Art scam or mail fraud?

Reports this week from San Francisco that a local man has been charged with federal mail fraud in the US District Court, and is being held in prison without bail, in relation to a deal to purchase millions of dollars worth of art. 

It is claimed that Luke Brugnara, who has already spent time in prison for tax evasion and illegal trout poaching, falsely represented that he was able to purchase $11 million worth of artwork from a New York dealer. The works were then delivered to him without him having to pay a cent - apparently on the basis that he would pay for or return them within five days of receipt.

The San Francisco Chronicle details:

Brugnara made a deal in April to pay $7.3 million to an art dealer from New York for 16 paintings by Willem de Kooning, the Dutch American Abstract Expressionist artist... 

Brugnara also agreed to pay $3 million for an Edgar Degas sculpture, $450,000 for a painting by American realist artist George Luks, $160,000 for a drawing by Joan Miró and $145,000 for etchings by Pablo Picasso...  

The art dealer, who was not named in the affidavit, asked Brugnara to pay some of the money up front. Brugnara, however, said he shouldn't have to because he had previously bought a Renoir painting for $500,000 and a Picasso drawing from her without any problems...  

Brugnara told the dealer that he was opening a museum in San Francisco... When the dealer said she wasn't aware of any new museums opening in San Francisco, Brugnara told her it would actually be in Las Vegas...  

The art was shipped in crates from New York to Brugnara's home on Sea Cliff Avenue in San Francisco...  

The dealer's subsequent efforts to collect for the artwork were unsuccessful. Brugnara told his lawyer that the art was given to him as a gift and that the works were "unauthenticated and not worth much," according to an attorney representing the dealer.  

The dealer went to authorities earlier this month. 

As a non-American lawyer, it is not clear why the art dealer did not or was not required to bring a cause of action herself. Surely there was some sort of contract of sale that was breached? If only we could all have the FBI bring cases on our behalf. [But seriously, if anyone wants to enlighten us all, please do.]


Source: The San Francisco Chronicle, 30 May 2014

Gagosian not off the hook

The New York state Supreme Court in Manhattan has ruled that Larry Gagosian and Gagosian Gallery Inc. must continue to defend a fraud claim brought by Ronald Perelman.

By way of background, in September 2012, Perelman, an American businessman with a mere net worth of around US$14.1 billion, sued Gagosian Gallery Inc. and its founder and owner, Larry Gagosian alleging that they had "concealed material information from [Perelman] and used their dominant position in the contemporary art world to manipulate the price of a certain artwork in transactions with [Perelman] in gross violation of the fiduciary duties owed to [Perelman]."

Perelman brought claims for breach of contract, breach of fiduciary duty, fraud, breach of the covenant of good faith and fair dealing, unjust enrichment and deceptive business practices.

On the same day Gagosian sued Perelman, accusing him of reneging on an agreement to buy two works of art. In October 2012, however, the Gagosian parties dropped their suit and subsequently filed a motion to dismiss all of Perelman’s claims.

Unfortunately for Gagosian, while New York State Supreme Justice Barbara Kapnick dismissed the majority of the charges (in her decision of 31 January 2104), she ruled that the fraud claim may stand.

Businessweek reports:

The judge said that while the plaintiffs, Perelman’s MAFG Art Fund and MacAndrews & Forbes Group LLC, are “experienced and sophisticated” business investors, the allegation that Gagosian and his gallery had “superior and unique” knowledge of the art world is enough for the fraud claim to survive.  

“Plaintiffs allege that Gagosian has enormous power to influence, and even set, the markets for the artists he represents because of his impressive roster of artists and his access to and knowledge of the largest private art collections in the world,” Kapnick wrote. “Even though the plaintiffs are sophisticated art collectors and investors, the court cannot say, as a matter of law, that plaintiffs’ alleged reliance on defendants’ representations regarding the art market and intrinsic value of particular works of art was per se unreasonable or unjustified.”

The full decision can be found here.

Gagosian has 30 days (from 31 January) to file and serve an Answer to the fraud claim.

Perhaps most interesting is the power and influence that one individual is said to wield in the art world - and the other scary insights into the art world that the case provides. Details can be found in the initial complaint and amended complaint.


Source: Businessweek, 4 February 2014

Monet at centre of conspiracy trial

One of the Monet water-lily paintings is central to the trial of Vilma Bautista, ex-assistant to former first lady of the Philippines, Imelda Marcos.

Bautista was reportedly indicted in New York last year on charges that include conspiracy, tax fraud, illegally selling the Monet painting, Le Bassin aux Nymphease, as well as trying to sell other valuable paintings.

The Huffpost explains:

The artwork vanished amid Ferdinand Marcos' 1986 ouster, ended up in Bautista's hands and is part of a multibillion-dollar roster of property the Philippines claims the Marcoses acquired with the nation's cash, prosecutors said. 

But for all the art-world intricacies and Philippine politics, "at bottom, this case is really quite simple — it's about greed and fraud," Manhattan Assistant District Attorney Garrett Lynch told jurors in an opening statement. 

The defense said Bautista believed that Imelda Marcos rightfully owned the paintings and that Bautista had authority to sell them for her. Bautista is just an intermediary who got caught up in a decades-long dispute between a nation and its former leader, attorney Susan Hoffinger said.  

"That battle doesn't belong here" in a Manhattan criminal courtroom, Hoffinger said in her opening.

This will be an interesting case to follow.

Source: HuffPost, 16 October 2013

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.

Giacometti art scam verdict

The first verdict in the one of the largest art frauds in Europe was delivered last week. Relating to the case of more than 1,000 fake sculptures by Alberto and Diego Giacometti which were uncovered by police in Germany in 2009, the FT reports:

“The trial of five suspected forgers has been going on for months in Stuttgart, and now a first verdict has been handed down in court. Three of those in the dock – two art dealers from Wiesbaden and the wife of a Mainz art dealer – have pleaded guilty to fraud and forgery and were sentenced to two years’ prison, suspended, plus a fine for two of them. The others, the Mainz art dealer, and a self-proclaimed “count”, Lothar Wilfried Senka, have admitted some of the charges but deny others; this case continues.

...Stuttgart prosecutor Dr Mirja Feldmann says that the “count”, identified in media reports as Senka, claims the sculptures came from Giacometti’s brother Diego. Feldmann also told me that the Mainz art dealer has admitted that he thought that the sculptures were fakes, but says that he owned the plasters and never had any intention of selling them. He also admitted issuing provenance certificates. A verdict is expected this spring.”

Considering that the total value of the pieces would have been hundreds of millions of pounds, if they were genuine, and that a number of dealers and collectors had already acquired large numbers of the sculptures for an estimated total of €9 million, a suspended prison sentence seems like a rather light penalty given the extent of the fraud.

A selection of the sculptures which were seized:

Source: The Financial Times, 25 February 2011