A ‘Tsunami of Lawsuits’ Hits the Art World as Money Gets Tight, Regulators Descend, and the Music Finally Stops

Why is the art world suddenly airing its dirty laundry?

The NEA has issued an alert about potential fraud.

Тhe big news in New York last week was the sentencing of Robert Newland, business partner to convicted fraudster Inigo Philbrick, to 20 months in prison. It was the coda to an $86 million criminal scheme that had shaken up the art world when it became public exactly four years ago, in a pre-pandemic world that feels a distant era.

And yet, the investors duped by Newland and Philbrick, who has been behind bars since 2020, are still fighting in courts, with competing ownership claims to the works by Jean-Michel Basquiat, Rudolf Stingel, Yayoi Kusama, and other artists. Trust has been shattered. Toxicity unleashed. Tears shed. Lives upended.

While the art industry is watching closely, it’s far from the only art world legal affair making way through the U.S court system. Collector Nazem Ahmad was indicted this year for laundering money, partly though art purchases, to finance the militant group Hezbollah; more than a dozen of galleries and artists were roped into those activities, the New York Times reported this month.

Robert Newland, left, and Inigo Philbrick. Photo on right by Liam McMullan /PMC. Copyright: © Patrick McMullan.

Explosive new allegations are lobbed with alarming regularity. My colleague Eileen Kinsella has followed every twist and turn of the battle between collectors Candace Barasch and Richard Grossman and their longtime adviser Lisa Schiff; by the prominent artist, Jeffrey Gibson, against Kavi Gupta Gallery, which represented him; and by the Orlando Museum of Art against its former director Aaron De Groft. There’s a knot of cases around the estate of artist John Baldessari. The powerful Wildenstein family is on trial in France, accused of an epic tax evasion. Meanwhile, former employees of Larry Gagosian’s restaurant Kappa Massa have just sued to get back their unpaid tips. A class-action lawsuit against Sotheby’s (and others) alleges that the auction house helped to inflate the values of Bored Apes NFTs, which have since plummeted.

“I can’t remember another time there was such a tsunami of lawsuits,” said Todd Levin, a veteran art adviser based in New York.

While some of these cases have been dragging on for years, many became public in recent months, weeks, and days, presumably after private behind-the-scenes negotiations fell apart and the courts emerged as the only possible way forward. What do they all say about the zeitgeist of the art world at this moment in time? And what do they all have in common?

The first thing, of course, is money. People feel they got screwed. Newland was ordered to repay $67 million to the victims of his and Philbrick’s fraud. The French government seeks $1 billion of the Wildensteins’ allegedly unpaid taxes going back decades. Gibson, a Native American artist chosen to represent the U.S. at the Venice Biennale next year, claims that Kavi Gupta Gallery owes him $638,919.31 for the sale of his artworks.

Jeffrey Gibson working in the studio. Photo courtesy of the artist.

Jeffrey Gibson working in the studio. Photo courtesy of the artist.

This represents a sharp turnaround from flusher days. Even when people were stuck in their homes under lockdown, they still found ways to spend money. Galleries couldn’t sell paintings fast enough. Prices for NFTs soared. But the art market has contracted this year, with transactions at galleries, art fairs, and auction houses declining sharply. Liquidity has tightened. “Your NFTs Are Totally Worthless” one headline proclaimed this week. The musical chairs game has come to the part when the music stops.

“We’ve got a lot of chairs missing from the dance party,” a prominent art adviser told me this week. “The chair is the war in Ukraine and the Chinese government’s clamping down, hedge funds getting killed, real estate market bubble, interest rates. It’s not just one thing.”

This wave of lawsuits, then, is a sign of the times. Art lawyer Thomas Danziger believes that lawsuits are a waste of money, time, and effort, and quotes a colleague who once called litigation “a sport of kings.” Litigation, by definition, represents a failure to negotiate an amicable resolution of a dispute.

“My view is to settle things out of litigation,” Danziger said. “It’s never cheap and it’s always painful for the parties involved.”

Lisa Schiff, 2021.

Lisa Schiff, 2021.

But when there’s so much money at stake or such a breach of trust, going to court may be the only option left on the table.

And that brings me to the second common element among these varied cases. The art world used to be a quaint industry, where deals were done with a handshake and trust was paramount. In many of these cases, trust has been breached by players who were supposed to be acting as fiduciary agents. It feels almost biblical, like when Joseph’s brothers sold him into slavery.

“We’ve gone through a big expansion in the market,” said the prominent art adviser. “Stakes are high. Money is big. And you are going to see bad actors.”

One such bad actor was on stage this week at the Southern District Court of New York.

“If I had not joined Inigo, some of these people would not have been victims and some of them would have lost less, I am sure of that,” Newland, a British citizen, said in the New York courtroom on September 20.

"Untitled (Self-Portrait or Crown Face II)," the work allegedly painted in acrylic, wax crayon and paint stick on the back of FedEx shipping material. Photo courtesy of the Orlando Museum of Art.

“Untitled (Self-Portrait or Crown Face II),” the work allegedly painted in acrylic, wax crayon and paint stick on the back of FedEx shipping material. Photo courtesy of the Orlando Museum of Art.

Listening to the mea culpa of the former financial adviser was striking and sad. Newland took the opportunity to address the court before the sentencing — in order to apologize. He spoke of betraying the trust of the investors he defrauded, the shame he felt at his father’s hospital bed, and the alarm of his daughters each time the doorbell rang, afraid it would be the police or the paparazzi.

“The damage I’ve done to them is irreparable,” Newland said, choking up.

His defense asked for leniency and no jail time, given that he was not the mastermind of the fraud.

But the government and the judge said they wanted to send a clear message to the art industry, which is watching the case. That message was “that someone who is a facilitator of fraud in the art market will face serious consequences for their crimes,” for telling lies and deceiving clients and investors, said Assistant U.S. Attorney Cecilia E. Vogel, co-prosecuting the case with Jessica K. Feinstein.

Rudolf Stingel, Untitled (2012). Image courtesy Christie's.

A Rudolf Stingel painting from 2012 is at the center of the Philbrick case. Image courtesy of Christie’s.

Newland was driven by ambition and “ultimately by the hope of making money,” Vogel said. “This crime involved the abuse of trust and trusting relationships.”

The proliferation of lawsuits doesn’t necessarily signify the proliferation of disputes, attorneys said. Once taboo, airing your grievances has become more socially acceptable.

“It’s not that there are more disputes or problems that didn’t exist before,” said Judd Grossman, who represents Newland and Philbrick’s victims in one civil litigation. “It’s that people are more willing to do it publicly.”

The art world is built on the asymmetry of information and anchored by values such as confidentiality and discretion. Perception is everything. Many galleries don’t pay their artists, and yet artists rarely go to court. Museums rarely sue their directors. And collectors rarely go after advisers.

“The last thing you want is to be the person who gets his lawyers involved, who rocks the boat,” Grossman said. “You take a misstep in the art world, and you feel like you’ll be blacklisted.”

Guy Wildenstein, center, arrives at the Palais de Justice, Court of Appeal for the third trial of the Wildenstein art dealers’ heirs, suspected of massive tax fraud, in Paris on September 18, 2023. Photo by JULIEN DE ROSA/AFP via Getty Images.

But things are changing, partly because the new wave of buyers are investors who treat art as just another asset in their portfolio. They don’t think twice about bringing a securities fraud lawsuit and feel equally comfortable doing the same in the art world, according to Grossman.

In fact, the house of cards built by Philbrick and Newland began to crumble after their client, the Berlin-based investment firm Fine Art Partners, filed a civil lawsuit in October 2019. The allegations included missing artworks worth $15 million. It was just the tip of the iceberg in a shocking saga that roped in billionaire brothers Simon and David Reuben and is being turned into books and documentaries. 

Defrauded investors may be never recoup all their money, which is why their lawsuits also represent an attempt to set the record straight by seeking justice, fairness—or at least closure.

“The last four years have been traumatizing and pure hell,” Daniel Tümpel, a partner of Fine Art Partners, wrote in his victim’s statement to the court ahead of Newland’s sentencing. “Realizing the scope of the fraud, desperately trying to locate any of the embezzled paintings, trying to identify any assets and paying endless amounts to lawyers. Still, it was a fruitless exercise: no significant assets were found, and Philbrick is only nine months away from his release day. I hope the sentencing of Robert Newland will bring some closure to this entire matter to me.”

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