by Don Thompson
Ronald Perelman is the ceo and sole owner of the holding company MacAndrews & Forbes. The companies in MacAndrews’ portfolio include Revlon, Scientific Games, and Flavors. In 2014, Perelman ranked fifty-fourth in the Bloomberg list of the world’s wealthiest individuals, with a reported net worth of $15.2 billion. Perelman collects art. According to the New York Times, his collection is valued at over $1 billion and includes Andy Warhol, Cy Twombly and Roy Lichtenstein. Some of the art hangs in his office, some in his Manhattan townhouse, some in his East Hampton estate and some on his 257-foot yacht.
Although I (and most media reports) refer to Perelman as the art buyer in the transactions discussed below, the actual purchaser was the MAFG Art Fund, a limited liability company used by the MacAndrews corporate group to invest and trade in art. The fund has a curator. The fund and Perelman are very much art-world insiders.
In 2012 and again in 2014, Perelman said that he wanted to expose what he called the “dirty” side of buying and selling high-end art, and that he would do it through lawsuits involving his dealer, Larry Gagosian. Perelman’s first lawsuit, in September 2012—which I will call the Popeye suit—accused Gagosian of concealing material information and manipulating art prices in regard to Perelman’s purchase of a granite version of Jeff Koons’ Popeye sculpture. (This is another version of the Popeye that was shown in Koons’ retrospective at the Whitney.) Later, in what I will call the Paphos suit, Perelman accused Gagosian of defrauding him in an exchange of paintings.
Perelman said in the first suit that he and Gagosian had been friends and business partners for many years. They visited each other’s homes, attended the same social events and invested together in the Blue Parrot restaurant in East Hampton, New York. Perelman said Gagosian had been an art adviser and mentor to him; he said that over a thirty-year period he had purchased or sold two hundred works of art through Gagosian and traded fifty works in “exchange transactions.” He said he trusted Gagosian because of their long history and the dealer’s “unparalleled knowledge and dominant position in the art world.”51 The value of commissions involved with that number of transactions suggests that a dealer should make extraordinary efforts to retain his customer’s goodwill.
Larry Gagosian, the long-time friend, is the world’s most dominant art dealer—whether ranked by influence, number of galleries or annual sales. He has galleries in New York, London, Paris, Los Angeles, Rome, Geneva, Athens and Hong Kong. Gagosian represents seventy-four artists, and “works with” twenty-nine others—meaning he shares them with other dealers. His galleries have about $1.1 billion in worldwide sales annually, $3 million for each working day of the year. He accounts for about 2 percent of the world contemporary art market, and 10 percent of the high end of that market.
Central to the Perelman argument in the Popeye case is the assumption that Gagosian branding added to that of an artist means ever-increasing prices. Other than that, it is unclear how Gagosian’s power might translate when it comes to a collector as knowledgeable and wealthy as Perelman. Power for a dealer is the ability to ignore a collector who wants to acquire a work, or to rank the collector low on a waiting list for a hot artist. Neither is likely to be exercised against a collector of Perelman’s stature.
In the first, May 2010 suit, Perelman claimed that his art fund had committed to pay Gagosian $4 million, in five $800,000 instalments, for Koons’ granite Popeye. The sculpture was to be created in a series of three; this would be number two. The estimated—but not guaranteed—delivery date was December 2011. Like all of Koons’ recent sculptures, this had been pre-sold prior to fabrication. Koons gave Gagosian the right to sell version one, and New York’s Sonnabend Gallery the right to sell version number two. The intermediary for version three was not revealed; it might have been an agent.
It was later revealed that at the time of the purchase agreement with Perelman, Gagosian had already sold the version Koons had allocated to him. Gagosian acquired the Sonnabend version two and a half weeks after executing the sales contract with Perelman. The payment terms on which Sonnabend sold the sculpture to Gagosian were disclosed in a court filing. They were identical to those in the agreement between Perelman and Gagosian: $4 million to be paid in five instalments of $800,000.
In January of 2012, eight months after the Popeye sale agreement, Gagosian disclosed to Perelman a new feature of his contract with Koons. Gagosian had agreed to rebate to the artist 70 percent of the profit from any resale to a third party at more than the original sale price. The condition was valid for two years after signing the contract with Koons. For a further five years, a resale through Gagosian required that 50 percent of the profit be paid to Koons.
The Sonnabend purchase agreement also included the “70 percent rebate-on-resale” provision. This became binding on Gagosian with the purchase. The Sonnabend agreement also allowed Koons to change the completion date for Popeye “due to delays in fabrication or other reasons.”
Perelman claims that when he learned that Koons would miss the scheduled delivery date he decided to exchange the sculpture for a painting. He argued that Popeye was worth as much as $12 million on completion. That estimate turned out to be low by at least 50 percent. Perelman asked Gagosian for a credit of between $4 million and $12 million on return of the sculpture, to reflect his period of ownership. Essentially Perelman wanted to flip the sculpture for a profit during the period Koons was still completing it.
Gagosian told Perelman that he had little incentive to take back the rights to Popeye so long as the profit-sharing arrangement was in effect. Perelman argued that Gagosian knew Perelman bought works as an investment and might have been expected to want to flip Popeye. He said Gagosian was the preferred source for Koons works, that sales through other channels brought lower prices, and that the rebate arrangement prevented him (Perelman) from getting the best possible price on resale.
Perelman claimed that Gagosian used the profit-sharing arrangement to justify a trade-in value for Popeye of “only” $4.25 million. Gagosian resold the option to an unnamed buyer for $4.5 million, credited $4.25 million to Perelman, and presumably forwarded either $350,000 (70 percent of a half-million profit) or $175,000 (70 percent of $250,000) to Koons.
New York State Supreme Court Justice Barbara Kapnick ruled that while Perelman might have assumed he would be able to resell Popeye, nothing in the original sale created an expectation that Gagosian need be involved. “In essence, plaintiffs’ breach of contract action alleges that, ‘with the benefit of hindsight, [he] appears to have entered into a bad bargain’,” Kapnick concluded.52
The more publicized of the two legal battles concerned Perelman’s second claim, about a blue Cy Twombly painting, Leaving Paphos Ringed with Waves (1) (2009). According to court filings, this chapter of the saga began with Perelman visiting the Gagosian gallery on Madison Avenue in April 2011. Perelman asked about Paphos; Gagosian said it was available for $8 million. An opening offer to a long-term client would usually be subject to negotiation; Perelman counter-offered a reported $6 million.
A week later, Perelman approached Gagosian with a higher offer. Gagosian said the painting had been sold, but did not identify the purchaser or price. Gagosian told Perelman that if he still wanted the work it might be available at $11.5 million. Four months later Perelman offered $10.5 million. After obtaining agreement from the new owner, Gagosian accepted.
The first purchaser was later identified as New York’s Mugrabi family, known to be collectors and private dealers on a massive scale. They acquired Paphos through a corporation in the Cayman Islands. The Mugrabis were reported to have purchased it for $7.25 million, payable part in cash and part by relinquishing their share of art co-owned with Gagosian. The resale price meant that the Mugrabis and Gagosian shared $3.25 million in profit and commission.
Perelman claimed that the sale to Mugrabi was a sham, aimed at jacking up the price: “The striking jump in price, the lightning-fast chronology of events and the absence of a typical in
voice for the sale, all call into question the propriety and bona fides of the sale.”53 Gagosian’s lawyers responded that the Mugrabi purchase was an “arm’s-length transaction”54 that was supported by invoices and documentation. Perelman said Gagosian had claimed that the asking price of $11.5 million for Paphos was supported by recent sales but Gagosian had not produced any market data.
Perelman’s lawyers issued subpoenas to Gagosian and to Jose, David and Alberto Mugrabi. All gave depositions. The lawyers apparently also subpoenaed auction houses Sotheby’s, Christie’s and Phillips. None of these interviews took place. Investigators from Perelman’s law firm questioned other dealers and some of Gagosian’s artists. The New York Times estimated that Perelman had spent $3 million on lawyers and investigations.
Whether they sympathized with Perelman, Gagosian or neither, many dealers, collectors and art-world media were intrigued by the legal proceedings. Some hoped a release of documents in the case would provide insight to the contracts and conditions that characterize the high end of the market.
Those following the case also hoped it would clarify the degree to which the legal assumption of an implied covenant of good faith and fair dealing applies to high-end art contracts. There was no clarification. Good faith means that neither party to a contract takes actions to frustrate the other’s benefits from that contract—for example, Gagosian entering into a contract with Sonnabend that might limit Perelman’s resale price. The final court ruling on Paphos dealt only with the issue of fraud. It did not make public any of the confidential documents.
In February 2013, Justice Kapnick dismissed five of the six claims in the Paphos case, including deceptive business practices and breach of fiduciary duty. She said Perelman had more than twenty years’ experience in art investing; his advisers were “experienced and sophisticated business investors who entered into negotiated, arm’s-length transactions.” Given this history, their “subjective claim of reliance” on Gagosian’s expertise did not produce a trust relationship.55
She allowed a single fraud claim to go forward, that Gagosian had misrepresented the value of works of art sold to Perelman. Justice Kapnick said that the allegation that Gagosian and his gallery had “superior and unique” knowledge of the art world was enough for the fraud claim to be heard in a trial.
In December 2014 a five-judge appeals court panel dismissed this final fraud claim and precluded a trial. The judgment said that the parties had negotiated at arm’s length and did not owe fiduciary duties to each other. Most important for future art transactions, Associate Justice David Friedman wrote in the opinion, “As a matter of law, these sophisticated plaintiffs cannot demonstrate reasonable reliance because they conducted no due diligence … They did not ask defendants, ‘Show us your market data.’”56 The MAFG Art Fund sought permission from New York’s highest court to appeal the Friedman decision. In March 2015 the motion for leave to appeal was denied without reasons, affirming that the court found no error in Justice Friedman’s decision.
The Paphos outcome is as applicable to moderate-price art sales as to those by Gagosian. An art dealer apparently cannot be successfully sued over a statement about the value of a work of art, irrespective of how inaccurate the statement is, so long as due diligence is possible. For most artists, price data exists on previous sales, either online or in the hands of the seller.
The Popeye and Paphos cases highlight the role that trust plays in the decisions that collectors make—and the consequences when there is no longer trust. The next chapter highlights the repercussions when there is misplaced trust—victimizing collectors, dealers and museums—and the degree to which the art market relies on reputation and status.
CHAPTER TWELVE
THE KNOEDLER FAKES
“What few art professionals seem to want to admit is that the art world we are living in today is a new, highly active, unprincipled one of art fakery.”
—Thomas Hoving, former director of the Metropolitan Museum of Art57
“Produced … by the hands of a genius.”
—FBI statement on art forger Qian Pei-Shen
THE SUBJECT OF THIS CHAPTER IS ONE THAT FEW IN THE ART WORLD WANT to talk about: a master forger and his long-undetected fakes. I include this in a book about authentic contemporary art because understanding art crime—the perpetrators, collaborators and victims—says a lot about the environment where art forgery takes place.
In 2016, Chinese artist Qian Pei-Shen was exhibiting at the BB Gallery in Shanghai. He worked for many years in Woodhaven, in suburban New York City. In 2013 he was one of the most-talked about artists in the United States, better known there than he was in China.
His sudden fame came with the discovery that Qian had created, over a fifteen-year period, at least sixty-three works in the style of nine different American abstract expressionist artists: Willem de Kooning, Franz Kline, Lee Krasner, Robert Motherwell, Barnett Newman, Jackson Pollock, Mark Rothko, Clyfford Still and Richard Diebenkorn. Forty of Qian’s paintings were sold through Knoedler & Company, an Upper East Side New York gallery that closed permanently and without notice in November 2011 after 165 years in business. Another twenty-three paintings were sold through Julian Weissman, a New York dealer who had previously worked at Knoedler. All sixty-three were represented by the selling gallery as authentic. The fakes illustrate how much easier it is to replicate twentieth-century abstract and expressionist styles than it is to copy earlier styles and materials.
In September 2013, New York private art dealer Glafira Rosales pleaded guilty in US federal court in Manhattan to knowingly selling Qian’s fake art to the two galleries. She also pleaded guilty to evading taxes on at least $12.5 million of proceeds from her sales. Without the guilty plea, prosecutors would have had to prove both that the works were fake and that Rosales knew they were.
It is not illegal to copy paintings, or to add a signature, or to possess a fake, or to sell one. What is against the law is offering a fake for sale as an original when you know it is not. Rosales was scheduled to be sentenced in mid-2014, and faced a possible thirty-four-year jail term. As of late 2016 there had not been a sentencing. One New York lawyer told me that there was more interest in postponing it, keeping the Rosales case alive in the hope co-conspirators could be brought to justice.
Rosales said as part of her guilty plea that the works were created “by an individual in Queens [New York].”58 She did not name the artist; a New York Times article identified him as Qian Pei-Shen. Later, Qian admitted creating the art but he said he had no knowledge of the fraud. He returned to Shanghai, where he has had several shows of his own signed work.
Knoedler was founded in 1848 as a subsidiary of the French lithographer Goupil & Cie and located on East 70th Street. By the beginning of the twentieth century, the gallery was a major dealer in Old Master paintings. The Getty Museum in Malibu, CA, refers to Knoedler on its website as “a central force in the evolution of an art market in the us.” (The Knoedler Gallery’s archive was gifted to the Getty in 2012.) In the 1950s, Knoedler began to sell Impressionists. The gallery received some publicity in 1958 when then director E. Coe Kerr advertised a 1948 Matisse that turned out to be by the famous forger Elmyr de Hory.
Rosales met Ann Freedman, the then-new president of Knoedler, in 1994. In early 1995 Rosales offered Freedman a Qian Mark Rothko for $200,000. Freedman bought the work herself and later purchased from Rosales a Motherwell for $20,000 and a Pollock for $300,000. All three prices were well under auction values for similar works at the time.
Freedman and later Weissman were told that Rosales was acting as an agent for Mr. X, a Mexico City and Zurich resident who wanted to dispose of his collection quietly. Over time the story expanded to say X inherited the art from his father, X Sr., who had assembled his collection through New York dealer David Herbert with whom he had a homosexual relationship. Herbert died in 1995. There was a second Rosales version that the owner was John Gerzso, son of Mexican artist Gunther Gerzso who died in 200
0. The person who helped assemble the collection was then identified as Filipino painter Alfonso Ossorio, a Jackson Pollock patron. There was no other provenance for any of the works brought to Knoedler.
Rosales paid Qian between $5,400 and $7,000 for each painting he created. The sixty-three paintings that Knoedler and Weissman sold brought a total of at least $80 million. Rosales was said to have grossed $33 million on the sales. The dealers received $47 million. Agents who introduced buyers received several million in commission from dealers. It was stated in court that Freedman received $10.4 million as her share of gallery profits on the Qian sales, this in addition to her average yearly base salary of $300,000.
Victims of the fraud included several dealers, many prominent collectors and two museums. In 2007 John Howard, who runs private equity firm Irving Place Capital, paid Knoedler $3.5 million for a Qian de Kooning. Knoedler had paid Rosales $750,000. Rosales had paid Qian $7,000. Howard defended his logic: “Here I am dealing with the Knoedler gallery, one of the most prestigious galleries in the US … If this person was selling these things on the street, we wouldn’t buy it. But this is the Knoedler gallery.”59
Knoedler lawyer Charles Schmerler countered in court filings that Howard and other purchasers did not authenticate the paintings on their own, contrary to their “obligations as sophisticated art collectors.” He said the gallery provided an opinion on the provenance only to assist buyers, who were expected to make their own inquiries.
Howard responded that the Schmerler/Knoedler argument was that “their victims are themselves to blame for trusting [the gallery].” Lawyer Peter Stern offered an analogy: “If I go to Tiffany’s and buy a diamond, I don’t expect to have to take it to a gemologist.”60 The issue is whether buyers—knowledgeable or not—can rely on a dealer’s due diligence and the information made available prior to a sale. It is a variation of the issue raised in the Perelman-Gagosian case.