Ok you absolute legends, Youtuber Karl Jobst exposes corruption and shill bidding in the used retro video games market

[Master Disaster]

This is a few days old now but I feel its worth the discussion since it was only a few weeks ago we saw SMB1 break records. This is a deep rabbit hole and I'll say this once now so I don't have to type it every paragraph, everything mentioned here is alleged, the evidence is (IMO) pretty damning however this is the result of incredible investigative journalism, not any criminal investigation.

 

The original YouTube legend dropped this video about 5 days ago though I'll be using Kotaku as my source since its a written article and much easier to quote though I'll probably mention stuff not in the article, assume it comes from the video in these cases.

 

The allegations centre around two organisations, Wata Games who serve as the grading company and Heritage Auctions. Karl exposed how the people behind these 2 companies have been colluding and using fraud tactics such as shill bidding to artificially increase the price of retro video games.

 

Quote

Vintage video games, like factory-sealed copies of The Legend of Zelda and Super Mario Bros. for the Nintendo Entertainment System, have suddenly started selling for eye-popping prices, and a new video documentary claims potential fraud could be a big part of the reason why. It effectively charges auction houses, game graders, and certain collectors with conspiring to manufacture a retro game bubble and get rich in the process.

In a nearly hour-long video posted on August 23, YouTuber and GoldenEye 007 speedrunner Karl Jobst outlined a series of apparent conflicts of interest between Wata Games, the agency grading rare games, and Heritage Auctions, the company that has recently been selling them for record-breaking prices.

 

Wata Games is a relative newcomer to the video game grading scene however they have positioned themselves to be the authority and are now widely considered the de facto grading house.

 

Heritage auctions have been around a bit longer however they are also the ones who are committing the fraud.

Quote

The conflicts of interest don’t stop there, however. Wata Games’ company page showed Halperin was also at one time listed as an advisor to the video game grading agency. Wata Games, meanwhile, listed Heritage Auctions as a business partner going back to when it was first founded in 2017.

 

Lets back up to a few years ago, Pat the NES Punk is on the video and stated that he had noticed certain individuals running around all the major trade fairs buying up any and all the sealed in box games they could, didn't matter the game or condition. He said he saw this person with literal armfulls of SIB games. Karls investigation showed said person is affiliated with the man behind Wata Games.

 

Then we have Wata who don't really seem to be doing anything wrong, there's no accusation that they're misgrading games however the CEO is a known associate of the owner of Heritage Auctions (the two are also listed as being involved with other companies together as well).

 

Heres how the scam works. Wata grades the game (fairly), they then send it over to Heritage (who they have an exclusive deal with to sell their top rated games) and Heritage do one of two things. They either use shill bidding to inflate the price and sucker someone into buying the game for much more than its worth or in some cases, they actually just bid internally on the games and buy them from themselves. This pushes the market value of the games up.

 

Then as a slam dunk, Karl reveals that all these record breaking game sales happen to be owned by people closely associated to either Wata or Heritage. The recent record breaking SMB1 was bought 3 years ago for $30,000 by someone who is on the board of Wata and was sold for $2 million.

 

Quote

In 2017, a mint-condition sealed copy of the original Super Mario Bros. sold for $30,000. In 2019, it sold for over $100,000. Just this month, it sold for $2 million. That’s an over 6500% increase in just four years. Something bizarre was clearly going on, and it increasingly looks like Heritage Auctions and others have played a role in hyping a gold rush in retro games untethered from their actual meaning and value to long-time collectors.

 

He then goes further and shows the person behind Heritage has been involved in this behaviour before in the late 80s, his other company was also called Heritage and he was banned for ever being a CEO for committing securities fraud in the early 90s.

 

Quote

Not only does he accuse Heritage Auctions of fraudulent behavior, he also questions the motives of Wata Games, which appears to be a revolving door between graders, collectors, and sellers.

 

“There is a select group of very wealthy, very powerful people pulling the strings behind this recent spike in video game prices and the same people are making money hand over fist,” Jobst argues in his video.

Sources - https://kotaku.com/youtuber-accuses-million-dollar-retro-game-sales-of-bei-1847557296

 

Can't say I'm surprised. One something goes full mainstream and commercial the venture capitalists always swoop in and use their existing wealth to clean up pricing all the actual customers out of the market.

 

Can I also say, subscribe to Karl, guy really is a legend when it comes to fair and unbiased investigative journalism.

[Mark Kaine]

But why is it a scam? Someone is buying at these prices right? Thats called stupidity... that the prices are artificially rised beforehand should really surprise no one...

 

And someone really paid 2m for a mario game?

Is he now eligible for a refund,  since it was a "scam"? Does he even want a refund (serious question)

[Master Disaster]

4 minutes ago, Mark Kaine said:

But why is it a scam? Someone is buying at these prices right? Thats called stupidity... that the prices are artificially rised beforehand should really surprise no one...

 

And someone really paid 2m for a mario game?

Is he now eligible for a refund,  since it was a "scam"? Does he even want a refund (serious question)

Its a scam because the grading company and auction house are personally invested in the games prices being high and are using fraud to create a bubble so they can sell their own assets for much more than they're really worth.

 

Its classic investment fraud (allegedly)

[tikker]

31 minutes ago, Mark Kaine said:

But why is it a scam? Someone is buying at these prices right? Thats called stupidity... that the prices are artificially rised beforehand should really surprise no one...

 

And someone really paid 2m for a mario game?

Is he now eligible for a refund,  since it was a "scam"? Does he even want a refund (serious question)

The thing Karl mentions is that it's unclear who that "someone" that bought it is. Although hiding your identity is probably common and wise with these type of expensive purchases (I wouldn't put it beyond people to track down and raid your house to obtain it), there isn't even notice of a fan or collector being the buyer. It just sold, and as OP and sources explain, it happened before where these things sold vaguely and years later sort of mysteriously appeared again for an even higher price equally vauge. Could simply be as innocent as you buying a bitcoin to resell for 100x later, but the whole situation is a bit suspicious.

[mr moose]

32 minutes ago, Mark Kaine said:

But why is it a scam? Someone is buying at these prices right? Thats called stupidity... that the prices are artificially rised beforehand should really surprise no one...

 

And someone really paid 2m for a mario game?

Is he now eligible for a refund,  since it was a "scam"? Does he even want a refund (serious question)

It's a scam because the concept behind an auction is that everyone is a genuine bidder and thus the sale goes to the highest bidder who is lead to believe if they don't pay that amount someone else will (i.e the products value is legitimate).  But with shill bidding there is no other buyer willing to pay, so the auctioned price is artificially inflated and not demand driven as advertised.

 

Now if they told people that that happened and people were still willing to spend that much on a game then more fool them.  No Sympathy,  however that is not always the case.

 

Also for interests sake, the people that can afford to drop $2M on a game can also afford to lose $2M.  But shill bidding puts a lot of products outside the reach of the rest of us who can't afford it.

[Master Disaster]

1 minute ago, mr moose said:

It's a scam because the concept behind an auction is that everyone is a genuine bidder and thus the sale goes to the highest bidder who is lead to believe if they don't pay that amount someone else will (i.e the products value is legitimate).  But with shill bidding there is no other buyer willing to pay, so the auctioned price is artificially inflated and not demand driven as advertised.

 

Now if they told people that that happened and people were still willing to spend that much on a game then more fool them.  No Sympathy,  however that is not always the case.

 

Also for interests sake, the people that can afford to drop $2M on a game can also afford to lose $2M.  But shill bidding puts a lot of products outside the reach of the rest of us who can't afford it.

This.

 

2 other things worth remembering, the $2m SMB1 was owned by somebody who knows both the owners of Wata and Heritage. This is motive to increase prices.

 

Also remember the known associates running around trade fairs in 2017 buying any and all SIB games they could get. Its highly likely a pretty large chunk of the games currently being sold are assets of Wata and/or Heritage. Karl found direct links between games that have sold and employees of the 2 companies despite Watas policies stating employees of the company cannot get games graded or sold through them.

[Arika]

When ever I see shit like this, my mind immediately goes to "its a cover for money laundering" same goes for those art pieces of nothing but a red square slightly offset from the centre of a blank canvas going for millions

[StDragon]

1 minute ago, Arika S said:

When ever I see shit like this, my mind immediately goes to "its a cover for money laundering" same goes for those art pieces of nothing but a red square slightly offset from the centre of a blank canvas going for millions

Possible here, but art being traded around with NFTs is almost assuredly money laundering in action. You are definitely not wrong there.

[Mark Kaine]

2 hours ago, tikker said:

The thing Karl mentions is that it's unclear who that "someone" that bought it is. Although hiding your identity is probably common and wise with these type of expensive purchases (I wouldn't put it beyond people to track down and raid your house to obtain it), there isn't even notice of a fan or collector being the buyer. It just sold, and as OP and sources explain, it happened before where these things sold vaguely and years later sort of mysteriously appeared again for an even higher price equally vauge. Could simply be as innocent as you buying a bitcoin to resell for 100x later, but the whole situation is a bit suspicious.

Right and I agree this fake bidding should be illegal and it probably is... and might not even be too hard to prove (depending on how many mistakes were made)

But now I'm thinking is there even a "victim" i mean all we know is someone bought it?

 

Because yeah that sounds like money laundering,  also realistically no ones gonna pay 2 mil, this is more "worth" like 2000 bucks maybe.

: D

[Fasterthannothing]

I mean technically someone bought it. Is it wrong yeah but let's be realistic nothing is going is going to happen. But like Mark said who is the victim that would actually care to take this to court? Someone dropping that kinda money on a videogame either doing it purposefully for money laundering or just doesn't care about how much something cost. It's not like their inflating something that's actually worth caring about like housing prices *cough* BlackRock*cough*

[tikker]

1 hour ago, Mark Kaine said:

this is more "worth" like 2000 bucks maybe

It's worth what people think it's worth, which is the point of this type of thing: to make people think it's worth a lot. Just like how we value expensive art or Bitcoin at substantial prices.

 

1 hour ago, Mark Kaine said:

But now I'm thinking is there even a "victim" i mean all we know is someone bought it?

What is alleged here I think is that that someone is in on it. I put the item up for auction, hype it up, you buy it for $1000. Headlines report this random worthless item selling for $1000. 10 years later I now magically put it or a similar item up for auction again and people remember it "sold" for $1000, it gets hyped again and now sells for $10000. Rinse and repeat until the public is convinced this thing is indeed worth a fuck ton of money and once you've reached a satisfactory number, actually sell it to a random person.

 

The "victim" would be the person that would genuinely want this to complete their collection or for its "historical" (for lack of better term) value, similar to how we value finding  clothes, armour of whatever ancient item in pristine condition, and the one that eventually buys it for real.

[wanderingfool2]

1 hour ago, Mark Kaine said:

But now I'm thinking is there even a "victim" i mean all we know is someone bought it?

Yes, there is a victim...but it's a victim indirectly really.  If you were to sell a game for $100, then $10000, and then $1m (but let's say you are the seller and buyer that has stake in both the auction house and grading company).  After the $1m hits the news, you have a rush of people who go out and get their game graded....the issue is that the grading company charges based on the estimated worth of the video game, and selling a "mint" for $1m increases the value of even none mint games...thus they make a killing off of getting people grading their game (to sell), and then when they try selling it through the auction house the auction house makes money as well.

 

Essentially the victims are the people who get their games graded and then can't sell it for even a break even cost (because of how much the grading company estimated it at, despite there not really being a proper buy for it).

 

1 hour ago, Mark Kaine said:

Because yeah that sounds like money laundering,  also realistically no ones gonna pay 2 mil, this is more "worth" like 2000 bucks maybe.

I don't think it's money laundering...this just sounds like a greedy "lets increase the price to make a killing" move.  They are essentially creating a tulip bulb mania.

 

2 hours ago, Arika S said:

When ever I see shit like this, my mind immediately goes to "its a cover for money laundering" same goes for those art pieces of nothing but a red square slightly offset from the centre of a blank canvas going for millions

Genuinely, there are a bunch of rich people who really like buy "art" that is rare/expensive.  (I know someone who literally has multiple millions of dollars in paintings and aside from a few paintings used essentially as a tax right-off he really does enjoy collecting art)

[Video Beagle]

2 hours ago, Arika S said:

When ever I see shit like this, my mind immediately goes to "its a cover for money laundering" same goes for those art pieces of nothing but a red square slightly offset from the centre of a blank canvas going for millions

No...that's just stupid, but real, art.

 

I mean, yes, art auction houses etc are majorly used for money laundering..but it's done with legitmate art.

[Mark Kaine]

28 minutes ago, wanderingfool2 said:

Genuinely, there are a bunch of rich people who really like buy "art" that is rare/expensive.  (I know someone who literally has multiple millions of dollars in paintings and aside from a few paintings used essentially as a tax right-off he really does enjoy collecting art)

Yeap, this is a thing I read a lot on the internet,  and I remember having watched a documentary about such a piece , and from what I remember it was "in NYC" and kind of like a "blue square" and people dismissed it as "not really being art" but the thing is it was made with a certain relatively  difficult  method  (forgot which) and it was gorgeous and easily worth "millions"... i really think many people genuinely don't understand art and hence this thinking happens "its just a blue square lol" (and the same people of course could *never* make this themselves lol)

 

 

33 minutes ago, wanderingfool2 said:

I don't think it's money laundering...this just sounds like a greedy "lets increase the price to make a killing" move.  They are essentially creating a tulip bulb mania.

 

40 minutes ago, tikker said:

What is alleged here I think is that that someone is in on it. I put the item up for auction, hype it up, you buy it for $1000. Headlines report this random worthless item selling for $1000. 10 years later I now magically put it or a similar item up for auction again and people remember it "sold" for $1000, it gets hyped again and now sells for $10000. Rinse and repeat until the public is convinced this thing is indeed worth a fuck ton of money and once you've reached a satisfactory number, actually sell it to a random person.

Yeah, maybe, but then I'm wondering,  is this just how the internet works,  should this be illegal,  maybe it already is... I don't really think a sensational youtube video is going to change much in this regard?

The problem already started when people willingly bought old used games for x times more than they're worth, similar to "dlc hoarders" (ie whales) of course someone is taking advantage of them - I'm not condoning this, I'm just saying "and now what!?"  

[starsmine]

It feels weird how many people in here are saying people are buying the games at these record prices.
The video goes into who is actually buying, its not gamers, collectors, or historians, its LLCs created by speculators funded by those invested in creating a bubble. Its not a scam per say, but it is fraud. Because the money for the head line sales are not actually changing hands, but it creates this halo hype to get people to buy the "low price" items from people who do not know better.

The people spending 1000 to 10000 dollars on a product what they think will go up in price are the ones being defrauded, and those in on the market manipulation (weta, heritage, and the llc's they are advising) make a cut of that money.  

No one can really sue before money is lost, and no money is lost until the bubble bursts. the bubble bursting being inevitable is why these things need to be handled by organizations in the government like the FTC, because this is NOT fair trade.

 

Can yall read the article/watch the video before commenting? Money laundering isnt even brought up. 

[Master Disaster]

4 minutes ago, starsmine said:

It feels weird how many people in here are saying people are buying the games at these record prices.
The video goes into who is actually buying, its not gamers, collectors, or historians, its LLCs created by speculators funded by those invested in creating a bubble. Its not a scam per say, but it is fraud. Because the money for the head line sales are not actually changing hands, but it creates this halo hype to get people to buy the "low price" items from people who do not know better.

The people spending 1000 to 10000 dollars on a product what they think will go up in price are the ones being defrauded, and those in on the market manipulation (weta, heritage, and the llc's they are advising) make a cut of that money.  

No one can really sue before money is lost, and no money is lost until the bubble bursts. the bubble bursting being inevitable is why these things need to be handled by organizations in the government like the FTC, because this is NOT fair trade.

 

Can yall read the article/watch the video before commenting? Money laundering isnt even brought up. 

I have no doubt the $2m SMB1 sale was real, I have a feeling that sale was the driving force behind the entire thing. They bought it for $30k, sat on it for 3 years and then sold it on for $2m. However you cut it, that's a good day at the office.

[Taf the Ghost]

I do love Karl's intro. It's a different take on inviting the viewer in, but it works.

 

As for what's going on, someone is trying to make a speculative bubble. If you do it right, you can make a killing and get out with only minor civil liabilities. 

[Taf the Ghost]

21 minutes ago, starsmine said:

It feels weird how many people in here are saying people are buying the games at these record prices.
The video goes into who is actually buying, its not gamers, collectors, or historians, its LLCs created by speculators funded by those invested in creating a bubble. Its not a scam per say, but it is fraud. Because the money for the head line sales are not actually changing hands, but it creates this halo hype to get people to buy the "low price" items from people who do not know better.

The people spending 1000 to 10000 dollars on a product what they think will go up in price are the ones being defrauded, and those in on the market manipulation (weta, heritage, and the llc's they are advising) make a cut of that money.  

No one can really sue before money is lost, and no money is lost until the bubble bursts. the bubble bursting being inevitable is why these things need to be handled by organizations in the government like the FTC, because this is NOT fair trade.

 

Can yall read the article/watch the video before commenting? Money laundering isnt even brought up. 

It's honestly a pretty dang clever scheme, honestly. Considering Twitter is currently advertising the "buy a part of a piece of art" stuff, it's clear there's business there.

[Mark Kaine]

34 minutes ago, starsmine said:

Can yall read the article/watch the video before commenting? Money laundering isnt even brought up. 

There was an article? Well and no , thanks to the way youtube works i cannot click on random videos, my timeline consists of Scott Manley and a bit of chubbyemu only, tyvm :3 and tyvm for the tldr, I mean most of it was already brought up, but still.

 

So maybe its against some fair trade rules,but its also just how capitalism works - generally not in a good way...

 

But in this case specifically,  some fool paid 2m for worthless junk a videogame. Ok, i mean and this is my issue now, why?

 

27 minutes ago, Master Disaster said:

I have no doubt the $2m SMB1 sale was real

I see no issue here.

 

But I'm still interested in the legal side of things and how the criminals will be prosecuted (if they are) for sure!

 

Edit:

6 hours ago, Master Disaster said:

Its classic investment fraud (allegedly)

Ok, i think i understand it a little more now, and I doubt that...

 

We are talking about videogames - aka collectors items... does "investment fraud" really apply here - possibly?

 

 

 

 

[tkitch]

4 hours ago, Mark Kaine said:

But now I'm thinking is there even a "victim" i mean all we know is someone bought it?

Yes.

 

They're creating a fake market for vintage video game collectables.  "SEE?!  Mario sold for 1.5 or 2 milliion!  Clearly this game is worth at least 30K!"

that type of pump and dump is illegal in the stock market, and is likely illegal here if they're doing it intenitonally.

[starsmine]

32 minutes ago, Mark Kaine said:

There was an article? Well and no , thanks to the way youtube works i cannot click on random videos, my timeline consists of Scott Manley and a bit of chubbyemu only, tyvm :3 and tyvm for the tldr, I mean most of it was already brought up, but still.

 

So maybe its against some fair trade rules,but its also just how capitalism works - generally not in a good way...

 

But in this case specifically,  some fool paid 2m for worthless junk a videogame. Ok, i mean and this is my issue now, why?

 

I see no issue here.

 

But I'm still interested in the legal side of things and how the criminals will be prosecuted (if they are) for sure!

Jobst talk about how the exact same people doing this manipulation did the manipulation in the 80s/90s with coins and got a hefty (though less then what they made) fine from the FTC when banks sued after it went tits up.

As for the exact way it could be handled today, I dont know, we have seen this pattern a number of times in the past, to say its how capitalism works only is true if you argue in terms of laissez faire, which our system aint that, nor should it be that. FTC stepping in would probably pop the bubble, would people blame the government or the one actually manipulating the market. would it be better to pop the bubble now or let it pop itself 2-5 years down the line and have MORE people lose MORE money. Like tkitch points out, its pretty much a pump and dump but with real tangiblee products. 

As for the 2 million sale, its real in the same way I was really spending my money in college. Sure I was, but everything was subsidized by my parents so its not like I could go homeless at the time, anything I could not cover rent wise, they did. so was I really spending my money or theirs? Like yes a real, actual transaction took place. Yes money traded hands, but that sale is just to get others to buy in. 

[Mark Kaine]

3 minutes ago, starsmine said:

Yes money traded hands, but that sale is just to get others to buy in. 

Allegedly...

 

But I agree with you,  so its not the fact they sold item for *absurd* price, its how this price was tinkered with basically? That's just super hard to prove probably (but probably also helps the actors already have "experience" with this)

 

I was really thinking this is more like how generally "rare" items are sold at absurd prices, for example a Nissan Skyline for $350000 when the MSRP was more like $40000, but the difference is probably,  you don't need to manipulate these auctions,  they really go by these prices (although,  who knows...) 

 

 

[Master Disaster]

43 minutes ago, tkitch said:

Yes.

 

They're creating a fake market for vintage video game collectables.  "SEE?!  Mario sold for 1.5 or 2 milliion!  Clearly this game is worth at least 30K!"

that type of pump and dump is illegal in the stock market, and is likely illegal here if they're doing it intenitonally.

 

38 minutes ago, starsmine said:

Jobst talk about how the exact same people doing this manipulation did the manipulation in the 80s/90s with coins and got a hefty (though less then what they made) fine from the FTC when banks sued after it went tits up.

As for the exact way it could be handled today, I dont know, we have seen this pattern a number of times in the past, to say its how capitalism works only is true if you argue in terms of laissez faire, which our system aint that, nor should it be that. FTC stepping in would probably pop the bubble, would people blame the government or the one actually manipulating the market. would it be better to pop the bubble now or let it pop itself 2-5 years down the line and have MORE people lose MORE money. Like tkitch points out, its pretty much a pump and dump but with real tangiblee products. 

As for the 2 million sale, its real in the same way I was really spending my money in college. Sure I was, but everything was subsidized by my parents so its not like I could go homeless at the time, anything I could not cover rent wise, they did. so was I really spending my money or theirs? Like yes a real, actual transaction took place. Yes money traded hands, but that sale is just to get others to buy in.

I often forget the US doesn't have as strict consumer protection laws as we do in Europe, over here price manipulation would at least get you investigated to see if you did break any laws.

 

Even ignoring the price manipulation though, the auction house is taking a 20% cut of the sale price and a 5% sellers fee. The more things cost the more profit they make from each sale. That has to be illegal.

 

Edit - Forgot to say, they could easily step in and make an example out of everyone involved. Its kind of hard to blame the FTC when every news channel is covering the story,

[BuckGup]

They must have gotten inspiration from the US economy and stock exchange. A major majority of all wealth in the world is generated from fraud it's not that radical or even new. It's seriously just a game

[Taf the Ghost]

1 hour ago, tkitch said:

Yes.

 

They're creating a fake market for vintage video game collectables.  "SEE?!  Mario sold for 1.5 or 2 milliion!  Clearly this game is worth at least 30K!"

that type of pump and dump is illegal in the stock market, and is likely illegal here if they're doing it intenitonally.

Considering it's being used to pump up the values of collective investment vehicles, it'll eventually get the SEC and FTC's attention.

 

Two things from the video (since I saw it a few days ago): 1) this is driving up prices for non-collection "grade" products and 2) Karl avoided the issues that exist around money laundering but do seem present in all of this. That's a fairly serious charge but also one that takes forensic accounting to prove, so it's best to hold off on putting that forward. We can chat about it, but in an official presentation form, it's a riskier issue. (Also, if there isn't any from a few parties, they'll hone in on that and use it as their PR perspective.)