Climateer Investing: The Sotheby’s trial revealed the art market’s unsavoury practices

Friday, February 2, 2024

The Sotheby’s trial revealed the art market’s unsavoury practices

Some things never change.*

From The Economist, January 31:

But the outcome suggests not much will change

The horror of it dawned on Dmitry Rybolovlev in paradise, of all places. Over lunch in St Barts in 2014, conversation turned to a painting by Amedeo Modigliani, an Italian artist, that the Russian billionaire had bought several years before in a private sale. At the table happened to be an art adviser for the previous owner, who revealed Mr Rybolovlev paid around $25m more than what the seller had made.
It turned out that a Swiss middleman named Yves Bouvier, whom Mr Rybolovlev thought was acting as his adviser, pocketed the difference, plus an agreed-upon commission. The staggering markup fit a pattern. Over 38 sales Mr Bouvier allegedly made more than $1bn. On many occasions Mr Rybolovlev says he was told falsely that Mr Bouvier was haggling with the sellers to get better prices, only to inflate them.
Cue a nearly decade-long legal battle in Hong Kong, Monaco, Singapore, Switzerland and now America. On January 30th the art-filled drama concluded in a courtroom in Manhattan, with a disappointing result for Mr Rybolovlev. The trial concerned whether Sotheby’s, an auction house, aided and abetted Mr Bouvier’s alleged fraud. A jury found it did not. (Mr Bouvier was not a defendant; he and Mr Rybolovlev settled their dispute confidentially in Switzerland last December.)
Mr Bouvier denied wrongdoing and said that he acted not as an adviser but as a dealer, who is entitled to markups. He bought trophy paintings in private sales at Sotheby’s, then flipped them to Mr Rybolovlev. The trial centred on pricey works by Leonardo da Vinci, Gustav Klimt, René Magritte and Modigliani. Mr Rybolovlev alleged that Sotheby’s helped Mr Bouvier justify markups by providing inflated appraisals in a bid to keep Mr Bouvier’s business, which Sotheby’s denied.
The case was challenging to win. Proving fraud requires showing intent; the evidence presented at trial was circumstantial. The saga’s main player, Mr Bouvier, never testified. That the alleged swindle took place on a yacht and in a penthouse apartment along Manhattan’s “billionaire’s row” near Central Park probably did not elicit much sympathy from the jury.
Another wrinkle in Mr Rybolovlev’s case was the fact that he actually made out extremely well in at least one instance. In 2013 he bought “Salvator Mundi”, a painting by da Vinci (pictured), from Mr Bouvier for $128m. Mr Bouvier charged a 54% markup and congratulated him on a “great deal for this unique masterpiece”. That was shifty. But four years later Mr Rybolovlev sold “Salvator Mundi” for $450m—a record for any artwork and more than triple what he paid.
After the verdict Mr Rybolovlev’s lawyers said that the case shone a “light on the lack of transparency that plagues the art market”, but “secrecy made it difficult” to win. Private sales, both through auction houses and art dealers, are notoriously opaque....

....MUCH MORE

Previously on Rybolovlev (2016 - 2018):

Dirty deeds, not dirt cheap.
It's pretty well established that the punishment for an agent's breach of the duty of loyalty to his principal is death.
At least in Russia at any rate

*And some history:

Questions America Is Asking: "Art Advisors: Are They Worth It?"
Maybe if it's Bernard Berenson.
Or maybe not, links below.
*****
We've bumped into Berenson a few times, most memorably in "Duveen, The Greatest Salesman in the World: Isabella Stewart Gardner, Bernard Berenson and the Boston Connection Pt. IV" where he became the adviser to Mrs. Gardner and a bit of a bête noire to Duveen:

The courtyard of Mrs. Gardner's home, now the museum and site of the $500 million art theft

For more on the first gun for hire of the art world see the New York Review of Books "Only in America"
and The Spectator's "How honest was Bernard Berenson?"

And on Duveen

"Sotheby’s and Christie’s expand private sales"
Ha, Duveen lives!
*****
On Duveen, the King of private sales, From the intro to September 2013's "Duveen: The Greatest Salesman Ever":

I've mentioned Joseph Duveen a few times, most recently in the intro to 2011's "Wildenstein: The Art World's Most Powerful Dealer Family".

Today his name came up because of a long form post at Quartz: "High-end art is one of the most manipulated markets in the world" that I'll link to again as tomorrow's weekend read.

Joe Duveen went from being one of thirteen children of a successful Jewish-Dutch importer to being
1st (and last) Baron Duveen, all because of a simple observation:

"Europe has a great deal of art, and America has a great deal of money."
On that "Great deal of money", his buy-side clients included J.P. Morgan, Henry Clay Frick, William Randolph Hearst, Henry Huntington, Jules Bache , Andrew Mellon and John D. Rockefeller.
On the sell-side various European Aristos e.g. the seller of the painting below, the landlord known as the Duke of Westminster.

There have been two biographies of Duveen, the first by Behrman is better written but contained errors while the later one by Meryle Secrest is more accurate in the details, partly because she had access to the Getty Museum's hundreds of linear feet of business records and ephemera:
Duveen Brothers Resources

We have been planning to serialize Behrman's six New Yorker articles on Duveen, here's a taste of the first one, from 1951:....MUCH MORE

There is a lot of money to be made in opaque markets if one isn't too squeamish about screwing one's clients. This came on the market late last year:

Mansion on the Edge of Hyde Park Hits the Market for £42.5 Million

Oct 9, 2023 Overlooking the 350-acre Hyde Park, the palatial 11,000-square-foot spread—which over the years has been home to the Marquess of Bristol and the art dealer Henry Joseph Duveen, whose clients...

Park Lane, nice 'hood.