Dmitry Rybolovlev deals body blow to storied auction house Sotheby’s

Shockwaves have rippled through the upper echelons of the art world after the recent announcement that a $380 million lawsuit against Sotheby’s by Russian billionaire Dmitry Rybolovlev was allowed to proceed by a Southern District of New York judge. The case deals with the auction house’s alleged role in helping art dealer Yves Bouvier commit what the plaintiff calls the ‘largest art fraud in history’. Sotheby’s tried to have the case dismissed on the grounds that Rybolovlev had also opened legal proceedings in Switzerland, but Judge Jesse Furman rejected that claim this week, meaning that Sotheby’s will need to fight the case in New York courts.

According to public court documents quoted by The Times, Sotheby’s was complicit in a scheme masterminded by Bouvier that led to inflated estimates on a dozen or so artworks that were sold through the auction house. Rybolovlev alleges that he was overcharged up to $1 billion to buy his collection of da Vincis, Picassos and Modiglianis between 2003 and 2015.

Yves Bouvier’s markup on some of the transactions was indeed staggering—the Swiss dealer bought one Picasso painting for three and half million euros and sold it to Rybolovlev the very next day for twenty five million. Bouvier himself does not deny that he pocketed significant profits—he once declared “if I buy for two and I can sell for eleven, I will sell for eleven”. The dealer argues instead that these proceeds were his legitimate recompense for overseeing the transactions; an argument which is somewhat undercut by the fact that he was already pocketing a two percent commission for acting as the Russian’s representative in the art deals.

Was Yves Bouvier working with Samuel Vallette ?

None of this would have been possible without the help of certain Sotheby’s executives, whose conduct was called “wilful, wanton, reckless and intentional”. The accusation rests on a series of email exchanges between Samuel Valette, Vice Chairman of Private Sales Worldwide, and Bouvier.

For example, a Modigliani artwork called Tête was appraised by Valette in an email to Bouvier to be “worth between €70 million to €90 million” or “maybe more” in July. Twenty-four hours later, the Sotheby’s exec sent a second email, upping the valuation to between €80 million and €100 million. Other than the questionable way Valette changed his mind by more than €10 million in a short span of time, court documents further show that a September contract of sale sent by the Sotehby’s employee to Bouvier put the price of the work at €31.5 million. Rybolovlev’s claim states: “It is notable that Sotheby’s and Valette were willing to sell to Bouvier for a fraction of what they had told him they estimated the work to be worth, suggesting again either that the valuation was false or that Sotheby’s was willing to violate its duty to its sellers and shareholders to maximise the sale price of the artworks it sold.”

Sotheby’s has called the allegations “baseless”, but the Yves Bouvier case is guaranteed to remain a thorn in Sotheby’s side now that the Manhattan court battle is set to go ahead. Making matters worse, the case does little to improve the chequered reputation the storied auction house acquired over the years.

Sotheby’s: taking flak for two decades

Back in 2002, Sotheby’s was fined a whopping £13m by the European Commission for its involvement in a massive-scale price-fixing cartel with rival Christie’s which took place throughout the 1990s. Brussels claimed that the multi-million-pound scheme to keep prices inflated extended to the highest echelons in both companies.

The purpose of the illicit agreement was to minimise the impact of competition between the two leading auction houses so that neither would lose out – an arrangement which clearly disadvantaged their clients. The European Commission launched its investigation after US investigators had proven collusion between the firms in America that violated anti-trust laws. To make matters worse, Sotheby’s was hit with a significantly bigger fine than its co-conspirator—Christie's had already approached regulators with a plea for leniency in exchange for admitting the breach.

More recently, Sotheby’s suffered an embarrassing volte-face after having to admit that a painting it had authenticated as the work of Dutch painter Frans Hals was in fact a forgery. The painting was subsequently ‘reassessed’ by the auction house following an in-depth technical analysis and its $10 million sale annulled. But by that time, the damage was done and the authenticity of up to $200 millions’ worth of other Old Masters from the same French collector were thrown into question.

Questions have also been raised about the robustness of Sotheby’s approach to deterring money laundering schemes – especially regarding the substantial loan that was extended to rogue Malaysian financier Jho Low in 2016 using multiple artworks as collateral. More than $100m was lent by Sotheby’s financial services division to Low, secured against 17 paintings, including a van Gogh and two Monets. The art had been purchased – according to US Department of Justice investigations – through offshore accounts using diverted cash from Malaysia state development fund 1MDB, which made Sotheby’s unknowingly complicit in a slick money-laundering operation.

Time to let the light shine in

Major players in the art world, including Sotheby’s, have long thrived on the secrecy and opacity surrounding their transactions. This has, in turn, made them vulnerable to being used as handy conduits for money laundering and myriad other types of fraud—and has provoked the kind of headlines which have seriously damaged centuries-old reputations.

But, in a business that’s largely driven by relationships between trusted company representatives and their well-heeled customers, it’s only a matter of time before transparency will no longer be avoidable. It’s clear that the Rybolovlev suit is only the tip of the iceberg - whether it’s over the way artworks are evaluated or about the weak due diligence conducted on their clients, auction houses are quickly running out of time to revamp their business model.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.