[intro]Madoff Victim Benefited from Rothko Sale[/intro]
Lindsay Pollock goes to the Connecticut records to discover that TLIA, LLC, the entity that was paid $26.5m in advisory fees for the sale of Ezra Merkin’s heavily encumbered art collection, is registered to Ben Heller, the collector and art advisor who facilitated Merkin’s first purchase of the paintings.
When the deal was announced, many eyebrows raised at the advisory fee. Pollock cites a few new observers on the record:
“On the face of it, without having all the facts, it does seem high,” said art adviser Liz Klein. “The seller’s fee does seem high, compared with what Pace made.”
“It is a lot of money,” said Ronald D. Spencer, head of the art practice at law firm Carter, Ledyard & Milburn LLP. “But when you are talking about a $310 million deal, it’s hard to evaluate the fees without knowing what services were provided by the agents.”
One explanation for the high fees comes quickly in Pollock’s story. Heller, and members of his extended family including the actors Kyra Sedgewick and Kevin Bacon, lost a lot of money with Merkin who was one of the prominent feeder funds to the Madoff Ponzi scheme:
In an interview earlier this year, Heller told Bloomberg News that he is among Madoff’s victims, having lost $3.4 million in a charitable trust and over $10 million in personal funds.
What magnifies the fee situation is the details of the Rothko transaction. Merkin never fully paid for the suite of seven paintings he acquired directly from the artist’s heirs through Pace Wildenstein gallery for $90m.
Pace’s $42 million lien on behalf of Rothko’s heirs — Kate Rothko Prizel and Christopher Rothko — was cited in court papers. […] In June 2004, Pace filed a lien on five of the works. Two months later, Pace extended the lien to include two more Rothkos. Pace provided Merkin with extended payment terms. He had paid for only half of the artworks by the end of 2008.
If that wasn’t enough, Merkin also tapped the pictures for an art loan:
Merkin also borrowed $19.3 million from HSBC Bank USA, using the art as collateral, according to court records.
The sale prices was reported as $310m. Pollock adduces $61m in leins and loans–there may have been more. Pace Wildenstein was paid $11m and TLIA, LLC made $26.5m. That means the entity received more than 10% of the cash generated by the deal.
Pollock goes on to explain that Merkin is not likely to see the money any time soon:
The sale was approved by New York State Attorney General Andrew Cuomo, who froze Merkin’s assets and is suing him for concealing his $2.4 billion investment with Madoff. If Cuomo wins, funds from the art sale will go toward recouping investor losses. The sale produced $191 million, after fees, taxes and legal expenses, to be held in escrow.
The question remains, was Heller taking an excessive commission on the Rothko re-sale to recoup his Madoff losses? Merkin has not been charged yet and it isn’t clear that his personal fortune will be subjcet to claims by Madoff’s victims.