Tuesday, November 14, 2017

Ponzis: "World's largest collection of manuscripts from bankrupt firm Aristophil to be sold in Paris"

A pretty big deal in this corner of the art & collectibles world.
Plus, commentary from U.S. and International law firm Squire Patton Boggs after the jump.

From The Art Newspaper,

Auctioneer Claude Aguttes will sell the collection of historic books and manuscripts across 300 sales over at least six years as part of liquidation
Marquis de Sade’s manuscript of 120 Days of Sodom (est €4m-€6m) Aguttes
The sale of the most important private stock of manuscripts in the world will start on 20 December at the Drouot auction house in Paris. The first auction will include masterpieces such as Marquis de Sade’s manuscript of 120 Days of Sodom (est €4m-€6m) and the Surrealist Manifesto released by André Breton in 1924. The sale also includes the manuscript of Poisson Soluble, Breton’s first experience in ‘automatic writing’, and his second Manifesto of 1930. The whole series is estimated at €4.5-€5.5m.

It will take more than 300 sales over at least six years to liquidate the collections of the French company Aristophil, which purchased some 135,000 pieces over 12 years. The firm went bankrupt in 2015, after its founder, the dealer Gérard Lhéritier, accused of running a Ponzi scheme, was charged with fraud and money laundering. It is reported 18,000 clients invested around €850m to buy a share of his collections. Lhéritier denies all accusations and a criminal investigation is ongoing.

The start of the liquidation is to be announced on Tuesday, 14 November, by Paris's commercial court and auctioneer Claude Aguttes, who is handling the inventory and coordination of the sales at Drouot. Sotheby’s and others had proposed to auction the most prestigious lots, but the court chose an auctioneer who was ready to take the entire stock. 

This opening sale is gives a flavour of the wide variety of objects that were handled by Aristophil. It includes manuscripts of novels by Honoré de Balzac and Alexandre Dumas, a 41-page account of the sinking of the Titanic by Helen Churchill Candee (est €300,000-€400,000), music manuscripts by Mozart and Strauss, letters signed by Napoleon, Einstein, Dostoyevsky and Stendhal, and original editions of Proust and Lautreamont. The oldest is a 15th-century translation in French of Alexander the Great’s biography by Quintus Curtius (est €300,000-€500,000)....MUCH MORE
And from Squire Patton Boggs:

Aristophil: was a “Ponzi” stunt at the root of the collapse of a collection specialising in letters, autographs and manuscripts?
Rédigé par Antoine Adeline, Alexandre Le Ninivin le 3 Octobre 2015
A scandal in the world of letters, autographs and old manuscripts would not have gone unnoticed and the case of Aristophil promises to lead to extensive press coverage. A massive fraud, thousands of works, 20,000 investors and hundreds of millions of euros at stake.
A very (perhaps too attractive) investment in letters, autographs and manuscripts
In the 2000s, Gérard Lhéritier created a company called Aristophil with the goal of propositioning anyone to invest in the collections of letters and old manuscripts, with the promise of a return of more than 8% each year; this investment being out of the field of the French Solidarity Wealth Tax.  
Aristophil acquired, over time, a collection of letters and manuscripts, often substantial and re-sold to investors at an entrance fee fixed at €1,500.

The system functioned on the speculative assumption of a resale at a price presented as attractive but higher than for which the good was purchased, be that in the form of (1) shares in joint ownership (Coralys contracts), or (2) full ownership (Amadeus contracts), by way of a funds intermediary (the Finestim society, and its subsidiary, Art Courtage – exclusive distributors of the products), or directly via the Aristophil company.

The process of acquiring something was accompanied by a convention to terms on which each owner (joint or full ownership) consented to the works being stored by Aristophil, during a certain period of time (5 years minimum), at the end of which the owner promised to re-sell the good to Aristophil, who remained free to buy it or not (a call option).

These investments have been offered in France by the aforementioned companies, but also in Austria via Aristophil GmbH, in Belgium via Artesoris or Luxemburg via Artepoly’s. Aristophil would have also had its Swiss, Geneva[1] and Hong Kong, Asia subsidiaries at its disposal.

At the same time, in 2012, Gérard Lhéritier created a Museum of Letters and Manuscripts in Paris, set up in the Hôtel de La Salle, a “hotel particulier” of 1700m² in the very posh 7th arrondissement of Paris[2], then a second in Brussels, in which the acquired works were exhibited.

The concept was appealing: manuscripts and autographs full of history, a promise of elevated re-sale value (8% profitability), the support of big names in art and politics. Many didn’t resist to the temptation of such an investment. The numbers make your head spin: there were nearly 18,000 “investors”, creating a global total of more than €700,000,000 in subscriptions.

However, voices were quickly raised to warn the market that the value of works on which the titles were based did not correlate with the reality of the market and the assurance of recovering the stake. More interest created more and more uncertainty.
istophil society, especially in France.
Alerts from the Autorité des Marchés Financiers (“AMF”): investors beware !
From 2003, the AMF published the first warning about conventions of joint ownership proposed by Aristophil, following which the authority took hold of the Paris public protection office. The criminal court, after an investigation into the matter, held[3] that Arisophil’s conduct did not initially come within the scope of practice of the regulator, with contracts not being able to be described as financial products.[4]

Contrary to classic financial products, letters, autographs and manuscripts, are in effect considered as “miscellaneous products” the sale of which is not subject to the prior approval of the AMF.
Based on this decision, the group pursued its activities....