Grossman LLP | Recent Legal Developments Regarding Forgeries Serve As Warnings To Collectors
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  • Recent Legal Developments Regarding Forgeries Serve As Warnings To Collectors
    05/04/2017 | By Kate Lucas

    We have continuously followed stories in the news and in the courts about the continuing efforts of the art market to deal with the problem of forgeries. From the Knoedler scandal to the concerns about counterfeit Old Masters being peddled on the European market, this issue is clearly not going away anytime soon. Today, we take note of developments in three more cases that shine a spotlight on this ongoing challenge.
     

    First, a few weeks ago, another settlement was reached in one of the remaining Knoedler lawsuits. The plaintiff in the case, casino owner Frank Fertitta III, had already settled with Knoedler director Ann Freedman back in the fall. In January, he likewise reached a settlement with the now-defunct Knoedler Gallery itself, as well as its owner (an entity called 8-31 Holdings, Inc.) and the holding company’s principal, Michael Hammer. Now, Fertitta has dropped his claims against Swiss art expert Oliver Wick; terms of the settlement remain undisclosed. And default judgments have been entered against the forgery ring’s participants, Glafira Rosales and her co-conspirators. This means the only claims remaining in Fertitta’s lawsuit at this point are a handful of causes of action (including mutual or unilateral mistake, breach of contract, and indemnification) against Urs Kraft, who served as an intermediary in Fertitta’s purchase of the fake Rothko; several fraud-based causes of action against Kraft were dropped last year. The settlement with Wick is noteworthy in that the case will now likely be resolved without a conclusive court ruling on the implications of Wick’s endorsement of the work as a scholar and curator; the claims against Wick had the potential to break new ground in case law regarding the contours of liability for experts in art deals. Several other swindled Knoedler buyers have also reached out-of-court settlements of their claims prior to (or, in one notable case, during) trial; if Fertitta’s remaining claims against Kraft also settle without a trial, that will leave just two other Knoedler lawsuits still pending as of this writing.
     

    Earlier this spring, another possible forgery case came to light when a Los Angeles art dealership, the Revolver Gallery, sued a Massachusetts couple who allegedly sold the gallery a pair of fake Warhols, purportedly part of Warhol’s sought-after “Shadows” series. The gallery alleges that it agreed to pay $80,000 for two works being sold on EBay by Brian and Ana Walshe, who provided the gallery with documentation that included a purchase invoice, a valuation from Christie’s to the tune of $120,000-$180,000, and a representation that the works had been stamped with Warhol Foundation authentication numbers. The pair claimed that they had to sell the pieces at a bargain price to finance necessary work on their home. When the works were delivered, however, Revolver personnel discovered various problems with the works and documentation, including that there were no authentication stamps, and that the canvas appeared to be new and not from 1979 as expected. The complaint alleges that the forgeries may have been made from actual genuine originals, and that the Walshes may have sold the authentic Warhols and the fakes to different buyers on different continents. The Walshes have allegedly paid some of the purchase price back to the gallery, but refused to pay the full amount after they learned that the gallery had reported them to law enforcement, prompting the gallery to sue for the remainder (plus punitive damages). Revolver’s claims include fraud, negligent misrepresentation, conversion and breach of contract.
     

    Finally, a troubling epilogue continues to unfold in the wake of a forgery story from earlier this year. In February, a Michigan art dealer was sentenced to 41 months in prison following a guilty plea on federal charges related to a years-long scheme involving forged artworks. According to prosecutors, Eric Spoutz fooled buyers by falsifying documents and stories to create believable provenances in support of the sales of works purportedly by famed artists such as Willem de Kooning and Joan Mitchell. But while Spoutz’s fraudulent activities have come to an end, the FBI issued a statement in April reminding collectors that, thanks to Spoutz’s actions, there could be many—even hundreds—more works floating around on the market that are not what they appear to be. The FBI’s statement describes some of the types of fake documentation Spoutz created, including “receipts, bills of sale, letters from . . . attorneys, and other documents,” much of it “referencing real people who worked at real galleries or law firms.” Names associated with Spoutz’s scheme include the “Betty Parsons Gallery,” “Larry Larkin,” “Henry Hecht,” and “Julius or Jay Wolf,” as well as aliases used by Spoutz himself (including “Robert Chad Smith” and “John Goodman”). His false paper trails were also rendered more visually convincing thanks to Spoutz’s use of “a vintage typewriter and old paper.” The fake works themselves were not exact copies of real works; rather, they generally purported to be lower-level works by major artists. The FBI says Spoutz didn’t make the forgeries himself, just the fake documents, explaining that the works themselves came from a “source” that Spoutz “kept going back to.” The FBI predicts that the fallout from the case may last “years,” and is encouraging other victims to come forward.
     

    As these cases demonstrate, today’s art forgeries are often highly sophisticated. As always, pre-sale diligence is paramount in mitigating risks in the first place. An artwork that comes with the endorsement of respected experts (as in the Knoedler cases) is not above suspicion. Buyers need to thoroughly scrutinize even apparently-persuasive evidence of provenance (like the false documents created by Spoutz), and, as the Revolver Gallery case illustrates, ideally a buyer should inspect the work and accompanying documentation in person prior to consummating a transaction, to make sure the work matches the information a buyer has been given. And a strong sale contract, which includes warranties regarding provenance and authenticity, and which lays out the parties’ rights in the event of a problem, can help to resolve or at least simplify a dispute, should issues arise.