The Fight Over the Constitution at Sotheby’s

Did Ken Griffin have a secret advantage in his bidding?

The sale of one of the 13 copies of the first printing of the United States Constitution is worth mentioning here simply because of the fascinating bidding dynamics that played out. Since the announcement on Friday that the winning bidder was Citadel's Ken Griffin (and that he would loan it to Crystal Bridges Museum founded by Walmart heir Alice Walton), the sale is quickly being interpreted as a symbolic confrontation between the the old economy and the new, between concentrated wealth and distributed populism. 

The rare document was estimated at $15 million. That figure got thrown out the window earlier in the week when a DAO (a blockchain-based decentralized autonomous organization) raised within a few days a reported $46 million to acquire this important symbol of American governance and turning point in the history of political thought.

At some point during the day, Sotheby’s took an irrevocable bid on the lot carrying the a-little-too-cute number of 1787. Since the work was being sold to fund a charitable organization, some observers found the IB unusual. Eleemosynary sellers want to maximize yield just like all other sellers. They just tend to be less concerned with protecting against down-side risk. After all, the charity has no cost basis.

As the bidding opened a clue emerged to why the consignor agreed to the guarantee. Sotheby’s Brooke Lampley's bid first at twice the low estimate or $30 million. That should have tipped off the thousands of token holders in the DAO that she was bidding for the guarantor. Either because they were unfamiliar with the ways of auctions or the token-holders are predominantly young men, many of those watching mistakenly assumed she was bidding for the DAO. 

Soon after, Sotheby’s head of private sales David Schrader entered as the only counter-bidder. By process of elimination, it was clear he was bidding for the DAO. 

Unfortunately for the members of the DAO, Lampley's bidder had a significant advantage. We now know that the bidder was Kenneth Griffin, founder of Citadel, and one of the world's most sophisticated traders. Since it was public knowledge that the DAO had raised more than $40 million, he seemed to know his opponent's spending limit. A few financial wags online commented that it was particularly fitting that Griffin was bidding under these conditions. His firm has been cited by regulators for trading ahead of its own clients.

Schrader bid all of the way up to $40 million. Griffin went to $41 million, though not without some thought or hesitation. At that level, the copy of the Constitution was out of reach to the 17,437 donors to the DAO. The DAO later explained that their calculations required keeping some of the money aside for custodial costs. Schrader hung up the phone before the auctioneer had finished the bidding. The auction ended there.

Public knowledge of their limit was one weakness of the DAO. The other was revealed later. Sotheby’s first tweeted out that the final price on the document was $47.4 million. Later, Sotheby’s corrected the record: the buyer was only paying $43.2 million. The reduced fees seemed to confirm that Lampley had started the sale with Griffin’s $30 million irrevocable bid.

Here’s where it gets interesting. A vocal and public announcement of an intention to bid, even with 17,000 backers, is not the same thing as an actual bidder showing up. Did Grifffin approach Sotheby’s with a sweet offer of twice the low estimate in exchange for the inside edge of the IB? Was the consignor nervous that the sale was becoming a circus and might alienate more serious collectors?

The DAO donors have every right to be disappointed. They might even feel a little bit like the process wasn’t as open and fair as they might have imagined. A simplistic reading pits populists against oligarchs with the rich elite having advantages beyond money. Briefly after the sale, the story appeared to have the potential to become a bigger narrative in our volatile political and media environment. So far it hasn’t.

On the other hand, the presence of the DAO surely pushed Griffin to spend much more than he or anyone else might have been expected to pay even a few days before. The sale can be seen as the DAO coming together to force Griffin to pay up for the document. That’s a win for the consignor and the charity that will benefit.

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