"The art trade is the last
major unregulated market"
Murky
dealings come to light as more collectors enter the
scene--and bring their cases to court
By Marc Spiegler
Oor
the last few years, the media have trumpeted contemporary
art as the hottest new investment. At fairs, auction houses
and galleries, an influx of new buyers--many of them from
the world of finance--have entered the fray. Lifted by this
tidal wave of new money, the number of thriving artists, galleries
and consultants has rocketed upwards. Yet amid all this transformative
change, one element has held stable: the art market's murky
modus operandi.
"In my experience, people coming from the finance world into
the art market tend to be shocked by the level of opacity
and murkiness," says collector Greg Allen, a former financier
who co-chairs MoMA's Junior Associates board. "Of course,
there's a lot of hubris--these people made fortunes cracking
the market's code, so they tend to think the opacity is someone
else's problems. But the mechanisms are not in place to eliminate
ethical lapses or price-gouging, and the new breed of collectors
is definitely more likely to pursue legal options. And once
things go to court, a lot of the opacity gets shaken out."
Last November, Manhattan collector Andrew Klink sued legendary
Toronto
photography dealer Jane Corkin over
an Andre Kertesz
print. According to his suit, she cited it as coming from
the Paris period most prized by photography collectors, and
he bought it for $275,000. But the Kertesz Foundation later
issued an authenticity letter that placed the particular print
with more likelihood in the later New York period of the artist's
oeuvre. The case has been settled, and neither party can now
comment publicly.
"The art trade is the last major unregulated market," points
out Manhattan attorney Peter R. Stern, whose work frequently
involves art-market cases. "And while it always involved large
sums of money, there was never the level of trading and investing
that we have now. I'm increasingly approached by collectors
who have encountered problems." Stern represented collector
Jean-Pierre Lehmann in his winning case against the Project
Gallery, which captivated the art world by revealing precisely
what prices and discounts Project Gallery Chief Christian
Haye had offered various collectors and galleries on paintings
by Julie Mehretu--information normally concealed by an art
world omerta.
While the Project case was exceptionally complex, Stern undertook
five more straightforward breach-of-contract cases in the
last six months, all involving problems arising after collectors
consigned work to a gallery for secondary-market sale. Stern
declines to cite the dealers involved since the suits are
either pending or were settled out of court, but in one case,
the consignor only discovered a work had been sold after her
sister saw it hanging on a museum wall; the gallery had never
notified, much less paid, her. In another, the consignor spotted
the work at a cocktail party, asked the host its sale price
and heard a significantly higher sum than that upon which
the gallery had paid commission. A third case was triggered
when a gallery assistant prepared invoices with two different
prices and then switched them by mistake while mailing them,
thereby revealing the true selling price to the consignor.
While lawsuits are less of an issue in England, politicians
may soon start seriously investigating art-market affairs.
This March, Parliament's select Media, Culture and Sport Committee
held hearings on the art trade. Most of the hearings focused
on the ramifications of the droit de suite regulations which
come into effect in January 2006. But abstract painter Rebecca
Salter--whose work is in the permanent collections of the
Tate, the British Museum and the San Francisco Museum of Modern
Art--weighed in with descriptions of dealer practices that
stunned the less art world-savvy MPs present; the predominant
absence of written contracts was noted with particular amazement.
Since testifying, Salter says, she has become a magnet for
disgruntled artists--in the worst case, a work had been sold
in 1963, but the artist was never paid. Once the gallery admitted
this, they summarily sent a check for £200, making no adjustment
for inflation or interest. For contemporary artists with strong
markets, the sums can rapidly spiral much higher. Two relatively
new arrivals to a major New York gallery, for example, had
one million-plus dollars each in back payments owed to them
from their previous dealer.
"I don't want to lay all the blame at the door of dealers,"
cautions Salter. "Artists with galleries can also behave quite
badly, inviting people around to the studio and selling work
at half price." Nor are collectors choirboys when it comes
to ethics, as they commonly renege on deals, withhold payments
for years and misrepresent their intentions. A classic example:
German collector Hans Grothe, who amassed a huge photography
collection at discount prices by promising to build a monumental
museum, auctioned his prime pieces at the height of the German-photo
boom--including Andreas Gursky's Paris, Montparnasse, which
was sold at Christie's for £432,750 in 2001, setting the world
auction record for contemporary photography.
British Labour Party MP Chris Bryant, who invited Salter to
testify, sounds cautiously optimistic that one of the committee's
recommendations, a voluntary code of conduct defining ethical
art world practices, could become a reality. "For the most
part, the art market's workings don't come into view," Bryant
says. "But we will have to put droit de suite into place by
the end of the year, which will bring those workings into
public discussion. At that time there will be a lot of political
pressure to also put in place a code of conduct, which of
course the national institutions would abide by." In theory
that might mean that any dealer refusing to subscribe to the
code of conduct could have trouble selling to publicly funded
institutions such as the Tate.
Speaking of museums, the selection of artists for mid-career
retrospectives functions as one of the more heavily traded-upon
pieces of market information. Short of a sudden leap in auction
prices, there is almost nothing that will turbocharge an artist's
market faster than a retrospective at a major institution
such as the Tate, MoMA or Whitney. Yet such shows are rarely
announced immediately after they have been decided upon. And
during the period between when the show is green-lighted and
its official announcement, the people best positioned to act
upon it are major collectors.
"There's so much insider trading around these retrospectives,"
says London-based dealer Kenny Schachter. "Galleries call
their top two or three collectors as soon as they find out
and let them in on the deal. In commodities trading, where
I used to work, that's called 'front-running,' and it's illegal.
I remember when I first stumbled into the art world, I was
shocked that it could be run in such an archaic manner." By
the time the retrospective is officially announced little
primary-market work is available, so the second-tier collectors
end up either buying the artist at auction or paying the newly
raised prices justified by the retrospective. "The issue of
how people use and spread this kind of information has not
really been looked at in depth, but it actually deserves some
attention," says Susan May, formerly a Tate curator and now
head of the Arts Council Collection. "We always have to know
where the line gets too close for comfort, because the last
thing we want is to be scrutinized for insider trading. But
the art world is such an intensely sociable environment, and
it's not as though we ever make people sign confidentiality
agreements."
Is that really insider trading? "The art market is unregulated,
so there's no rule defining what insider trading means," argues
major Manhattan collector Adam Lindemann. "Also, it's good
to know about these shows ahead of time, and people definitely
buy based on that privileged information. But it's no guarantee--unless
it's a hit, the artist's market can often go flat afterwards."
Still, it hardly seems a level playing field when those collectors
closest to a museum can profit from advance knowledge of where
it will place its imprimatur. Yet museums rarely proscribe
such activities; quite the reverse, in fact. "Generally, curators
are encouraging people on the board to buy pieces by artists
that a museum is planning to show or acquire hoping that the
work will be donated later on," says one museum-world insider.
"It's seen as mutually beneficial. Information about a big
solo show never stays secret. But it stays secret just long
enough."
Among dealers there's widespread disagreement about what should
happen next. "There's a lot more money in this business than
there used to be, and yet we're less regulated than used car
dealers," says one major American dealer who is taking part
in ArtBasel in June. "And, if we don't start cleaning up the
business, we might end up being forced to do it from outside.
Frankly, I'm surprised [New York State Attorney General] Eliot
Spitzer stopped after those tax evasion cases. Maybe he didn't
realize how much money is involved here." But another top
American dealer, likewise coming to Basel, says, "If you make
the business transparent it would collapse overnight. I have
to have the option to lie to collectors about what's available
or quote them prices ten times what other people paid. Entire
careers are built upon fabrications like about which shows
sold out and at what prices."
Yet it's precisely such uncertainties that can threaten the
growth of the art market, points out Ian Charles Stewart,
a London venture capitalist and art collector who also sits
on boards at both the ICA and the Arts University London.
"For anything to truly be called 'investment grade,' you need
to be able to track its prices over time, both at auction
and in private sales," he says. "A registry of all sales,
auditable by the buyers and sellers, to show the price history
of a piece would help a lot. The passage of art-market information
now is so inconsistent that it's like tech stocks from 1994
to 1999--the market is flush with cash, but it's the insiders
making the most money and the newbies often tend to learn
hard lessons.”.
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