This commentary by Marion Maneker is available to AMMpro subscribers. (The first month of AMMpro is free and subscribers are welcome to sign up for the first month and cancel before they are billed.)
Buying Art Like a Madman
Jean-Michel Basquiat, Head of a Madman (1982)
Two weeks ago, Artsy’s Nate Freeman did yeoman’s work piecing together the $400m or so in art purchases made by Low Taek Jho, the fugitive mastermind of Malaysia’s 1MDB Ponzi scheme, from the US Department of Justice’s asset forfeiture case filed in June of 2017 and a book by two Wall Street Journal reporters about the case. From The Billion-Dollar Whale, the book so-named for Jho Low’s reputation in Las Vegas as a heavy gambler and frequent loser, Freeman culls the information that Low was the $170m underbidder on Pablo Picasso’s Femmes d’Algiers (Version O) from the Looking Forward to the Past sale in May of 2015.
Assembled all together, the revelations have had a galvanizing effect on many art market participants. Some see it as further proof that the art market is a vehicle for money laundering; others wonder about the effect on buyers who were forced to compete for works against Jho Low, the now-proven fraud. As one person close to the Hamad bin Jassim Al-Thani of Qatar who has been long rumored to be the buyer of the Femmes d’Algiers (Version O) for a then-record price of $179m asks, “what must he be thinking now?”
With that question in mind, let’s look at the potential damage these revelations might have on the art market. We have a good case study in some of the artists Jho Low bought and even better evidence of whether his intent was to use the art market to launder money.
Buying in Plain Sight
Dealers who worked with Jho Low when he first appeared as a buyer in 2013 describe someone who wasn’t trying to hide is involvement in the market. Rather than arrange surreptitious acquisitions that could be used later to disguise illicit income as legitimate art sales, Jho Low arrived in the art world at the center of a glamorous and highly visible art posse. Freeman focuses on Low’s connections to Leonardo DiCaprio who toured the auction houses as Low’s wing man. They weren’t alone. The entourage included a prominent member of a leading art dealing family. That family seems to be referenced in the DoJ’s civil complaint as sellers of other works of art to Jho Low. They also seem to have picked up some Low’s discarded paintings as we’ll see below.
In these meetings, Jho Low asked considered questions about the art works, was discriminating in his choices and expressed aesthetic opinions on the works he chose and those he decided to pass up. According to those who worked with him, he bought what he responded to which were often quite good works. His enthusiasm bubbled over and he would bring in his family to look at works he had purchased at auction.
What the authors of The Billion-Dollar Whale, Tom Wright and Bradley Hope, make very clear is that the fraudulent multi-billion-dollar scheme was a compulsive pursuit by Low. From its inception, Low viewed 1MDB as a source of unlimited funds to support his ambition to live like a billionaire. His wealthy father had sent Low to US to get a Western education. What Low learned from his earliest days in Philadelphia was to define himself by his spending, especially highly-visible wasteful spending. At Wharton, he threw parties. As Low acquired access to more and more money through the 1MDB fund, his spending increased.
The fund enriched many, bankers at Goldman Sachs and intermediaries in the Gulf; the Prime Minister of Malaysia who had access to bank accounts filled with cash siphoned from1MDB; the Prime Minister’s wife for whom Jho Low purchased a steady stream of diamonds and jewelry; and the Prime Minister’s step-son for whom Low purchased homes and condos in the US. Through a web of offshore accounts, Low as the biggest beneficiary of all.
The Boat Loan
Throughout his spending, and indeed the whole of the 1MDB affair, Low did everything he could to keep his name off any of the documents or communications that could connect him directly to the development fund. He never held a position there, never was a principal in the deals.
In the case of the art, Low seemed to think he could be seen shopping for the art but somehow remain out of it by having his associate bid.
He was equally obsessive about keeping his name out of direct contact with auction house’s business affairs either in conversations over delayed payments or negotiations for a massive $107m art loan from Sotheby’s SFS. That loan is what some point to as evidence of Low’s money laundering.
Yet the money Jho Low was seeking in 2014 was for cash to realize his dream of owning a massive yacht like the billionaires he wanted to emulate. Having turned the $330m in cash he stole from 1MDB into $107m in cash via the art purchases converted to loans, Low may have been technically laundering the money. Fitting out the yacht gave Sotheby’s a plausible reason for the loan. But he chose an art loan not because it was the best way to hide the transfer of funds (he moved greater amounts of money by other means without having to take the loss) but because that was the place he could get the money the fastest.
Low made little effort to plan ahead. His Ponzi scheme required constant new deals to help paper over the earlier frauds. But as the scheme began to come apart, Low’s compulsive need to spend continued to assert itself against all self-preservation. By 2015, the outlines of the 1MDB scandal were coming to light. Only Prime Minister Najib Razak’s grip on power was keeping a lid on it. Nonetheless, Jho Low could not help himself by bidding $170m he did not have on that Picasso record. He was lucky to have lost out.
In the end, Low sacrificed the art to Sotheby’s to satisfy his $107m loan. Sotheby’s sold some of the works at auction, others privately. Covering the discounted value of the art (and SFS’s fees) was done easily but at the cost of much of the value Low initially put into the works.
Buying a Madman
That disparity between what Low bid and where his works sold is one of the key issues in measuring Jho Low’s impact on the art market. Those who had to outbid him have every right to wonder about the legitimacy of the prices they paid. When it came to buying art, Low may have made aesthetic decisions but issues of economy were not relevant to him. A man who thought nothing of spending millions in a single night on nightclub bottle parades or losing millions at casino tables, probably isn’t making measured decisions about a work of art’s price.
On the other side, what were the effects on these artist’s markets from Low’s indiscriminate spending. When it finally came out in 2015 that Low had bid the $48m for Jean-Michel Basquiat’s Dustheads two years earlier, the Basquiat market was still trying to catch up to the prices that Low had set.
Low had also set a record for a Basquiat work on paper when he paid $12m at Christie’s in late 2013 for Untitled (Head of a Madman). The work was sold again at Sotheby’s for just under $9m (a 25% drop in price) two and a half years later. A few months after that, Dustheads was sold privately to Daniel Sundheim for $35m, a $13m (27%) drop in price.
One might have thought the Basquiat market would go through a consolidation phase after seeing two of the most visible and prominent works sell at record prices then resell within a few years at substantially discounted prices. (This is all the market could see at the time even though it was widely known that Low was the buyer and seller of these works.)
Instead, even as Sotheby’s was quietly making a deal for Dustheads, Christie’s had offered collector Adam Lindemann a guarantee for his massive work, Untitled (Devil), that would go on to sell for $57m. That established a new record for the artist, putting the Dustheads/Madman setback into the rearview mirror.
A year later, Untitled (Head) sold for $110m at Sotheby’s. Both paintings were bought by Yusaku Maezawa who has shown no sense that he was perturbed over either price.
The morning after Maezawa bought the $110m head, Brett Grovy posted on his Instagram an image of Head of Madman with this comment: “This drawing by Basquiat is considered to be his masterpiece. It sold for $12 million at Christie’s in 2013 [….] That is the question everyone is asking in the market this morning – how much does one stellar price affect the overall Basquiat market?”
What is Madman worth today? You’ll have to ask the prominent art dealing family who bought it at auction.