Now in its twelfth season on CNBC, American Greed delves into notorious cases of corporate and white-collar crime. I had the opportunity to be a contributing editor to a recent show on Knoedler Gallery and the fraudster Glafira Rosales. Click here to watch a special interview where I explain how collectors can protect themselves from fakes and frauds in the art market.
Some quick background. In 2011, the well-known and respected Knoedler Gallery closed amid rumors that it was selling fakes by Jackson Pollock, Mark Rothko, Robert Motherwell, and other well-known artists. Two years later, Glafira Rosales, a Long Island art dealer, admitted in federal court to participating in a scheme to sell more than sixty fake works of art to two New York galleries, one of which was Knoedler Gallery. She received $33.2 million from the galleries for the works, which the galleries in turn sold to unsuspecting collectors for more than $80 million. She created false backstories that the trove of paintings came from a private collector who acquired the never-before-exhibited-or-known works directly from the artists. Rosales’ co-conspirators included Pei-Shen Qian, a Chinese immigrant who came to the United States in 1981 and attended classes at the Art Students League. All the fakes were painted in Pei-Shen’s home in Queens, NY.
After Rosales was arrested, collectors sued Knoedler Gallery to get their money back, including Domenico De Sole, the chairman of the Board of Directors of Sotheby’s. But the gallery repeatedly claimed they too were duped by Rosales. In court documents, the De Sole lawyers presented evidence that Knoedler paid Rosales $950,000 in 2003 for a “Rothko” and then sold it to De Sole the following year for $8.3 million, a truly spectacular markup. The suit claimed the gallery should have realized that someone cannot buy an undiscovered authentic masterpiece at the price Knoedler paid for it. The gallery repeatedly said they were unaware the work was fake and that they consulted numerous experts about its authenticity. As part of their defense, the gallery argued that sophisticated collectors like De Sole are responsible for their own due diligence and cannot rely just on statements from the gallery to make their purchase decision.
Expectations were high that De Sole v. Knoedler Gallery would create a court opinion on the responsibilities of collectors to perform their own due diligence when buying a work of art and the responsibilities of a gallery to investigate thoroughly the authenticity of works they sell. The jury trial began on January 25, 2016. After two weeks of damaging testimony about the actions of the gallery, the parties settled out of court. The details of the settlement are unknown but given the vehemence with which the De Sole’s pursued the case, they probably received not only the $8.3 million purchase price but also some compensation for damages.
WHAT CAN COLLECTORS TAKE FROM THIS CASE?
Beware newly discovered works of art. It’s hard for art forgers to make a living creating duplicates of known work. Instead, forgers tend to create work in the predominant style of the artist and pass it off as newly discovered work. Moreover, rather than “masterworks,” they tend to make “solid” examples by the artist. Masterworks draw too much attention, which can undermine the scam. If presented with the opportunity to buy a newly discovered work without a reliable provenance, walk away. Run if it is being presented as an opportunity to buy something for a good price.
Distinguish between different types of expert opinions. Three bodies of evidence can help determine whether an object is authentic: provenance, scientific evidence, and connoisseurship. Provenance is a record of who owned the work from the time it left the artist’s studio to the current owner. The second is an assessment of the pigment, canvas, and other materials to see if they were commercially available at the time the work was supposedly created. Both are largely objective opinions. Connoisseurship, however, is a judgment call that an expert makes based on a visual inspection of how the artist painted the work compared to other work the expert has seen over the years. But experts who render opinions based on connoisseurship are not all created equally. Some have dubious credentials, perhaps as an expert in one artist but not in the work of the artist in question. Moreover, the expert’s judgment may be compromised because they will earn a success fee if the sale goes through. Even if they are a true expert, acting honestly, there is an asymmetry in how many experts express their views. Those who “believe” in the object speak up, while those who do not will either be unwilling to say anything or will only raise doubts in highly elliptical language to avoid risk of being sued by the object’s owner. Because of this, potential buyers tend to only see evidence supporting the attribution.
As a preventative tool, wise buyers seek to embed in purchase agreements a requirement for galleries to represent that they do not know of any information or evidence that would call into question the authenticity of the work. This is a great way to “flush the birds out of the tree.” One case like this relates to a “Jackson Pollack” painting the Knoedler Gallery tried to sell to Nicholas Taubman, the former US ambassador to Romania. As reported by the Art Newspaper, “… Taubman negotiated with Knoedler to purchase a ‘Pollack’ that had been evaluated by the International Foundation for Art Research (IFAR) that could not support the painting’s addition to the artists’ oeuvre. [Knoedler] never showed IFAR’s report to the Taubmans. The deal fell through when Knoedler refused to sign a contract saying that it didn’t know of any facts that called the authenticity of the painting into question.” Bravo to Taubman and his lawyer for asking for this term to be included in the purchase agreement.
Beware counterparty risk. Someone can provide a buyer with representations and warranties about authenticity, but will they stand behind them? The greater the time lapse between the date of purchase and the date the fraud is detected, the bigger a problem this becomes. For example, a collector who buys something from a sole proprietor takes on the risk that the dealer may not have enough resources in the future if the deal goes bad.
One collector I know is working through this problem. Many years ago, she bought a very expensive nineteenth-century landscape painting from a private dealer. A few years ago, she wanted to sell the work, but was shocked when auction house specialists told her they could not sell the work because it was not authentic. It took time and effort to track down the dealer, who had retired in the intervening years. The dealer steadfastly denied the claims that the work was a fake and refused to return the collector’s money. The joy of owning the painting turned into a financial mess that has yet to be resolved.
Doug Woodham is the Managing Partner of Art Fiduciary Advisors, a NY-based firm focused on providing art-related financial advice to collectors and institutions. Earlier in his career, Doug was President of Christie’s for the Americas and a Partner with McKinsey & Company. He is also the author of the best-selling book Art Collecting Today: Market Insights for Everyone Passionate About Art (2017).