Ownership Dispute Reveals Continuing Effects of Madoff Scandal on Art World
10/17/2017A lawsuit filed in Manhattan federal district court last week reveals how Bernard Madoff’s nearly decade-old Ponzi scheme continues to reverberate, even in the art world.
The lawsuit centers on The Mechanism of Meaning, one of the most significant works in the oeuvre of the late Shusaku Arakawa and Madeline Gins. The work took Arakawa and Gins ten years to create and may be worth tens of millions of dollars. In reviewing the Guggenheim Museum SoHo’s exhibition of the work in 1997, Roberta Smith wrote in the New York Times that its canvases serve as “[a] bridge between Dada and Fluxus and the soon-to-be Conceptual Art” and that their “philosophical or linguistic puzzles can stretch the mind in briefly pleasant ways.”
The Architectural Body Research Foundation (“ABRF”), a charitable foundation that Arakawa and Gins founded, brought the lawsuit as a means of asserting ownership over The Mechanism of Meaning. ABRF alleges that Arakawa and Gins “‘irrevocably and unconditionally’” gifted the work to the foundation by a 1987 Deed of Gift. The work exists in two editions, both of which consist of about 80 individual canvas panels. ABRF sold one edition to Japan’s Sezon Museum of Modern Art in 1989 for approximately $3 million, a mere fraction of what ABRF estimates the work to be worth today. The other edition remains in the possession of the defendants in ABRF’s lawsuit—the Reversible Destiny Foundation (“RDF”), its directors, and the executors of Gins’s estate—who, ABRF alleges, have refused to turn it over.
ABRF’s unfortunate involvement with Bernard Madoff has taken center stage in its attempt to reclaim the work. Beginning in 1997, ABRF maintained four Madoff accounts thought to be worth approximately $20 million. In December 2008, however, when the nature and scope of Madoff’s scheme first came to light, ABRF’s accounts were revealed to be effectively worthless. In the wake of the Madoff scandal, Arakawa and Gins formed RDF not only for artistic purposes but also, as ABRF alleges, “due to a concern that ABRF’s future would be negatively impacted, if not terminated, by any judgment recovered by [Irving] Picard [i.e., the Trustee for the liquidation of Madoff’s investment entity] from ABRF arising out of the Madoff fraud.”
These apparent concerns were well-founded. Madoff claimed to have invested approximately $65 billion of his clients’ money when his entity’s actual assets were worth a mere fraction of that sum. Picard sued ABRF in December 2010 seeking to recover withdrawals from, and transfers into, ABRF’s Madoff accounts, and his complaint alleges that ABRF was a “beneficiary” of Madoff’s Ponzi scheme. According to Picard, ABRF “received the amount of $11,062,490 from BLMIS [the Madoff investment entity]. Of this amount, $7,833,954 represented fictitious profits from the Ponzi scheme. Accordingly, Defendant [i.e., ABRF] has received $7,833,954 of other people’s money.”
ABRF now claims that it will be hamstrung in its efforts to pay Picard’s claims unless it gains possession of The Mechanism of Meaning, formerly its “sole, major asset.” Indeed, ABRF alleges that RDF and the other defendants “loot[ed]” ABRF by “seizing possession and control of The Mechanism of Meaning under a false claim of ownership.” With The Mechanism of Meaning back in its possession, ABRF argues, it will be able to pay off Picard and continue the charitable work it conducted before the Madoff scandal ruined it.
A lawyer for RDF and the other defendants recently told artnet News that the lawsuit has “no merit” because the 1987 Deed of Gift pertains solely to the edition of the work now in the Sezon Museum’s possession. Accordingly, their argument goes, RDF and the executors of Gins’s estate are the rightful owners of the other edition. For his part, one of ABRF’s lawyers told ARTnews that he “look[s] forward” to the return of the “important work of art.”
Further complicating this ownership dispute is ABRF’s allegation that the Gagosian Gallery is preparing to sell The Mechanism of Meaning at a “major show in the near future.” As evidence of this purported future sale, ABRF points to a February 1, 2017, press release in which RDF announced a partnership with the Gagosian Gallery concerning Arakawa’s two-dimensional works. “Chief among them[,]” the press release proclaims, “is The Mechanism of Meaning (1963-1973), an 80-panel painting series that exists in two different versions, one at the Sezon Museum of Modern Art in Japan and the other in the holdings of the foundation [i.e., RDF].”
ABRF notes that the Gagosian Gallery “showcased” roughly six Arakawa paintings in May, including one constituent canvas of The Mechanism of Meaning. ABRF contends that “the gallery most likely offered particular works for sale to some of its most important clients” at the May exhibition. RDF and the other defendants have until November 14 to respond to ABRF’s complaint, and we will be following this ownership dispute as it continues to develop.
Art Law Blog