Learn French: Ils n'iront pas à l'enchère, d'autant moins que le filigrane est faux. - They will not go to the auction, all the less since the watermark is false.

It translates to "all the less since" or "especially since." It is used to reinforce the negative statement in the first half (Ils n'iront pas). It shows that the second part (le filigrane est faux) is an additional reason that makes their going even less likely.

Why is the indicative mood used (est) after d'autant moins que instead of the subjunctive?

Connectors like d'autant plus que and d'autant moins que introduce a cause that is considered a real fact, not a doubt or a hypothetical situation. Because it is a stated fact that the watermark is fake, it requires the normal indicative mood (est).

I usually see auctions translated as aux enchères. Why is it singular (à l'enchère) here?

A general auction event is indeed usually plural (une vente aux enchères). Using the singular à l'enchère focuses on the specific bid or the bidding process for one particular item. This makes sense here because they are discussing a single item with a fake watermark.

Could I just use surtout que (especially since) in this sentence?