The news that one of South Africa’s richest women, Wendy Applebaum, had filed a complaint against Auction Alliance with the National Consumer Commission regarding irregularities that she believed took place at the auction of Quoin Rock, a wine farm in the Western Cape, has proved to be only the tip of the iceberg in a story that has rocked the auction industry. Allegations of kickbacks to banks, attorneys and liquidators have all been in the headlines. However, while the general public may be disgusted if these allegations are proven to be correct, the idea that people who have absolutely no intention of buying a property could be planted at auctions to deliberately increase the selling price has undoubtedly raised more than a few hackles.
The wine farm in question formed part of the liquidated estate of Dave King. The auction which took place in early December attracted a number of big names, however, only two of those attending actually placed bids, Mrs Applebaum and a gentleman who allegedly acted as a ghost bidder by the name of Deon Leygonie.
Rael Levitt, the former CEO of Auction Alliance, conducted the auction and opened the bidding at R75-million, no one responded. A lower bid of R30-million was placed by Leygonie. According to Applebaum she could not see who the other bidder was but offered a counter bid of R35-million. Leygonie raised the stakes and offered R40-million and Applebaum responded with R45-million. Leygonie came back with a bid of R50-million and Applebaum upped the ante by bidding R55-million. It was at this point that things started to get interesting. Leygonie went to R60-million, and Levitt offered the property to Applebaum for R65-million. She declined to increase her bid, so Levitt dropped the bid to R61-million. Applebaum again refused the bid and Levitt returned to Leygonie. Although one cannot hear what Leygonie says on the amateur video footage aired on Carte Blanche recently, Levitt turns to Leygonie and says “oh sorry sir was R60-million not a bid?” He then turns back to Applebaum and resumes with her bid of R55-million.
It was this that started the alarm bells ringing for Applebaum. Suspicious as to what had just occurred and unaware of the identity of the other bidder until well after the auction was over, Applebaum handed the matter to her attorneys to investigate. They discovered that Leygonie had previously worked for Auction Alliance. Levitt has conceded that he has employed Leygonie on occasion as a vendor bidder however, insists that the gentleman concerned was acting as a proxy bidder for Ariel Gerbi on the day of the Quoin Rock auction. However, Ariel Gerbi has declined to comment. While the jury is still out on whether or not Leygonie was a ghost or proxy bidder, the matter has brought the practice of using ghost bidders to the fore.
Different titles are given to different types of bidders and these include a vendor bidder a proxy bidder and a ghost bidder.
A proxy bidder is someone who is at an auction on behalf of a buyer who is unable to attend. He has a mandate to bid up to a certain amount. Both the buyer and the proxy have to be registered as a bidder before the auction commences and the buyer has to sign a proxy form allowing the proxy bidder to bid on his behalf.
A vendor bidder is, in actual fact, an auctioneer who registers as a bidder for and on behalf of the seller. It is the duty of the auctioneer to protect the interests of the seller, however the practice only occurs when property is being sold and a reserve price has been set. The auctioneer has to announce that they are vendor bidders and will only bid up until the reserve has been met. They have to appear on the bidder’s roll.
A ghost bidder on the other hand, is someone who is used to drive the selling price of the property, but has no actual intent of purchasing the property. It is rumoured that sellers themselves have been known to utilise the service of these sorts of bidders in order to achieve a higher price.
Obviously, there is a big difference between a vendor bidder and a ghost bidder and although Levitt has gone on to state that vendor or ghost bidding is legal, this statement is somewhat confusing as a ghost bidder is a completely different animal to a vendor bidder. The practice of ghost bidding is prohibited by the SA Institute of Auctioneers. The body’s own rules say that members are obliged to take all reasonable and necessary steps to prevent the manipulation of an auction, inter alia by bidders who are "planted" with a view to manipulating the price of a particular item obtained at an auction and in circumstances where the planted bidder is not a genuine prospective purchaser.
The Consumer Protection Act (CPA) states that notice must be given in advance that a sale by auction is subject to a reserve or upset price or if the owner or auctioneer or anyone on behalf of the owner or auctioneer (vendor bidder) is bidding.
The entire affair has to be a PR nightmare. People who took auction sales at face value are bound to look at this incredibly successful selling process with fresh eyes and are going to need convincing that what may have occurred on a wine estate in the Cape is an isolated incident and is not happening at other auctions across the country.