Auctionata Accused of Serious Trade Violations
Can the online auction house still go public?
A report by the international accounting firm KPMG has accused the management of the Berlin-based online art auction startup Auctionata of serious trade violations.
The German financial magazine Wirtschaftswoche reported that an audit commissioned by Auctionata and prepared by KPMG in January 2015 alleges that chief executive officer Alexander Zacke and his wife Susanne Zacke—who is chief marketplace officer—participated in art auctions on their own site, using both pseudonyms and their real names. The magazine also alleges that management consigned works at questionable valuations in exchange for “substantial” advances.
According to the report, management was able to “operate relatively freely without significant control.” The company audit also reportedly alleged that board members, investors, and even employees acquired works via the site, which would be in violation of trade regulations for auctioneers.
In a telephone interview with artnet News, Alexander Zacke conceded that mistakes were made, but vehemently dismissed the suggestion that his bidding activity on his own website was to inflate auction prices. “That’s totally out of the question,” he said. “Our bidding activity in 2013 and 2014 during which we bought some paintings and other things was […] to decorate our Berlin apartment; others also made purchases for similar reasons.”
He added that the practice no longer took place. “It was a mistake that in hindsight I wouldn’t do again today.”
The KPMG report states that Auctionata faces fines, a revocation of its trade license, and significant reputation damage. In the worst-case scenario, the company “may not be able to continue business operations.”
Additionally, the KPMG report listed a series of almost 600 items consigned to Auctionata by the Zackes between 2013 and 2014, with an aggregate value of over €500,000 ($569,440). The report alleges that the Zackes were paid “substantial” advances, and that some consignments were based “on missing, incomplete, or unsigned consignment contracts.” The auditor added that “the valuations of the objects,” were sometimes questionable.
According to the weekly financial journal, the online auction house permitted employee submissions but the imposed €50,000 ($56,944) limit didn’t apply to members of the board.
In response, Zacke told artnet News that only a fraction of the lengthy report was quoted in the media, and that Auctionata operates under the same transparency and compliance standards as publicly listed companies. “Questions regarding the board and who consigned what are irrelevant,” he said, because “the auditors confirmed without restriction that all economic activities by this company in 2014 and 2013 were found to be proper.”
Addressing suggestions that managerial oversight at Auctionata was insufficient, he said, “The management is very rigorously controlled, and management has a very close relationship to the supervisory board […] suggestions that this is not the case are wrong.”
News of the accusations comes at a sensitive time for Auctionata, who have repeatedly stated ambitions to go public. The revelations cast doubt over the accuracy of the company’s financial figures, which announced on March 8 revenues totaling €81 million ($92.2 million) with 249 auctions in 2015, equating growth of 165 percent compared to the previous year.
In a statement published on the company website on Thursday, Auctionata insisted it commissioned the report to “improve standards and increase transparency,” emphasizing that it did so “on its own accord.”
Zacke continued, “Naturally we made mistakes in the beginning, but such mistakes are common in start-ups. It would be rather astounding had this not been the case.”
In an interview with artnet, Zacke said that the revelations have not changed the company’s ambitions to go public. “We are definitely going public, we just don’t know where,” he said, emphasizing that the he doesn’t think the latest revelations will risk the company’s IPO.
It was important to the company to “install compliance processes early,” he explained. “We went into this process very early and that’s advantageous and something that investors will always welcome.”
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