Federal prosecutors say the proposed plea agreement cap that would send former Mastro Auctions chief Bill Mastro to prison for no more than 2 ½ years is still a deterrent to others in the industry.
In February, U.S. District Judge Ronald Guzman rejected Mastro’s plea agreement because he couldn’t understand why government prosecutors had agreed to a sentence of less than three years when the maximum for fraud is 20.
In a 17-page memorandum filed Tuesday in U.S. District Court, Assistant U.S. Attorney Nancy DePodesta outlined several reasons she was willing to accept a shorter sentence including a belief that a prison sentence for Mastro would give others pause before driving up the price on unsuspecting bidders.
“The prosecution of fraudulent bidding practices, coupled with a potentially meaningful prison sentence for a defendant like Mastro, should send a strong message of deterrence to others in the auction and collectibles industry,” she wrote. “Through this prosecution, the government hopes to deter other auction houses, auction employees and auction participants, who may be engaging in similar conduct, to immediately cease their unlawful practices before they, too, face criminal liability.”
DePodesta wrote that because determining the loss suffered by those who were defrauded by Mastro through auction shill bidding was difficult to determine, the government agreed to back off its original request for a 63-78 month sentence.
The difference between what investigators believed was the amount of unnecessary expense incurred by winning bidders in some of Mastro’s auctions and what Mastro’s attorneys claimed was large. Prosecutors believed it was between $400,000 and $1 million. Mastro claimed it was less than $70,000. Examining bidding records, however, provided no concrete answers as to what the figure may have been. Mastro claimed to have bid on some items with an intent to win them, rather than simply to increase his profit. Many times, predicting what legitimate bidders would have paid without a possible shill bid was impossible to decipher.
“Determining the loss for purposes of the guidelines was a complicated endeavor, requiring a lot-by-lot, bid-by-bid analysis of tens of thousands of records,” DePodesta wrote in the memorandum. “While the parties’ positions with respect to loss vary, the parties are in agreement that there is little precedent available for calculating loss amount stemming from the types of auction practices charged in the indictment.”
The case is an unusual one and the first time a sports memorabilia auction house has been so thoroughly examined.
Prosecutors say Mastro “spoke candidly” to them about the use of shill bids by his company. He also admitted to trimming the side of the T206 Honus Wagner card that PSA eventually graded “8”. It sold most recently to Arizona Diamondbacks owner Ken Kendrick for $2.8 million.
Mastro took issue with some of the government’s claims including, remarkably, that bidders “knew or should have known that shill bidding was present in the auction, but were willing to pay an inflated value of an item in order to win it. In such instances, there was no fraud.”
According to the court document filed Tuesday, he also claimed:
- There is no loss incurred when an item is returned to its original consignor or the auction house won the items.
- Reserves, hidden or otherwise, are an acceptable practice in the auction industry.
- In instances where the bidding far exceeded the last shill bid, there was no harm or loss incurred. Instead, the item went for its fair market value.
- The value of the item won and purchased has since increased. As such, there is no loss to the winning bidder.
The government did not agree with the defendant’s arguments but was apparently unwilling to have the process drag on further just to win a potentially longer sentence.
“As a result, the parties fashioned an agreement which recognized that loss was a highly contestable figure and attempted to avoid an unnecessary, prolonged hearing,” wrote DePodesta.
Government attorneys told the court that “the proposed plea agreement provides for a sentence that is sufficient, but not greater than necessary to achieve the goals of sentencing”.
DePodesta wrote that Mastro provided “valuable information” to the case as a whole. Two of his former colleagues at the auction house including the current head of Legendary Auctions, Doug Allen, are also facing fraud charges. While the plea agreement means Mastro won’t have to testify against anyone, prosecutors say what he told them during interviews was helpful in their investigation, which also contributed to their agreeing to a lighter sentence.
Mastro is scheduled to be in U.S. District Court in Chicago Tuesday to enter his guilty plea. At that time, the judge is expected to decide whether to accept the agreement.