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Malaysia’s 1MDB Probe Re-Opened After Surprise Election Defeat

May 14, 2018 by Marion Maneker

There was a shock election in Malaysia that brought a former leader, Mahathir, back to power. Much of the campaign centered around the conduct of Prime Minister Najib Razak who has been at the center of a multi-billion dollar scandal around the 1MDB development bank from which money seems to have been siphoned.

Mahathir moved quickly to prevent Najib from leaving the country and announced that he would re-open the 1MDB case which was being pursued by Switzerland, Singapore and the US. For the art market, the case has uncovered a number of paintings that were traded at exceptional prices several years ago, especially Jean-Michel Basquiat’s Head of a Madman (above):

Mahathir said he was instructing the auditor-general to remove any restrictions from the Official Secrets Act on publicizing the details of a report into 1MDB, and planned to replace the attorney-general, though he did not name a candidate for the role. The police would submit the report to him and he would study it, he said.

The U.S. Department of Justice claims billions were siphoned from 1MDB, which was set up in 2009 to support infrastructure projects. Najib faced allegations some of 1MDB’s money ended up in his personal accounts before an election in 2013. He acknowledged around $700 million appeared in his accounts but said it was a donation from the Saudi royal family and most of it was returned. He was cleared by the attorney-general of wrongdoing.

New Malaysian Leader Tightens Net Around Ousted Najib Over 1MDB (Bloomberg)

Matthew Green Implicated in Money-Laundering Scheme

March 3, 2018 by Marion Maneker

View this document on Scribd

Matthew Green resigned from his father’s art businesses six years ago, according to The Art Newspaper, and recently created a company to trade art. One of his first deals was meant to be part of an avowed money-laundering scheme, the Federal indictment (above) charges. From the court papers, Green was a terrible at money laundering because he charged very little for the huge risk he was taking and left an obvious paper trail that’s been used to indict him.

First, here’s The Art Newspaper on Green’s business:

[He is] the owner of Mayfair Fine Art Limited in London, which was established on 9 October 2017. Green is the son of the well-known London art dealer Richard Green, and was previously a director of Richard Green & Sons Holdings Ltd, Richard Green (Fine Paintings) and Richard Green & Sons Ltd, but resigned from all three directorships in December 2012, according to Companies House.

Then, in February, Green was introduced to a person looking to launder money from an illegal stock scheme. Green proposed selling the person a Picasso for £6.7m which Green would later sell to someone else and then give the person back his £6.7m minus a 5% commission.

Green doesn’t seem to know that price for laundering money is much higher than 5% which definitely isn’t worth the risk if it gets you indicted after being in business all of three months. Worse still, Green and his partners don’t seem to be the swiftest criminals. They boasted that the art market is unregulated but then created a scheme that seems to have had little to do with the art market itself.

The art sale is only one of several money-laundering venues that the person was offered. Offshore banks and real estate deals figure prominently in the indictment. What’s more, Green’s scheme could have been conducted in just about any commercial transaction. And, since the payment for the Picasso was due March 6, 2018, we’ll never know if Green was actually capable of pulling off the sale at the price he claims or would have survived any kind of audit.

Picasso painting offered in money-laundering scheme, US feds say  (The Art Newspaper)

Dealer Fred Dorfman Vulnerable in Jasper Johns Case

January 29, 2018 by Marion Maneker

View this document on Scribd

Grossman LLP, a firm specializing in art law, won a court ruling against art dealer Fred Dorfman late last week. Dorfman had been the dealer for James Meyer, Jasper Johns’s former studio assistant who pled guilty in 2014 to interstate transportation of stolenJohns artworks (many of which were unfinished). Meyer received an 18 month jail sentence and was ordered to pay restitution. Of the 83 pieces of art Meyer stole from Johns, Dorfman sold 42 for a total of $9m, including $5.99m in “commissions” for Dorfman. 

Grossman’s client, Equinox Gallery, purchased one of the stolen works for $800,000.  In last week’s ruling, Judge George B. Daniels held that Equinox had adequately alleged the types of activity that can support viable RICO claims, the Court rejected Dorfman’s attempt to paint the alleged plot as “a discrete scheme with a narrow purpose”

“[Dorfman’s characterization of the fraud allegations] ignores the magnitude of Plaintiff’s allegation that Meyer and Dorfman worked in tandem to defraud more than twenty victims over six years to the tune of more than $9 million.” 

Daniels ruling in Dorfman’s motion to dismiss allows Grossman to sue Dorfman for treble damages (i.e., $2.4 million) and attorney’s fees, as well as punitive damages on the fraud and civil RICO claims. According to Grossman, “this is an important ruling in the context of art-fraud cases, given the heightened pleading standard for such claims.”

Ezra Chowaiki Charged

December 15, 2017 by Marion Maneker

Ezra Chowaiki has been charged with wire fraud, conspiracy and transportation of stolen property in connection with a kiting scheme the Feds say goes back to 2015. The whole mess was uncovered a few weeks ago when a consignor had to sue to get their de Chriico back from the gallery. Chowaiki filed for bankruptcy revealing $12m in liabilities against $300k in assets. The last two years have been tough for Chowaiki:

The gallery’s revenue plummeted in recent years, court records show. In 2015, the gallery had revenue of $35.2 million. That fell by more than half in 2016 to $15.6 million, according to bankruptcy court filings.

The charges come after Chowaiki’s financial backer, according to Bloomberg, moved to distance himself from the shenanigans:

The gallery’s majority owner is David Dangoor, who wasn’t charged. Dangoor’s attorney, Anthony Dougherty, said in an interview last month that he contacted the New York Police Department’s Major Case Squad after the gallery’s director alerted him to perceived financial irregularities involving Chowaiki.

It turns out Chowaiki was over-selling shares in works like the de Chirico. That includes a Cayman Islands company with connections to an art dealer who does business in Japan who was offered 50% in a work that Chowaiki didn’t own. All of this behavior comes on top of a lawsuit filed by Sotheby’s:

Sotheby’s said it hired the gallery as an agent to purchase the Henri Matisse painting “Titine Trovato in Dress and Hat” for $12 million, which Sotheby’s then planned to resell for $15 million to $20 million. The deal didn’t go through as planned and the gallery ultimately sold the piece for $4.75 million in 2012, with Chowaiki and another partner on the hook to repay the loss, according to the suit.

New York Art Dealer Duped Clients Out of Millions, U.S. Says  (Bloomberg)

The Continuing Confusion Around Art-coin: Art + Block Chain

July 10, 2017 by Marion Maneker

Over the weekend, two publications with expertise in markets, economics and enterprises published short items on the use of the potential use of the blockchain to improve art market transactions. Unfortunately, neither item seems have gotten past the most superficial understanding of blockchains—let alone the relationship between the art market and blockchains that we’ve previously dubbed Art-coin.

Here’s the Economist’s Espresso blog:

Many see art as the last unregulated market; crypto-currencies such as bitcoin, which permanently record transactions on an open-source database called a blockchain, could resolve concerns about access, transparency and authentication.

Of course, the art market is far from unregulated. The issue with the art market is that it is regulated locally where the transactions take place but not globally where the art often travels. Art transactions are regulated through the global banking system. And much of what observers call ‘regulation’ in the art market is really wishing for standards of authentication and scholarship that are also local, not global.

The Financial Times goes a step further. Not only does it repeat the misguided comparison of the blockchain to a database—particularly curious when the item links to an FT explainer on the blockchain that explicitly says, “The blockchain is a protocol and does not have the ability to identify parties”—the FT gets lost inside its own mostly-right-but-possibly-for-the-wrong-reasons analysis of the problem.

The potential for the quirky art market seems embryonic at best, despite a thirst for more reliable information. Data are only as good as the person who enters them — plus, according to the Tefaf report, 20 per cent of 673 dealers have no intention even of moving online, so sophisticated fintech solutions seem a long way off.

In short, the idea of the blockchain—when properly understood—is right for the art market. The problems lie first in the blockchain proving itself as a technology. Lots of smart persons are working on this at the moment in a wide-array of domains. Second, with a proven blockchain, there remains a substantial implementation problem in the art market which the FT points to but doesn’t seem to fully understand.

More to the point of the Economist’s observation is that describing the blockchain as a kind of open-source database isn’t really accurate and the use of the database metaphor suggests a kind of transparency that the art market isn’t really looking for, no matter what the chatter around the art market says. (AMMpro subscribers can read our discussion of the relevant issues below.)Continue Reading

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