Auction house implicated in kickback scandal

iol nws feb 18 auction cw Rael Levitt_7943 INDEPENDENT NEWSPAPERS UNDER A CLOUD: Auction Alliance's Rael Levitt accused of 'heavy-handed tactics'. Picture: Cindy waxa

Auction house Auction Alliance has come under a hammer of a different sort, with insiders blowing the lid on business dealings that link bank staff, liquidators and attorneys to a money-making racket.

Based on a paper trail dating back more than 13 years, and on the damning evidence provided by a number of insiders who have broken rank, Weekend Argus can reveal that:

* Auction Alliance paid kickbacks to liquidators, attorneys and bank staff to pull business their way, with founder and chairman Rael Levitt insisting that “they will be in cash”, according to an explosive e-mail trail.

* The bank account of Levitt’s Johannesburg-based business development manager was used to launder some of the payouts in order to disguise the cash payouts. Money would be lodged into his account, then later withdrawn in cash, only to be hand-delivered to the intended recipients, all with the full knowledge of the individual in question.

* Two staff members of Investec, whose names are known to Weekend Argus, have been paid such hefty commissions by AA to keep the flow of auctions steady that other auctioneers have struggled to crack AA’s hold over the financial institution.

* A former senior manager at Absa in Gauteng was ousted by the bank some years back, when the AA kickback trail which revealed him as a recipient, was unearthed.

* A number of attorneys were also on the take, with documentation pointing to payouts of R500 000 in cash in one instance.

* A number of liquidators also pocketed massive amounts.

* The kickbacks in all these cases are typically 50 percent of the commission AA makes, but have risen up to 75 percent during market slumps, to ensure that business keeps coming Levitt’s way.

* Levitt forced staff to make the payments in cash cheques or EFTs, and ordered the company’s accounting system to be manipulated in order to keep auditors out of the loop, insisting in one e-mail “this is money under the table” and cannot be revealed.

* AA paid one aggrieved Johannesburg seller a cash “settlement” to drop a legal claim against the company when a botched auction was exposed, and threatened heavy legal action if he proceeded with a criminal case.

* Another aggrieved seller in Cape Town successfully exposed an enormous kickback paid by AA to a liquidator, that was channelled through a local attorney.

* AA trained its auctioneers how to rig auctions, and what to do and what not to do if they were caught in the act, and how to lean on bogus buyers who were and still are paid by Levitt to attend auctions to drive up bids.

* Levitt also traded on numerous occasions on his own auction floor by selling his own stock, presenting a potential conflict of interest.

 

*  He bought a string of properties at AA auctions at knock-down prices.

 

* A court has found AA culpable of gross “misrepresentation” in a damning judgment.

* Another is pending, in Cape Town.

In an interview with Independent Newspapers last week,Levitt denied the allegations and threatened to interdict the publication of the story, arguing that its “defamatory” content “would cause irreparable damage” to his business.

On Tuesday, Auction Alliance and Levitt attempted to prevent publication by bringing an urgent interdict against Independent Newspapers in the Western Cape High Court.

This was, however, withdrawn later in the week in an out-of-court settlement.

Meanwhile, insiders claim the allegations are not new, and are common practice throughout AA nationwide, adding that it is on the back of such allegedly irregular business styles that AA grew to become the market leader. In Levitt’s own words, his company leads the industry “by a long shot”.

AA’s turnover was reported to be in excess of R1 billion last year. It has offices dotted throughout the country and employs hundreds of staff, directly and indirectly, though staff turnover is sky high.

Levitt, many say, “is the industry”, which has made it difficult for anyone to challenge him, to date.

Insiders now talk candidly about “heavy-handed tactics” that were employed.

“If the payments weren’t delivered, or if I didn’t cash the cheques for him, that was the end,” claims one source.

“There was always a threat if things didn’t go his way. And it would always be your job that was under threat. And no one ever doubted that they could be axed with the snap of his fingers,” another said.

 

“It was always about money. Money, money and more money.”

Staff were not the only victims.

A number of sellers and buyers were also sitting on evidence, and were intimidated in the very same manner, said a source who has signed an affidavit in support of his claim.

“He and his men told me not to take him on, and warned me not to go the newspapers because they are such powerful advertisers, and can stop any story that would nail him.”

 

All that changed in December, however, when billionaire Wendy Appelbaum disputed the auction of Quoin Rock Estate wine estate, of which she was the winning bidder.

 

“I was not the winning bidder, but the sole bidder, and therefore bidding against myself,” Appelbaum told Weekend Argus. “That’s what I am disputing. Not the price, but the procedure, which has raised some very serious concerns.”

Last month Appelbaum lodged a complaint with the Consumer Protection Commission.

Levitt responded by suing her for defamation earlier this month, a case that is now about to play out.

“But this is the case that was needed,” said one of the five insiders who have signed affidavits supporting their allegations, which hinge on reams of incriminating documents, all of which help paint the darker side of Auction Alliance. - Weekend Argus 
AUCTION Alliance responds:
 
IT is no coincidence that for 20 years Auction Alliance (and its predecessors) has always enjoyed a world-class reputation for good business dealings without any negative publicity, yet in the past three weeks there has been what appears to be a systematic and well-orchestrated campaign to defame the company and its founder, Rael Levitt.

The auction industry is a highly-competitive business and, should our unrivalled reputation be continually questioned or the company becomes engulfed in negative sentiment, it suits many.

It is thus no surprise that the “unnamed insiders who have broken ranks” to reveal highly defamatory information about us are, in fact, disgruntled ex-Alliance employees who left the company  and are now working for competitor companies in Johannesburg and Cape Town.

Over two decades we have grown into South Africa's leading auction house because of our enduring reputation, founded on honesty, integrity, credibility and sound business management. Our company has always enjoyed an impeccable reputation as a business leader and an innovator with a reputable brand.

We have over the past few years seen sales staff movement, but it is simply untrue and unfair that there has been a massive staff turnover due to an intimidating, bullying culture. Many of our team members have been with the group since inception, and are extremely proud of the company's pioneering history.

We do not resort to unethical, fraudulent or corrupt business practices in order to generate business. We count blue chip companies, all the country's major banks, listed property companies, government departments, parastatals, international firms and media houses among our clients, and this testifies to the standing that we enjoy in the marketplace.

We continually conduct the country's highest value sales because we deliver results for both our buyers and sellers. We are a good company, managed by good people, despite what our detractors may say. 

Our company has a strong culture of good corporate governance, and our board of directors consists of individuals of the highest integrity, ability and track records.   

Insofar as Auction Alliance has been accused of making unlawful payments to attorneys, referral commissions paid to attorneys have historically been recognised as lawful and approved by the various law societies. It is not uncommon for law firms to refer auctions to auctioneers, and when they do, we may agree to give the attorney concerned a referral commission, and we leave it to the attorney to make the necessary disclosure to their clients.

This is a long-standing and accepted practice in the auction industry. Should the various law societies change their policies in this regard, we will naturally comply.
It is alleged that Auction Alliance has been involved in a “kickback” payment scheme with some of the country's largest banks, as well as liquidators. This implies corrupt and unethical business practices on the part of Auction Alliance, which is denied, as are all other allegations against Auction Alliance or Rael Levitt suggesting impropriety of any sort.

In October last year we were alerted to the fact that Investec Bank officials were accused of receiving commissions from one of our former employees. Both the bank and ourselves investigated these allegations, which emanated from sequestrated former directors of a company involved in a hostile three-year legal battle with the bank. These allegations were found to be without substance.

The allegation about an Absa official having being ousted some years back because of Auction Alliance is a disingenuous rumour devoid of any truth. With regard to the allegation concerning vendor bidding (the practice of accepting bids from the seller or someone appointed on his behalf to raise the price of a particular lot to the reserve price), such bidding is both internationally and nationally regarded as an acceptable and lawful auction industry practice. 

Vendor bidding has now been formalised by statute with the introduction in April 2011 of the Consumer Protection Act. We advise all our bidders whether an asset is to be sold with or without reserve, and if it is the latter we advise all bidders that vendor bidding may take place on behalf of the seller.

Our role is to protect the seller's reserve price, whilst ensuring that the purchaser purchases the property or asset at a fair value. Vendor bidding is not only lawful but it is now regulated, transparent and advertised.


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