Saturday, February 22, 2020

L'Affaire Aristophil: The Bernie Madoff Of France

From the New York Times, February 21:

A Billion-Dollar Scandal Turns the 'King of Manuscripts' Into the 'Madoff of France'
Accused of orchestrating a literary Ponzi scheme, Gérard Lhéritier prepares his defense as his breathtaking collection is auctioned off.
PARIS — A letter from Frida Kahlo, signed and twice kissed with red lipstick, fetched just over $8,800. A page of scribbled calculations by Isaac Newton sold for about $21,000. A 1953 handwritten speech by John F. Kennedy took in $10,000.

“Adjugé!” said a gray-haired auctioneer, over and over, as he gaveled away nearly every one of the 200 lots for sale at Drouot, an auction house, in Paris in mid-November. The sale generated $4.2 million, which might sound like a triumph.

Actually, the sale was a fiasco, or, more precisely, one part of an ongoing fiasco. All of the items came from a now-defunct company, Aristophil, which starting in 2002 built one of the largest collections of rare books, autographs and manuscripts in history — some 136,000 pieces in all.
The buying spree turned the company’s founder and president, a stout 71-year-old named Gérard Lhéritier, into a celebrity. He opened the stately Museum of Letters and Manuscripts in a pricey neighborhood in Paris, and surrounded himself with French luminaries. They included former presidents, authors and journalists, who crowned him the “king of manuscripts.”

Today he’s widely known by a less flattering name, “the Bernie Madoff of France.”
Six years ago, the French authorities shut down Aristophil and arrested Mr. Lhéritier, charging him with fraud and accusing him of orchestrating what amounts to a highbrow Ponzi scheme. As he bought all those rare manuscripts and letters, he had them appraised, divided their putative value into shares and sold them as if they were stock in a corporation. Those shares were bought by 18,000 people, many of them elderly and of modest means, who collectively invested about $1 billion.

Owning a stake in a Marquis de Sade scroll or a letter from Gandhi proved irresistible, in large part because that stake was supposed to grow. The wording of Aristophil’s contracts left investors with the vivid impression that after five years, the company would buy back their shares for at least 40 percent more than their original price. Lawyers for Mr. Lhéritier say the contracts never made any such a promise.

Some investors who wanted to cash in found that Aristophil would not pay out. In 2014, their complaints, along with a growing number of skeptical articles in the French media, prompted a police investigation, which concluded that Aristophil was sustained only by a regular flow of new investors and thus was doomed.

The authorities seized the entire collection and hired a company to catalog and auction off all 136,000 pieces, a process that will take years and hundreds of sales, just like the one in November. The hope is to return as much money as possible to investors, which, based on the more than two dozen auctions already held, will amount to perhaps 10 cents on the dollar.

The problem has nothing to do with quality. Everything in the collection is authentic, and a large part of it is highly coveted. But the authorities say that with the help of pliant experts, Mr. Lhéritier grossly inflated the value of pieces before he sold shares in them. A set of Einstein documents he bought from Christie’s in 2002 for $560,000, for instance, was divided into hundreds of shares and sold at a valuation of $13 million.

“He tricked us,” said Jean-Marie Leconte, a retiree who invested about $260,000 in shares of letters by Baudelaire, Charles de Gaulle and others. “There are people who lost all of their retirement money and had to sell their homes.” There has also been at least one suicide.

Other victims are furious at the government for intervening. Aristophil was solvent, so why close it? And why expect anything but disastrous auction results, with more than 100,000 items set to flood the market?

The outrage is heartily echoed by Gérard Lhéritier himself. Currently free on $2.1 million in bail, he predicted in December during a three-hour interview at his home near Nice that he would be vindicated.

“The government will see it made a huge mistake,” he said, by turns indignant and impishly grinning. “I hope that in the coming years, my 18,000 investors file a lawsuit against the government, demanding compensation. I would be happy to help.”

From Voltaire to Al Capone
If nothing else, L’Affaire Aristophil is arguably the Frenchiest of all financial scandals. The country has a singular reverence for books and writers, reflected in statues of great authors that dot Paris, and one of the largest national archives in the world. It’s hard to imagine another place on earth where a frenzy could be whipped up over the personal letters of Voltaire or autographed scores by Mozart....