Going once, twice . . . gone

A high-flying auction house is bankrupt, creditors are fuming. What went wrong?


Ira Hopmeyer is sitting on a metal chair inside a stuffy sixth-floor room in a government building in midtown Toronto. A tall man with a mane of wavy brown hair, he is wearing a black suit, white shirt and red power tie. The 51-year-old made a name for himself as the chief executive and majority owner of the Toronto auction house Ritchies, which sold rare pieces of Canadian art to billionaire collectors and had a partnership with international heavyweight Sotheby’s. Hopmeyer lived well too, driving a 2005 Jaguar XJ and calling a swanky Yorkville pad home.

But on this day, in mid-November, he is dealing in the decidedly less glamorous business of Ritchies’ bankruptcy. For the most part, Hopmeyer is attempting to deflect questions by angry consignors and creditors. He says he hadn’t been involved in the day-to-day operations of the auction house for years, and only recently became aware of the severe financial issues it faced. “I’m not blaming anybody,” Hopmeyer says when asked why he appeared to be shirking responsibility for what happened. “I’m blaming [the fact] that expenses were exceeding the revenues.”

Needless to say, such explanations aren’t going over well. One exasperated woman stands up and hurls a “F–k you” in Hopmeyer’s direction as she storms out.
Hopmeyer’s version of the events differs wildly from that of the auction house’s former chief operating officer, who unsuccessfully tried to the buy the business and accuses Hopmeyer of borrowing badly needed funds from the company—a charge Hopmeyer denies.

Rumours about what transpired are running rampant in the Canadian art world. And consignors are furious as they search for answers about the location of their goods and the money they are owed. Meanwhile, the sudden demise of Ritchies, a 40-year-old business, has drawn back the curtain on the relatively unregulated auction business in Canada, where, despite the large sums of money changing hands, transactions are effectively conducted with little more than a promise and a handshake.

Cleaning up the mess will not be easy. A preliminary report by the bankruptcy trustee cites a lack of financial statements after June 2008, bank accounts that mixed consignors’ money with the company’s own funds, and a computerized inventory system that was poorly maintained. Just as an auction house’s appraisers must comb through the paintings, rugs and furniture of a deceased’s estate looking for valuable goods, it is now up to lawyers and forensic accountants to determine what, or who, finally brought the hammer down on Ritchies after nearly half a century.

One thing is already becoming clear, however: when it came to Ritchies, things weren’t always as they seemed.

The first outward signs of trouble came last July when British auctioneer Sotheby’s abruptly terminated an eight-year-old partnership with the Toronto auction house. The sudden divorce followed a jointly-run auction held in late May. The pieces on the block had included a landscape painting by Group of Seven artist Lawren Harris, which sold for $175,000, as well as works by Emily Carr and Jean-Paul Lemieux.

The auction didn’t receive much attention, however, because it lacked the seven-figure sales that had become common in recent years. In fact, the Ritchies-Sotheby’s partnership­—Sotheby’s took care of the finding, appraisals and estimates, while Ritchies provided the space and handled payments—is estimated to have generated more than $100 million in sales over its lifespan. It was also responsible for the most expensive painting ever sold in Canada. The work, titled Scene of the Northwest, was by artist and explorer Paul Kane and dated to 1846. It was sold to the late Kenneth Thomson, a Toronto billionaire and art collector, for a little over $5 million in 2002.

Another difference this time around was that the consignors—the people who own the goods being sold at auction—had not been paid within 30 days, as was Ritchies’ policy. (Auction houses act as the middle man between buyers and sellers, taking a cut from both ends.) Despite reassurances from Ritchies’ staff, consignors became increasingly alarmed as rumours about the company’s financial health swirled. Meanwhile, behind the auction house doors, a major upheaval was underway. Ritchies’ chief financial officer, Fraser Elliot, left the company in June. Then, in late July, Ritchies’ chief operating officer resigned after more than two decades with the company. A few days later, the entire staff—about 25 people—was dismissed after the company said it couldn’t make payroll.

At the time, Hopmeyer vowed to step in and rebuild the business on a shoestring budget. He began planning a fall auction of Ritchies’ inventory with the help of Fleet Street Financial, Ritchies’ biggest creditor. “The company, I knew, could start making money and start taking care of expenses and these people,” Hopmeyer says, referring to the consignors. But he claimed his efforts to right the ship were complicated by media reports of Ritchies’ troubles. Whether Hopmeyer could have pulled Ritchies back from the brink will never be known. In early October, its landlord, Hildegard Hammer—who was owed nearly $131,000—pulled the plug on the business by forcing it into bankruptcy.

There doesn’t appear to be much in the way of assets to divvy up. Ritchies didn’t own any buildings or equipment and had only a few thousand dollars in Canadian and U.S. bank accounts, which “comingled” consignors’ cash with Ritchies’ own money, according to a preliminary report by the trustee. In total, Ritchies’ accounts had been overdrawn by more than $300,000. Ritchies’ showroom in Toronto had a limited amount of inventory ranging from paintings to “oriental rugs, jewellery, Inuit art, Asian art furniture and decoratives.” There was also a small number of goods in a building in Montreal. Ritchies estimated the value of the items to be between $7 million and $9 million, but rival Canadian auctioneers Waddington’s and Maynards pegged the actual value closer to somewhere between $375,000 and $600,000. Most of the goods are believed to be owned by consignors.

Consignors have effectively been told that they are unsecured creditors and that there’s almost no chance they will receive their money. One of those people is Maisie Inglis. She sold a painting by George Thomson, the older brother of Group of Seven associate Tom Thomson, at a recent auction for $750. “I feel like they’ve stolen it,” she said of the oil paint landscape she acquired from her mother-in-law. Others are owed much more. One angry consignor said he is out more than $200,000 after selling a variety of pieces of Asian art that had been donated to his Christian non-profit organization. “This money is valuable to us because our organization is serving the public,” said the consignor, who didn’t want his name published. “This is not a hobby for us.”

Stephen Ranger, the former chief operating officer at Ritchies, pulls his red scooter into a parking lot near Toronto’s fashionable Distillery District on a balmy fall evening. He began his 22-year career at Ritchies working as a floor porter, moving furniture. Later, he became an expert in fine rugs and, more recently, spearheaded a successful partnership with the Liquor Control Board of Ontario that auctioned off rare wines.

With greying hair swept straight back and a tiny earring dangling from one ear, Ranger says he was “privileged” to have worked at Ritchies, a job that afforded him the opportunity to rub shoulders with important people and study in foreign countries. But the day-to-day grind of running an auction house could often be gruelling, he says. “It’s a prestigious job, but a tough business.”

Ritchies ran into “cash-flow problems” in early 2009 that led to a management breakdown and the resignation of Ranger, according to the trustee. In 2008, the most recent year for which financial records are available, the auctioneer generated more than $26 million in hammer prices and $7 million in revenue, but was left with a loss of $41,000 after expenses were deducted.

The trustee is considering whether to investigate about $1.8 million in “certain private and/or related party loans,” that were apparently used to keep the business afloat. Ritchies repaid the loans to people in May and June before Ritchies’ financial troubles became public knowledge. The report says the payments appear “preferential” to other creditors, suggesting some people may have improperly pushed to the front of the line. It’s not clear who received the payments.

Ranger alleges that what tipped the business over the edge was the more than $1 million in loans the company made to Hopmeyer in the form of shareholder advances. Indeed, the trustee’s report referred to a shareholder loan schedule that showed Hopmeyer owing Ritchies $1.3 million as of June 2009. The loans came mostly in the form of cheques and bank transfers.

Hopmeyer, however, claims the shareholder loans have been repaid in full and that he is actually owed about $100,000 by the company—a claim the trustee said it is awaiting documentation to prove. The company’s biggest creditor, Fleet Street, has apparently sided with Hopmeyer in his claims.

Although Ranger said he had suspicions for some time that Hopmeyer was borrowing cash, he says he didn’t think much of it because Hopmeyer was the owner. He only began to look into the matter more closely when he entered negotiations to take over Hopmeyer’s 89.1 per cent stake last year. “Money was going in the front door and going out the back door,” says Ranger, producing a houndstooth file folder with copies of letters between himself and Hopmeyer detailing their respective offers.

The negotiations didn’t go anywhere. Ranger, who had owned a 10.9 per cent stake, initially proposed a straight share swap, valuing the firm at about $2 million. He later raised his price to $2.5 million, with Hopmeyer retaining 25 per cent of the company. Ranger says he made it clear that any deal would need to address the repayment of Hopmeyer’s shareholder loan.

Hopmeyer eventually responded with a proposal that valued Ritchies at $4 million and, according to the copy of the letter in Ranger’s possession, committed to repaying a $1-million loan upon completion of the deal. Ranger called the offer absurd. “I was so frustrated that I resigned.”

In recent years, Hopmeyer had taken on the role of a hands-off owner, according to former Ritchies employees. He flitted in and out of the company’s showrooms at random hours of the day, parking his black Jaguar in the parking lot. His personality was as difficult to pin down as his schedule. “He’s a hard person to get a grip on,” says Duncan Blair, a former employee who specialized in carpets and rugs. “I would also describe him as moody over the last few years. Eccentric is a good word for it. Elusive, but very personable.”

Hopmeyer, who founded the boutique fine art firm Hopmeyer and Jennings before buying Ritchies in 1995, appeared to live the high life as Ritchies’ owner, driving nice cars, attending parties and rubbing shoulders with some of the city’s wealthiest people. However, much of that lifestyle appears to have been borrowed or leased, at least in recent years.

Personal property records show that he had leased a $97,000 Jaguar and has a 1998 Aston Martin with a $30,000 lien against it. His beachfront Florida condo is listed for sale, according to state records. And a 20th-floor luxury condo in a Yorkville building, worth $1.3 million, that he lists as his Toronto address, is owned by someone else.

The company also had a certain image to finance. Hopmeyer told the industry publication Auction Central News in August that expenses had gotten out of control, referring to “fancy cocktail parties, flying around the country or paying outside consultants exorbitant amounts of money.” Some Toronto art dealers thought so too. “The house was started very humbly by Mr. and Mrs. Ritchie and when the new team took it over, they started to get very self-important,” said Don Lake, owner of D&E Lake, a rare books dealer.

However, the reality of an auction house like Ritchies is not nearly as glamorous as it appears. While Ritchies made headlines selling pieces of art that fetched millions, the bread and butter of the business was the much more mundane task of finding buyers for the furniture, rugs and dishes that are sold off when people die, divorce or file for personal bankruptcy. “A lot of what an auction house does is deal with trust funds, where you’re basically liquidating the contents of people’s homes after they pass away,” says Blair. “It’s like a fancy garage sale.”

Blair says that Ritchies seemed focused on escaping its roots as a liquidator. He cited the decision to relocate the business a few years ago to a larger building down the street. “They decided to up the prestige of the new building,” says Blair, referring to extensive renovations that were done to the leased premises. Along with the partnership with Sotheby’s, it gave Ritchies the look of success even as its finances were in turmoil.

Miriam Shiell is a dealer of fine art in Toronto and the president of an association that represents art dealers across the country. She says that until recently, Ritchies appeared to be a well-run business that made all the right moves. The deal with Sotheby’s was a particular coup, she says, adding that it was never clear to her why Sotheby’s needed Ritchies’ services in Canada, where the firm already had a presence.

But all of that ultimately did little to protect consignors and creditors from the upheaval taking place within the company (although Sotheby’s did step in to pay some consignors after its final joint auction with Ritchies last spring). Shiell describes the auction business as a confusing one with all kinds of different fees and commissions, and little clarity about who actually owns the goods during the sale process. More importantly, as Ritchies’ consignors have learned the hard way, there are no requirements for auction houses to hold consignors’ money in trust, leading to calls for better regulation.

Hopmeyer, for his part, claims to be just as much a victim in Ritchies’ collapse as the people who entrusted his company to sell their merchandise. “I feel really bad for the consignors,” he says, following the creditors’ meeting. “I’m owed money, they’re owed money.” When asked how much he’s owed, he says that he has put in “seven figures” over the years. Then he spins on his heels and walks away. His lawyer picks up the conversation but is interrupted when Hopmeyer suddenly returns. “I sold my personal house. I lost my family because of this, all right? My ex-wife couldn’t believe I was putting every cent I had into this company.”

A few minutes later he walks out of the room—this time for good. The consignors have also left. Now it’s up to the lawyers and the trustee to sort out what happens as the liquidator becomes the liquidated, a process where there are seldom any winners.


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