Anatole Shagalov involved in legal cases revealing problems buying art with loans
A series of bitter court battles unfolding in New York City focus on the thorny issue of buyers defaulting on their art purchases. The business centers on an art dealer, Anatole Shagalov, and his company Nature Morte (not related to the Delhi gallery), which is being pursued by auction houses Sotheby’s and Phillips. Art lending companies and large galleries, including Paul Kasmin and, according to court documents, David Zwirner, have also been drawn into the fray. They are just the visible part of a complex web of artwork accounts used as collateral for loans and, allegedly, for over-indebtedness, defaults and attempts to protect creditors’ assets.
In the case of auction houses, Sotheby’s is suing Shagalov after placing the winning bid of $ 6.5 million on an untitled 1982 Keith Haring painting in May 2017 in New York, a record price for the artist. After several reminders and, he says, no sign of payment from Shagalov, the auction house sold the work back to another client for $ 4.4 million and sued Shagalov for the difference.
Shagalov says Sotheby’s agreed to let him pay in installments, and his lawyer, Mathew Hoffman, says the firm made no “commercially reasonable” effort to secure a higher price. As proof, Shagalov said that Madrid’s artistic advisor Marco Mercanti was ready to pay $ 5 million for the Haring. John Cahill, the lawyer for Sotheby’s, denies that Shagalov received such payment terms and wonders if Mercanti was aware that the painting was the subject of an ongoing court case. Sotheby’s also claims that Shagalov falsified documents relating to Mercanti’s offer, which the dealer vigorously denies.
Hoffman says he cannot disclose the core of his defense because some documents have been sealed by Sotheby’s. But, a spokesperson for the auction house said: “All documents were produced with customer names redacted. However, Shagalov’s lawyers can also view the details confidentially, unredacted. Nothing prevents them from making their point publicly and they have done so. ”
Attempt to hide items
In a comparable case, Phillips sued Shagalov for failure to purchase Para IV (1959) by Morris Louis and Untitled (P271) (1997) by Christopher Wool at auction on November 8, 2015, for a total of just under $ 6 million. Shagalov maintains that he was deliberately misled by bidding for and purchasing these works, and should therefore be relieved of any responsibility for his purchases. The auction house declined to comment further on the matter, which is ongoing.
Sotheby’s also accuses Shagalov of trying to hide his assets following a lawsuit, by signing more than $ 10 million worth of artwork for $ 6.9 million at the loan company of art AOI, co-founded by Christopher Krecke, former art finance company Art. Capital city. AOI was prohibited from selling the art, according to court documents, but days later John Cahill, the lawyer for Sotheby’s, said he discovered that two of the works were for sale at the Barbara Gladstone Gallery. , who declined to comment except to say “this is not a party to any litigation.” AOI did not respond to requests for comment.
Shagalov’s attorney, Mathew Hoffman, said the AOI deal was an “ordinary repo [or repurchase] transaction. ”He describes his client’s business model as follows:“ He borrows money, he buys art. He tries to sell it at higher prices. He borrows more money using this art. , he tries to sell it at higher prices.
But during a Jan. 9 hearing in the Sotheby’s case, Judge Charles Ramos described art transactions, in general, as anything but ordinary. “I have never seen an industry more ripe for fraud and misconduct than the art sector,” he said. “To say that there is an artistic ethic is an oxymoron. Most of the cases I have had involving art dealers involve outright fraud. Quite simply an old fraud. This is not a great deal… I have seen brokers sell the same work of art and a work of art three times that they do not own.
According to another lawsuit, Shagalov is also in conflict with former corporate raider-turned-gallery owner Asher Edelman, whose company Artemus operates a model whereby it purchases a work of art for around 50% of its retail value and sells it. rent to owner – a form of “art loan”. In this case, Shagalov sues Edelman, to whom he had sold a portfolio of works, after Edelman sold some of them to recover unpaid rents. Shagalov challenges his right to do so – and in doing so, challenges the very basis of a sale-leaseback agreement – by claiming that the works were collateral for a loan, and therefore not Edelman’s sale.
In a counterclaim, Edelman says he took this step after discovering that Shagalov had sold him a work by Frank Stella that he did not fully own; Edelman says it was partly owned by the Paul Kasmin Gallery. Edelman maintains that Shagalov covered up the fact that the Stella was partly owned by the gallery by forging a new invoice, but Hoffman says: “Mr. Shagalov categorically denies giving Edelman any fraudulent documents.” In addition, Edelman claims in court documents that Shagalov is also in default towards the David Zwirner Gallery. Zwirner declined to comment and Kasmin did not answer our questions. Hoffman says there has been no litigation brought by Zwirner so he cannot comment.
Although these cases involve a single individual, allegations of default are not uncommon. In another action, Sotheby’s is suing a client, named Eugenio Paolo Losa, for $ 8.25 million for two works purchased at auction in November 2017. At the time of writing, Losa had not responded to this and the next claim. hearing is scheduled for March 9.
Art as a guarantee
Then, in a seemingly unrelated case to Shagalov, the Paul Kasmin Gallery is sued by another art lending company, Emigrant Bank Fine Art Finance, for more than $ 35,000. The loan company alleges that Kasmin breached the “success fees” payable when a work is sold. Emigrant has given Kasmin various loans since 2007, according to court documents. Kasmin and Emigrant’s lawyer did not respond to requests for comment.
Art advisor Todd Levin says that getting a loan using art as collateral is becoming more and more common because the market is so inflated. “When the market is this sparkling, it encourages people who would normally revolve around the fringe to dive more directly into the center. These activities are not illegal but they are questionable from a purely commercial point of view, ”he says. Andrea Danese of Athena Art Finance says: “These issues are much more common than you might think, but often solved behind closed doors. And, often what is on the surface is not the whole story: auction houses rarely sue and usually there is a bigger story behind. [the action], “he says. Danese adds that art galleries and dealers, with their sporadic cash flow, are sometimes tempted to go to multiple lenders, ending up in over-indebtedness.
Salespeople have sometimes been overconfident. Danese says, “Auction houses shouldn’t let people bid until they’ve verified that they can meet their obligations. But they want to make the deal and they hope for the best.