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New York auction giant Sotheby’s Holdings Inc. has agreed to pay $70 million to settle a class action shareholders’ suit that accused the company of hiding the fact that it was illegally conspiring to fix prices with Christie’s International, its only true competitor. The lead counsel for the plaintiffs in the case were Philadelphia attorneys Sherrie R. Savett, Gary E. Cantor and Sandra G. Smith of Berger & Montague. Sotheby’s board of directors voted to approve the settlement on Sunday in the same meeting in which the board agreed to pay $256 million to settle a class action antitrust suit brought by customers of the two auction houses. Christie’s has agreed to pay an equal amount to settle that suit, for a total settlement of $512 million. The settlements stem from a three-year Justice Department criminal investigation into whether the two auction houses, which control 95 percent of the $4 billion worldwide auction market, stifled competition by colluding on several business practices. But while Christie’s is privately held, Sotheby’s also had to answer to investors who said the company made false and misleading statements in the forms it filed with the Securities and Exchange Commission. Sotheby’s moved to dismiss the shareholders’ suit, arguing that securities laws do not require companies to disclose “uncharged illegal conduct.” But U.S. District Judge Denise Cote of the Southern District of New York refused to dismiss the suit, finding that the shareholders stated a valid claim by pointing to affirmative statements made in SEC filings. The suit alleged that Sotheby’s publicly touted the positive impact of its new commission structure and increased auction sales as the sources of its improved revenues, when the real cause of the increased profits was the illegal collusion with Christie’s. The complaint said Sotheby’s falsely stated in its SEC filings that there was “intense” competition with Christie’s, when, in fact, the price-fixing agreement between the two houses had eliminated price competition. Judge Cote found that a jury could conclude that the statements could have led investors to believe that the two houses “were competing with each other in the usual manner.” Although Cote agreed that corporations generally have no duty to disclose uncharged illegal conduct, the courts have also held that “when a corporation does make a disclosure — whether it be voluntary or required — there is a duty to make it complete and accurate.” That duty, Cote said, “exists even where the omitted information relates to allegedly illegal conduct.” The U.S. Justice Department began investigating the auction houses in early 1997, issuing subpoenas that called for documents going back to 1992. The issue went public in February 2000 when Christie’s publicly disclosed that it had been granted “conditional amnesty” by the DOJ’s Antitrust Division under its “corporate leniency policy.” The policy is open only to those who report “illegal activity” with “candor and completeness.” In the wake of the disclosure, two top figures at Sotheby’s resigned — longtime chairman, A. Alfred Taubman, who had headed its board since 1983 and who controlled more than 60 percent of the voting stock; and Diana D. Brooks, who had served as president and CEO since 1994 and who signed Sotheby’s annual reports filed with the SEC for the years 1997 and 1998. In a statement issued late Sunday, Sotheby’s board said it had voted unanimously to approve the settlements of both the antitrust suit and the shareholder class action, as well as “potential claims between the company and its former chairman, A. Alfred Taubman.” In addition, the statement said that Sotheby’s “is also in serious negotiations with the United States Department of Justice and is optimistic that a mutually acceptable resolution will be reached in the near future.” The settlement of the antitrust suit calls for a payment to the class by Sotheby’s of $256 million. Sotheby’s will receive $156 million from Taubman toward the settlement and will be paying an additional $50 million in cash. The company will also be issuing discount coupons to the class with a value of $50 million, which class members can use as a credit against future vendors’ commissions. The settlement of the shareholder suit calls for a cash payment to the class of $30 million and $40 million in Sotheby’s Class A Common Stock. Taubman has agreed to reimburse Sotheby’s the full $30 million in cash. Commenting on the settlements, Taubman said: “I endorse and am contributing to these settlements to facilitate the resolution of all matters and to minimize the impact on Sotheby’s, a company I care about deeply.” Michael Sovern, the new chairman of the board of Sotheby’s Holdings, said: “Our goal over the last several months has been to put behind us the litigation clouding Sotheby’s future. The settlements we have approved today resolve the lawsuits in which the company had the greatest potential financial exposure. With a Justice Department resolution in prospect, the company can move forward with its business under the strong leadership of its current management team.” The shareholders’ settlement must be approved by Judge Cote, while the antitrust settlement must be approved by U.S. District Judge Lewis A. Kaplan. Attorney Savett said Wednesday that she is not sure how much her team on the shareholders’ case will be asking for in the way of fees but that it is sure to be less than one-third of the settlement. So far, Savett said, the only document relating to the settlement is a “memorandum of understanding.” In late October, she said, the parties will be filing a proposed notice to be sent to the class that will include a maximum percentage that the plaintiffs’ team will be requesting as a fee.

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