assistant, Mr. Robert Burns was the only other supporter of the motion, and it failed by a vote of 5-2.

Interestingly enough, also during that same timeframe, Mr. Steve Proffitt, Legal Counsel for J. P. King, arguably the most dominant real estate auction company in the world, wrote a SCATHING article in Auctioneer Magazine (the official publication of the National Auctioneer's Association) regarding shill bidding.  Here is a brief quote from Mr. Proffitt's article (Mr. Proffitt gave written permission for reproduction):

  "Auctioneering is no longer the parochial activity that it largely was 60 years ago. Auction marketing has evolved into a sophisticated process that is now employed by skilled professionals to liquidate valuable property of every type. The old smoke-and-mirrors tricks, like shill and phantom bidding, were never lawful and should have never been tolerated. Today, there is no room for these crooked practices and Auctioneers and the industry alike should strongly denounce them and all other activities that would undercut the legitimacy of the auction markets. The auction profession can never be stronger than the public's perception of it and honest practices and ethical conduct are what the public requires in modern commerce."

Subsequent to the failure of Rep. Baldone's bill, the LAA Convention vote, and the LALB vote, ASF decided to voluntarily amend its purchase agreements and listing agreements to incorporate a "No Shill Guarantee" <SM>. We have done so (and provided this webpage) to educate bidders to be on alert for shill bidding and to offer EVERY POSSILBE ASSURANCE to our bidders that the practice WILL NOT be tolerated at ASF auctions.  Period!!  CLICK HERE to see our "No Shill Guarantee" We Make to ASF Bidders Attending Our Auctions.

<SM> The phrases "No Shill Guarantee," "No Booster Guarantee," and "No Capper Guarantee" are all service marks registered to Auction Sells Fast by the Louisiana Secretary of State's Office.