One of the hedge funds caught up in Marc Dreier’s fraud several years ago has just won an important decision from Federal Judge Jed Rakoff who upheld the hedge fund’s right to take 15 art works once owned by Dreier that had been pledged as security to help a deal go through.
The collection is value at $33 million and was used as collateral against $100m in notes that the hedge fund acquired with Dreier’s help. What is interesting about the case, from an art-as-asset perspective, is not Judge Rakoff’s decision but the very fact that the art work was offered and accepted as security.
To give some context, during the height of the financial crisis when all assets were unmoored from any predictable value, Dreier was trying to entice the hedge fund to buy some fictitious notes. When the fund raised reasonable concerns about the notes Dreier offered, he was able to satisfy the fund by pledging his art collection:
To break this impasse, Dreier eventually came forward with a proposal whereby he would personally vouch for the sellers and would pledge his personal art collection as security. In [the hedge fund’s] words, Dreier offered to “put [his] money where [his] mouth is.” After members of [the hedge fund’s] team reviewed invoices showing that Dreier in fact owned the Artwork, performed a lien search, and inspected the Artwork firsthand in Dreier’s apartment. […] Moreover, Dreier would be handsomely compensated for hsi grant fo the security interest, which also solved a seemingly intractable problem and allowed an important deal for a longtime client to go forward.
Dreier Victim Acquires Fraudster’s Fancy Art Collection (Wall Street Journal)