The art of dodging

It appears that the law has finally caught up with a New York art dealer after a lengthy period of dodgy behaviour.

Glafira Rosales was charged this month with evading payment of millions of dollars in tax on income she earned from the sale of fake artworks.

A press release from the US Attorney's office for the Southern District of New York explains that:

[Rosales was arrested] for filing false tax returns and for failing to disclose a foreign bank account to the IRS. Rosales allegedly failed to report the receipt of at least $12.5 million in income from the sale of works purported to be by celebrated abstract expressionist artists. Most of the income was received in a bank account in Spain that Rosales hid from, and failed to disclose to, the IRS.

So not only did she manage to pull the wool over the IRS' eyes, but she managed to fool the art world with her forged artworks - and for a significant period of time. Indeed, Manhattan U.S. Attorney Preet Bharara said:

“As alleged, Glafira Rosales gave new meaning to the phrase ‘artful dodger’ by avoiding taxes on millions of dollars in income from dealing in fake artworks for fake clients...”

A painting sold by Rosales as an original Pollack

According to the Complaint:

Rosales began selling several never before exhibited and previously unknown paintings in the 1990s, which she claimed to be by some of the most famous artists of the twentieth century, such as Jackson Pollock, Mark Rothko, and Willem de Kooning. From 2006 through 2008, the proceeds of her sales of such paintings to two prominent Manhattan galleries were over $14 million. In selling most of the paintings to the two galleries, Rosales purported to represent a client who had inherited the paintings and wanted to sell them, but who also wished to remain anonymous. For the remainder of the paintings, she purported to represent a Spanish collector. Rosales further claimed that a portion of the price paid by the Manhattan galleries was a commission to her for selling the paintings, and that the remainder would be passed along to her clients. 

However, the investigation revealed that:

• experts in the fields of art, art history, and materials science concluded that at least several of the paintings sold by her are counterfeit;
• the client on whose behalf she purported to sell most of the paintings to the Manhattan galleries never existed;
• the Spanish collector on whose behalf she purported to sell the remainder of the paintings to the Manhattan galleries never owned the paintings;
• instead of passing along a substantial portion of the proceeds of the sale of the various paintings, she kept all or substantially all of the proceeds, and transferred substantial portions of the proceeds to an account maintained by her then-boyfriend; and
• Rosales then filed tax returns claiming that she had not kept all, or substantially all of the proceeds from the sale of the paintings. She also kept most of the proceeds in a foreign bank account that she hid from, and failed to report to, the IRS.

Unfortunately for Rosales, it seems the scheme was not fool proof after all. As IRS Special Agent-in-Charge Toni Weirauch explained: “The sale of a piece of art for profit is a taxable event and the seller is responsible for paying his or her fair share of tax, even if the art is counterfeit."

Rosales now faces some lengthy prison time if convicted on all counts.

See the full complaint here.

English Court grants injunction in transatlantic art dispute

On 7 August, in the case of Lord Edward Albert Charles Spencer-Churchill v (1) Faggionato Fine Arts Ltd (2) Gerard Faggionato (3) Jombihis Corp (4) Alberto Mugrabi [2012] EWHC 2318 (Ch), the English High Court granted an interim injunction preventing the sale of this painting by Jombihis Corp (J) without first giving notice to the previous owner of the painting, Lord Edward Albert Charles Spencer-Churchill (Lord Edward).

Museum Security (Broadway Meltdown) by Jean-Michel Basquiat

The background to the case is as follows. Until the end of 2011, Lord Edward was the owner of the painting. In 2010, Lord Edward instructed the second respondent, Gerard Faggionato (GF), an art dealer, to find a purchaser for his painting. At this time, Lord Edward claims, he specified that he did not want to sell to Alberto Mugrabi (Mugrabi), the fourth defendant. In late August 2011, GF informed Lord Edward that he had received an offer of $6 million for the painting. GF informed Lord Edward that the offeror was a Floridian collector. Lord Edward was unsure as to whether this was a good offer and so asked GF to consult auction houses to deduce the reasonableness of the offer – with regards to the likely sale price of the painting at auction. Subsequently, GF told Lord Edward that he had spoken to auction houses and their opinion was that the painting could be offered for sale at auction with an estimate of $4-6 million but with no guarantee. Therefore, advised Lord Edward to accept the offer, which he did.

It later transpired that:

• There was no Floridian collector. The offer was actually from Mugrabi – the invoice for the sale was addressed to Jombihis Corp (J), which was a corporate vehicle used to hold art for AM's benefit;
• GF had received secret commission from Mugrabi or J in connection with the sale; and
• GF had not consulted auction houses as requested by Lord Edward.

Earlier this year, Lord Edward heard that the painting was to be sold at auction by Christie's New York on 8 May 2012, with a guide price of $9 million and a guarantee in place. On 4 May, Lord Edward's solicitors wrote to Christie's, GF and J advising them that Lord Edward would not prevent the proposed sale or dispute the title of any purchaser if escrow arrangements were put in place in respect of the net proceeds of the sale above $6 million. On the day of sale, however, Christie's withdrew the painting, amid concerns of the threat of litigation and rumours in the marketplace about the dispute.

On 3 July, Lord Edward brought proceedings on the basis that the painting remained vested in him because the purported sale was unauthorised and therefore void. This was followed, on 5 July, by inter alia an application for an interim injunction to restrain J from dealing with the painting until final judgment or further order.

The issues in respect of this application were, therefore, the standard oft-labelled American Cyanamid questions to be considered in respect of interim injunctions, namely: (i) whether there was a serious issue to be tried, and if so; (ii) where the balance of convenience lay.

On the first question, the Court said that there was no doubt that Lord Edward had a real prospect of success in his claim and that his point was an arguable one. Accordingly, there was a serious issue to be tried.

The Court then turned to the balance of convenience. In this respect, it noted the:

"...the position of both sides was "more than a little paradoxical:

(1) Lord Edward frankly acknowledges that his concern is only to maximise the amount of money that he received for the painting, yet seeks an injunction restraining J from dealing with the painting.

(2) J, on the other hand, disclaims any present intention to dispose of the painting...Yet despite this, J opposes the injunction sought, and is insistent that Lord Edward's cross-undertaking in damages should be fortified by security in the sum of $6 million."

But, whilst the Court acknowledged that there was force in J's submission that Lord Edward's claim was a money claim for the value of the painting and so its sale should not be prevented, it found that a sale in the current climate would have been unlikely to be at the best price reasonably obtainable if there were no dispute as to ownership. Therefore, damages would not have been an adequate remedy because of the obvious difficulties in valuing works of art. Further, Lord Edward had already been the victim of wrongful conduct by virtue of the secret commission given to GF. Accordingly, Lord Edward was entitled to protection against further possible wrongdoing.

However, the Court said that it was not appropriate to grant an unqualified interim injunction, and thus an injunction restraining J from dealing with the painting without first giving Lord Edward 28 days' notice of any proposed dealing was granted. In such a situation, unless J could satisfy Lord Edward that the proposed dealing was beneficial, Lord Edward would be able to return to court for an injunction preventing J from carrying the proposal into effect.

Already, this case has provided an insight into the exclusive and intriguing art market. I'll be certain to keep an keen eye out for further developments.

Watch what you say about Art Dealers…

The Australian Northern territory Supreme Court in Alice Springs has recently denied an application from the Australian Broadcasting Corporation (ABC) to strike out an Aboriginal art dealer’s defamation claim.

The case relates to a television programme which examines exploitation in the Aboriginal art industry. This is not a new subject, Bruce Chatwin describes the Aboriginal art industry with a mixture of humour and, at times, quiet anger in his classic Australian travelogue: Songlines. But Bruce Chatwin never faced a defamation claim. Unfortunately for ABC, despite the fact that the Claimant, Mr Nibbs, refers to himself as the "original carpetbagger" in the programme he is now claiming that what he in fact said was that others have referred to him as a carpetbagger.

Unsurprisingly, Mr Nibbs didn’t like the whole of Australia to believe he was a “carpetbagger” and alleged that viewers of the program have been led to believe he is unscrupulous in his dealings with Aboriginal artists, paying the artists inadequately for paintings produced under oppressive conditions.


As with all defamation claims, the very fact of bringing a claim has led to far wider coverage than might otherwise have happened. It also raises the importance of the artist-dealer relationship and how crucial this is for both parties.

For more information on Aboriginal art, see here.

Source: ABC news