I just finished reading an article about a decision handed down by a New York judge against a local art dealer. According to the original complaint, the dealer told her client that the best price she could get for her piece of art was $5.5 million when in fact she had found someone who would pay $6.5 million. The dealer charged the client a $50,000 fee on the sale, the complaint continues, but structured the sale to get $1 million from the buyer as well.
The complaint says that the dealer told her client that she didn’t want to reveal the purchaser’s name, so the dealer requested that the transaction be structured so she would buy the buy the painting from her client, and then sell it to the buyer herself. The client agreed. The buyer first wired the dealer $6.5 million, who then turned around and paid her client $5.5 million, pocketing the difference.
While I try to give everyone the benefit of the doubt, I find it extremely hard to believe any part of the art advisor’s defense in this case, namely, that she was owed the money as part of a “buyers premium” deal. That excuse is laughable. As an art dealer and advisor, I have never heard of a buyers premium being applied to a private transaction. Buyers premiums are levied by auction houses to winning bidders. In this case, the dealer collected a commission on top of this so called buyers premium. In addition, the dealer represented that she was going to buy the painting and then sell it, however, she actually sold the painting for $6.5m (thus eliminated any possible risk of getting stuck with the work) and then purchased it for a million dollars less. If that’s not fraud, I don’t know what is.
Obviously, the court agreed and ordered the dealer to return the money. “In fact, The New York State judge in the case said the dealers’ actions, if proved, were so egregious she might have to pay substantial punitive damages.” In my opinion, these damages are slam dunk for the plaintiff, and the dealer better hope that the government doesn’t dig deeper into her transaction history.
The main problem is that it is so rare for art dealers to actually gets caught. In this case theft was discovered because the assistant district attorney subpoenaed the advisor’s bank records as part of a routine examination of everyone who had access to the plaintiff’s art collection. This after the dealer did everything possible to cover her tracks, and it was by pure bad luck that she was caught.
Just last year Yves Bouvier, mega art dealer to the rich and famous, is alleged to have swindling his client out of $22 million on a single sale. Bouvier had the misfortune of having both his buyer and the seller attend the same dinner party, where the real sale price was revealed. Since then Bouvier has been jailed, seen his assets frozen, and has had more of his clients allege theft.
Sadly, this type of theft occurs on a regular basis in the art world, and it creates a strong case for those demanding government regulation. If anything, it clearly proves that more transparency is needed in the art world. Furthermore, one would be naive to think that theft occurs only in high valued transactions. It is clearly evident that the art world is not immune to greed and criminal activity, and that there are many art professionals deceiving their clients and getting away with it.
Given the lack of regulation and transparency in the art world, what can you as an art buyer or seller do to protect yourself from getting swindled? For starters, collectors need to treat their art transactions as business deals. Don’t be afraid to ask questions, and get everything in writing. Demand transparency from your art representative. For example, make it clear to your advisor that they will be required to provide you with a Bill of Sale (or Invoice) from all third parties involved in the purchase or sale of your art. If they refuse, then take your business elsewhere. An honest art advisor will be happy to oblige, or better yet suggest this approach. Also, have your advisor write-up an agreement that spells out the exact terms of each transaction, especially the commission structure and other financial terms. If your transaction involves a high dollar amount, it is always an excellent idea to consult an art law attorney for advice. They will know how to protect you from just about anything that can go wrong.
Lastly, don’t make the mistake of assuming that you have been getting a fair shake from your current advisor, just because you have been dealing with them for years. The best approach is to take a step back and ask yourself: Are there certain aspects of my transaction(s) that give the advisor the opportunity to be less than forthright with me? If so, remove these gray areas by demanding documentation and changes to current and future transactions. Any pushback would be the sign to move on, however, a good thief may also willingly comply so as not to raise a red flag or lose your business.
Also, make sure to do your homework and know who you are dealing with. Ask others in the industry and take to the internet. Most of all, contract with your art advisor to disclose all documents related to each and every transaction.