On Friday, Art Assure, the art finance company founded by art dealer and former Wall Street shark Asher Edelman, sued Artmentum, a Swiss company in the business of selling valuable artwork, along with eight other defendants in a New York court for breach of contract and making allegedly fraudulent representations in an effort to bilk Art Assure of hundreds of millions of euros.
According to the complaint, Art Assure was approached last May by Artmentum with an unusual offer involving a large collection of masterworks that it said was being offered for sale. More than 100 19th- and 20th-century works were said to be on offer, by artists including Picasso, Degas, Matisse, Monet, Courbet, Delacroix, and Vlaminck, among many others. The collection was said to be owned by Hiroshima Bank — a company that was described as being owned primarily by the Japanese government — and to be on display at the Hiroshima Museum of Art.
The complaint says that Artmentum was proposing that Art Assure buy the collection, at what appears to be a highly discounted price of 350 million euros (about $470 million), with the goal of later selling off the works at a profit. And the collection would have to be bought through Artmentum, according to what the the Swiss company represented to Art Assure during negotiations, rather than directly from the Japanese government, for reasons of confidentiality. If the transaction were "disclosed," as the complaint puts it, "the Japanese politicians would be dismissed."
"We were told specifically that we had to work through them," said Art Assure's attorney, Frank J. Franzino, Jr., "and that if we went around the defendants, we would never get the works." Artmentum had allegedly arrived at the asking price after a valuation by Sotheby's — which, the complaint says, was represented by the defendants as having itself offered Artmentum 315 million euros (about $425 million) for the collection, a transaction that was never consummated because Sotheby's failed to obtain a letter of financial capability. The defendants also allegedly said that Sotheby's had tried to circumvent Artmentum and buy the collection directly from Hiroshima Bank, and had been told it was not for sale.
While it's not totally unheard of in the art world for artworks to be offered for sale from a secret source, with a requirement of extreme confidentiality and a promise of great profits to be had, some of the details of the situation do seem strange.
"They got an appraisal from Sotheby’s, but they didn’t want to sell through Sotheby’s or Christie’s?” said John Cahill, an art lawyer who represents former customers of Knoedler Gallery, which is currently involved in litigation involving fraudulent activity that occurred there. “Otherwise the government officials will get fired? And why would someone give you something so cheap?"
Still, Art Assure had some guarantees from the Swiss company, according to the complaint. In a binding memorandum signed by both parties in June, Artmentum pledged that it had the exclusive right to sell the collection, that it had firm commitments from third party buyers for six of the works (van Gogh’s “Le Jardin de Daubigny”; Picasso’s “Buste de femme” and “Two women at a bar”; Renoir’s “Place de la Trinité”; Monet’s Matinee sur la Seine”; and Matisse’s “Jeune fille en vert rouge”) for a total of 230 million euros (about $310 million), and that Artmentum would contribute 50 to 70 million euros (about $70 to $95 million) to help finance the deal. For its part, Art Assure would, among other things, provide a formal letter of interest along with a confirmation of financial capability, after which the two parties would enter into a working agreement related to the introduction of prospective buyers. Before the collection could be transported to Switzerland, Art Assure would deposit the full price of 305 million euros (about $410 million), the number they settled on after negotiation, to a bank in Switzerland.
But after both parties signed the contract, and the New York company met with the defendants in Switzerland for a contract verification meeting, things started to sour.
“Basically they were trying to get our client to go through with the deal, claiming that they had a mandate to sell a collection of significant works of art in Japan, when it appears that they never had the ability to sell it,” Franzino said. "It was months and months of negotiations and contracts. It wasn’t just a lunchtime situation. It was a long drawn-out process.”
According to the complaint, after Art Assure sent a formal letter of intent Artmentum never provided verification of its exclusive agreement to sell the collection, failed to provide Art Assure with official authorizations related to the export of the collection, never entered into a working agreement related to the introduction of prospective buyers, and never permitted Art Assure to perform due diligence. And though the memorandum prohibited Artmentum from entering into negotiations with other parties over the collection, the Swiss company allegedly contacted another party, as well as Christie's, with a letter making a similar offer.
Art Assure further discovered from its own investigation that Hiroshima Bank did not own the collection (instead it is owned by a foundation), that the collection is not for sale, that the Japanese government does not own a large stake in the bank (it owns less than 1 percent), and the Japanese government does not want to sell the collection, nor does it have the power to do so. And Artmentum, the complaint says, turned out never to have had a mandate to sell the collection, or to have had it valued by Sotheby's, or to have had third parties ready to buy the paintings from Art Assure. After months of expensive investigation, the complaint says, Art Assure found the transaction to be "a total sham," and now claims to be due damages of $204 million representing lost profits from what it would have made from the sale of the works. It also wants punitive damages, in an amount to be determined by the court.
Edelman is no stranger to contentious financial dealings, including ones involving the art world. He started his career on Wall Street in 1961 as an investment banker, and by the mid 1980s was a pioneer of leveraged buyouts, so much so that he partly inspired the character of Gordon Gekko in Oliver Stone’s 1987 film “Wall Street.” In 1988, after being involved in several lawsuits, he washed his hands of Wall Street, moved to Switzerland, and started the Museum of Contemporary Art in Lausanne, which lasted until 1995. In 2001, he moved back to the U.S. and opened his first gallery in New York. His second, Edelman Arts, opened in 2008.
In 2009, he once again became something of a financial trailblazer, this time in the wild and wooly business of art financing, where he learned to apply his skills at leveraged buyouts to backing fine art deals. He caused a stir at Art Basel Miami Beach that December, when, in an effort to get compensation for a $750,000 Robert Ryman work he had loaned out to a Zurich gallery that was returned to him damaged, he walked onto the floor of the fair with twelve federal marshals in tow and seized four valuable paintings from the gallery’s booth. He was paid within two days.
How does someone so capable of protecting his own art interests get taken in by a scam of this magnitude?
Edelman’s attorney said the dealings were in the purview of Edelman’s business. “Art Assure is in the business of buying and selling and financing art,” Franzino reasoned, “so that’s exactly what it does.” Nonetheless he conceded this situation was unusual even for Edelman: “This looks novel to me.”
Legally, this may be a tough case for Edelman to win and a tough case to get damages on.
“What did they lose?” said Cahill, the art attorney working with Knoedler clients, who noted that the situation had the air of a “Nigerian email” scam. “They say they lost $204 million in profits, but there’s a lot of ‘ifs’ in that: if you got the work for this amount of money; if the art market stayed at a high level; if you sold every one of them; if you could sell it for $204 million [in profit]. That’s a healthy profit. A very substantial profit.”
Cahill also pointed out that it wasn't at all clear that Art Assure would have gotten the paintings to sell, since presumably the defendants would have had to produce the art work at some point during the process of due diligence, which it isn't clear they would have been able to do. "For fraud, you get what you lost, not your future profits," said Cahill. "But it’s not one hundred percent clear that they could actually get the paintings. So that’s the tricky part."
Artmentum, its attorney in Switzerland Thomas Burkhalter, the Hiroshima Museum of Art, and Sotheby’s could not be reached for comment.
