Grossman LLP | New York Times Draws Attention to (Lack of) Art Market Oversight
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  • New York Times Draws Attention to (Lack of) Art Market Oversight
    03/29/2013
    A recent New York Times article shines a spotlight on the subject of whether and how to seek more transparency in the art market. The article explores the sometimes-competing interests of auction houses, galleries, museums, and collectors when it comes to ensuring that art transactions are governed by clear and fair disclosures and rules. It also provides an overview of some of the possible reforms that have been proposed in recent years.

    As the Times points out, despite the astronomical prices being achieved at auctions in recent years, auction regulations haven’t been updated in decades. One state legislator argues that the public has an interest in fair commercial transactions, not to mention a stake in ensuring that museums and other cultural institutions can participate meaningfully in the art market. Although New York’s Arts & Cultural Affairs Law and the Uniform Commercial Code provide a meaningful measure of protection, additional regulations could benefit the art market. For example, some have called for curbing the legal practice of “chandelier bidding,” where auctioneers begin a sale by accepting imaginary bids in the room.

    The practice of allowing third-party guarantees at auctions also is the subject of considerable debate. This is where auction houses arrange for a third party to purchase a work for an undisclosed guaranteed price if the work fails to achieve a greater price at auction; if the hammer price does exceed the guaranteed price, on the other hand, then the guarantor is ensured a percentage of any additional amount over the guaranteed price. So for the guarantor, it is a win-win arrangement. But for the public, the practice limits transparency and may result in artificially inflated prices—for example, where the guarantor is the high bid and still gets a percentage of the overage, the auction records will reflect a hammer price greater than the net price actually paid for the work.

    Another subject for reform (which the article does not discuss) involves the disclosure of the parties’ respective ownership interests in a work being offered for sale. For example, while auction houses must disclose their interest in works, galleries commonly will not disclose that they own a work, thereby concealing potential conflicts of interest. This practice was illustrated by the recently settled case involving the sale by the Knoedler Gallery of an allegedly counterfeit Jackson Pollock drip painting, where Knoedler did not disclose in the provenance that it actually had a 50% interest in the work at the time of the sale. See Lagrange v. Knoedler, et al., No. 11-8757 (S.D.N.Y.).

    The New York Times has provided a spark for conversation and discussion about the need for oversight and clarity in the art market. But until full transparency and adequate protections are in place, collectors and galleries alike should consult counsel before treading in the sometimes murky waters of today’s art market.
    ATTORNEY: Kate Lucas
    CATEGORY: Uncategorized