How not to make a fast buck in the art world

on Oct 17, 2012 2 Comments

KNIVES ARE OUT IN THE NEW YORK ART WORLD

BILLIONAIRES CLASH WITH GAGOSIAN IN ART WORLD LAWSUITS

It’s hard to know what’s really going on in the art market because of the privacy of its transactions and the code of silence – art world omerta – that almost everyone in it seems to follow.

You never know what things really cost, or who sold what to whom, or whether it was bought with cash, credit or just a long-term promissory note. So whenever hard and tangible evidence of what is going on emerges, it generates huge excitement. The chief way that evidence appears is via lawsuits when the informal handshake economy of the art world breaks down, and dealer and collector call their lawyers.  And in the last few months, two tantalising lawsuits have been filed in the US concerning the world’s most successful contemporary art gallery, Larry Gagosian, and two of America’s most prominent collectors.  But what can we learn from them?

The first lawsuit is the stuff of blockbuster novels, starring a nonagenarian high society art collector, Jan Cowles, who so frail that her affairs are handled by her lawyers; her wayward son, Charles Cowles, who has fallen on hard times; one of the world’s most expensive artists, the late pop painter Roy Lichtenstein, and of course Larry Gagosian, the Godfather of the contemporary art world, some might say.

On the 20th September, a New York Supreme Court judge threw out Gagosian’s motion to dismiss the suit against him, so it looks like it’s going to court.

Jan Cowles is suing Gagosian for the unauthorised sale of one of her Lichtenstein paintings, ” Girl in Mirror” (1964) and demanding $14.5m in damages. Court documents tell a story of how her son, a one-time art dealer, fell on hard times, as the Credit Crunch sent art prices and sales plummeting by around 50 % across the world. He went behind his mother’s back, apparently, and sent the painting to Gagosian asking him to sell it, without asking her permission. According to the court papers Gagosian accepted the painting and told Charles Cowles he could get $3 million for it, from which he would take a half million dollar commission. Another version of the painting had sold for around $4m at auction at Sotheby’s a few months earlier.

But in June 2009, Charles Cowles closed his New York gallery and was interviewed by the New York Times, where told them “It’s shocking how bad business has been”. That was highly unusual candour for an art world insider, and possibly an ill-advised confession.

A month later, the gallery offered the Lichtenstein for a fraction of the quoted price to Dean Thompson, one of the founders of Avista, a New York private equity firm with multi-billion dollar funds. According to emails in the court papers, a senior Gagosian salesperson told Thompson that that he could buy the painting on the cheap. “Seller now in terrible straits and needs cash,” said the email “Are you interested in making a cruel and offensive offer? Come on, want to try?” In the end the collector bought the painting for $2m.  A year later another Lichtenstein from the same series was sold for almost $5m at auction at Christie’s.

Some commentators have taken this email is evidence of the conflicts of interest that plague the art world. Gagosian was employed by the seller on commission to act on his behalf, and get the best possible price. Instead the gallery may have seen the opportunity to serve one of the customers and grab a fat percentage for themselves. However there are problems with this view. The tone of the email is rather blunt, but perhaps its informality can be forgiven because at the time that contemporary art prices had crashed by between 30 and 75% and everyone knew it. Furthermore gallerists argue quite reasonably that they are middlemen, and represent both buyers and sellers. So, in one scenario, the sale of the Lichtenstein could look like a bargain snapped up at the bottom of the art market, and Jan Cowles and her son, whatever their private disagreements, would be disappointed sellers.

But what arouses suspicion here is not the selling price, but Gagosian’s explanation for it and the commission his gallery took, which was far more than a gallery would normally charge for a sale of a painting on what is known as the ‘secondary market’ (that means sales from the gallery’s clients, or of works by artists they don’t represent).

In their defence, the gallery submitted a condition report by an independent firm, which said the painting was in poor condition. But there were three problems with this report. Firstly when the gallery took delivery of the painting they recorded it as having “no significant damage”. Secondly the gallery’s emails suggest there was another reason for the low price. And thirdly, amazingly, the condition report actually listed the painting as coming from a completely different aging female collector! That then led to the most extraordinary allegation from Cowles team: that Larry Gagosian faked the condition report of the Lichtenstein, by substituting another one he borrowed for the purpose from someone else. Gagosian has provided affidavits saying he did no such thing, and the name of the other collector crept onto the report as consequence of an administrative error

So what does this intricate story tell us about the art world? Firstly that there was indeed a massive price crash in the contemporary art market in 2009, and not just for trendy names like Hirst and Takashi Murakami, but also for blue chop historically significant figures like Lichtenstein. Secondly the arguments over the condition of the painting suggest two other things.

One of the world’s leading gallerists is shown to have remarkably cavalier attitude to selling work. Under normal circumstances, a gallery might be expected to check up that a person who consigned a painting to them for sale was indeed the legal owner. Here that would have seemed obvious because a year earlier Mrs Cowles won a $4.4m settlement from Gagosian in comparable lawsuit, in which she accused Gagosian of selling another painting she owned without permission – this time by the maverick figurative American painter Mark Tansey – which her son had once again sent the gallery for sale

But more than that, Cowles’ allegation reveals that the veneer of trust around the art world’s handshake economy is wafer thin, and experienced collectors believe art dealers are capable of a horrifying level of deceit.

So much for the Lichtenstein! The second court case is also the stuff of best-sellers. It concerns, in the words of financial commentator Felix Salmon “one of the world’s most litigious billionaires” Ron Perelman, a massive Jeff Koons sculpture and once again the world’s most powerful gallery, Gagosian.

In May 2010 Ron Perelman bought an enormous granite Jeff Koons sculpture of ‘Popeye’ , one of those typical -cartoons-for-grown-ups artworks that goes down so well with today’s bling billionaire art collecting crowd. Perelman agreed to pay $4 million, according to his lawsuit filed in mid-September. The work was delivered, but when it came to paying for it, instead of offering the full sum in instalments as agreed, Perelman offered to pay for some of it in cash and the rest in works of art from his collection. In other words it was, in part, ‘swapsies’ – swapping one work of art against other. Gagosian sued Perelman for non-payment in mid-September.

But Perelman counter-attacked with his own lawsuit, introducing in the second round, so to speak – much like Cowles allegations about Gagosian’s condition report – a completely different factor. Perelman’s lawsuit complained about the restrictions Koons placed on the reselling of the piece. The contract stipulated that if Gagosian resold the work, then 70% of the profits had to go to Koons.

Why should Koons put clauses in the contract for a work applying to its resale? And why should Perelman object so strongly? This time the Gagosian Gallery does not appear in such a bad light.

The question about the reselling clauses can almost certainly be explained by the sale of Koons Hanging Heart by collector Adam Lindemann in 2007 for $23m, one the epoch-defining sales of the contemporary art boom, at the time the highest price ever paid at auction for a work by a living artist. Lindeman had bought the Koons for a reported $3.5m in 2005/6, paying in advance for the work, before it was completed. These advance sales help Koons bankroll the enormous costs of producing his shiny kitschy sculptures, this one being a huge crimson heart with glorious metallic sheen. When the work was delivered to Lindemann, he consigned it to auction almost immediately, where it sold for seven times the price he paid, making him a profit of $19m in 6 months! Gagosian and Koons were furious, though whether this was because they wanted to prevent their artists’ work becoming speculative commodities or whether it was because they just didn’t like someone else making a killing from that activity, I will leave the readers to decide. At any rate, it seems, they were determined to prevent this ever happening again.

Perelman, it seems from his lawyer’s own submission, did indeed want to ‘do a Lindemann’. Since the work was delivered a year behind schedule, Perelman decided he didn’t want it anymore and wanted to sell it. But he wanted to sell it for much more than the $4m he paid for it. The reality is that this Koons sculpture was probably now worth two to three times that – but Perelman couldn’t sell it without Gagosian, probably because he hadn’t paid for all of it yet, and Gagosian had no real incentive to get a higher price for the work. Gagosian found a buyer, and offered Perelman a paltry $4.25m. So he sued.

What both the Cowles-Gagosian and Perelman-Gagosian lawsuits have in common is that they show an art world in which both collectors and dealers are out to make a quick buck. One can’t help wondering is anyone actually buying art anymore? You know, the stuff you collect and hang on your walls? Are there any real collectors left? Or are they all just a bunch of dealers, passing aesthetic commodities between themselves, apparently for ever-higher multi-million dollar prices, but actually with very little money changing hands? That has long been the suspicion of art world insiders. Now we have some hard evidence. Just a little.

But I also have a theory  – which as Monty Python would say, is mine and no one else’s – about Perelman’s offer to exchange works from his collection for the Koons, instead of paying for it outright. This strategy might indicate that Perelman knows that the price tags of contemporary artworks are totally outlandish, because one way to avoid being ripped off by the hiked-up prices, is, instead of paying cash for the work, swapping it for other works, by artists whose prices the galleries had also hiked up.  I sense a pyramid scheme, which may now be slowly becoming unsustainable.

2 Comments

  1. Sir Fred Gear
    October 17, 2012

    Very informative article. Thank you.

    I have a friend who had some similar issue with a painting that he included in his portion of a divorce. He would not accept the painting, as it had been damaged. This would have cost the ex a great deal of money to fix, which he did not have in liquid assets. A negotiation ensued.

    Reply
  2. Adam Valesano
    February 18, 2014

    Ever fascinating information, I’m very appreciative you take the time to compile and analyze these happenings within the art world. Your new “google and the big brain” documentary looks equally critical and engaging, I will take time to review at some point in the future. Meaning and profound knowledge in the world of art, architecture and culture is actually producing some disturbing revelations. Mores, morals, and ethics of the super elite and wealthy seem to be predicated on the “greed is good” principle, I guess this should be no surprise but fascinating, educational, and instructive nonetheless.
    At this point only a voyeur, Adam

    Reply

Leave a Reply