The American mega-investor Warren Buffett has said of business that only when the tide goes out do you find out who has been swimming naked. Buffett’s maxim about the unseemly revelations of a down market has proven true in the art market multiple times since the spring of 2023. Insolvencies, civil lawsuits and criminal proceedings have exposed observers to plenty of sights they might have preferred to avoid. Blindness, like ignorance, can sometimes be bliss.
In this unfortunate peepshow, the main attractions have been the cases of alleged or confirmed art fraud. Lisa Schiff, the once-prominent New York-based adviser, became the subject of multiple ongoing civil suits in May, and two separate law-enforcement bodies are conducting investigations into her business practices. Robert Newland, the UK-based dealer and consultant, was sentenced in September to 20 months in prison for his role in convicted art fraudster Inigo Philbrick’s criminal schemes.
Art professionals on both sides of the Atlantic have almost gleefully awaited new twists and turns in these sagas for months, while the law-and-order crowd has used the cases to once again decry the art trade’s absence of industry-specific regulations. But what has gotten too little traction among both the gossip hounds and the hardliners are the structural reasons that no amount of shaming or legislation will eliminate fraud from the art market—ever. Only by examining these under-recognised factors can we add nuance to the conversation around double-dealing and minimise the incentives around it.
The first of these factors is practical: being connected to frauds or forgeries very seldom actually ends a once-legitimate dealer’s career. Just ask Ezra Chowaiki, who dealt blue-chip secondary-market work from his Upper East Side gallery for 14 years before being convicted of wire fraud in 2018. After serving more than 13 months in prison, Chowaiki was paroled in January 2020 and was immediately back in business, according to a piece he wrote for the digital newsletter Airmail in March.
"Access is king"
“From the minute I was released, I kept getting phone calls from people wanting to buy paintings from me, or wanting me to sell their paintings, or even partner with me," he wrote. "I couldn’t help it: I’m good at dealing art, just terrible at managing money.”
In an interview last week, Chowaiki (who is writing a book about his experiences in the art trade) told me the phenomenon surprised him at the time but makes sense in retrospect.
“Access is king,” he says. “It’s very slim pickings in terms of who you can deal with in this industry. How many people know stuff that is actionable? A lot of people pretend like they know it.”
The business opportunities that have come to Chowaiki since his release give the lie to one of the most well-worn adages about how to succeed in this industry. “People in the art world always say, ‘It’s about your word, it’s about your reputation,’ and then no one gives a shit about your word or your reputation,” he says—provided you can get results.
History supports this in terms of gallerist reputations, too. Remember Ann Freedman, the longtime director of the Knoedler gallery, which sold $70m worth of forged works to its esteemed collector base over the course of 14 years? She settled the last of the civil lawsuits against her in 2017, was never charged with a crime and still operates a private dealership on the Upper East Side. (Freedman maintained throughout that she was the “perfect mark” rather than a co-conspirator.)
How about Perry Rubenstein, the disgraced gallerist who served six months behind bars for embezzlement charges pressed by collectors Michael Ovitz and Michael Salke over his fiscal malfeasance in a trio of six-figure resale transactions? “After his release from prison, Mr. Rubenstein worked as a consultant to art collectors,” according to his obituary in The New York Times.
But these examples clarify a vital distinction: whether in art or other markets, frauds are committed by two fundamentally different categories of people. The first intends to con clients from the start, and their success depends on a talent for strategy and deception; the second builds a career by operating cleanly (if not quite always honourably) but gradually slides into improvisational malpractice, often because of a sudden misfortune or a bad stretch of business.
Chowaiki agrees with this assessment: “They are two different personalities. One is more brazen, the one that sets out to cheat. The other ones are a little more bumbling, because you’re desperate and you need to figure something out quickly. I’d include myself in the latter category.”
The former category, by contrast, includes the likes of faux heiress Anna Delvey (née Anna Sorokin) and virtuoso art forger Wolfgang Beltracchi. The details of their respective deceptions were different, but the profiles that each built in the art market were founded entirely on deceit. Until they began conjuring illusions, no one in the art world cared about what they were selling (figuratively or actually).
A bad business
Although many art professionals understand that the arcana and the opacity of major secondary-market transactions incentivise fraud, too few grasp the role other aspects of the business play.
Consider, for instance, the extraordinarily low sales volume done by dealers at modestly-sized galleries. Headlines tend to fixate on the high dollar values of art transactions gone bad. But what makes the high dollar values so important is that every deal is relatively rare, and only a few of them will make or break an art reseller’s year. This dynamic supercharges the temptation for dealers to do anything—even break the law—to keep the most promising transactions together.
Also overlooked is the extreme unpredictability inherent in every serious secondary-market deal. Much of this volatility stems from the dramatic difference in approach between major collectors and all but the uppermost echelon of dealers, Chowaiki says: “It’s so loosey-goosey. It’s a hobby for half the players involved in it—the collectors, who are rich. A mistake for a billionaire on one of these things is not a big deal, but for one of us in the industry, a small- to medium-sized dealer, it’s a huge deal.”
The slim margin for error comes partly from another unusual void in the art trade: that of accessible financing options. In the US, modestly sized dealers can seldom manage to secure the types of small-business loans that position their equivalents in other industries to survive hard times or level up in good times.
“If you’re walking around New York and you see a building that’s being vacated, and you say, ‘Wow, that looks like a really good investment,’ you, even as a journalist, could figure out a way to get this [purchase] financed,” he says. “You can’t do that for art. I don’t know any industry that can work without banking.”
Art-secured lending does nothing to alleviate the pressure. This niche financing mechanism depends almost entirely on being able to borrow against a blue-chip personal collection, a resource that dealers at modestly-sized galleries simply do not have. (Unless, that is, they were independently wealthy to start.) Even in edge cases—say, a middle-class dealer who bought one work by a hot artist early and can later leverage its huge increase in value through an art-secured lender—the interest rates are often onerous, meaning they can defuse one financial bomb only by arming another.
Regulation is not a wonder drug
To be clear, I am not crusading against thoughtful, industry-specific regulations for the US art trade. Note that none of the fraud cases referenced in this column took place in the UK or Europe, which have imposed more rigorous “know your customer” and due diligence checks via the fifth Anti-Money Laundering Directive. These requirements are designed to cut through the layers of subterfuge that bad actors in the resale market typically exploit.
“There are so many people involved in a secondary-market transaction. You can have a real daisy chain of dealers—and I’m using that term ‘dealer’ in the loosest way possible,” Chowaiki says. “A lot of intermediaries don’t know who either end party is. Sometimes they’re lucky if they know who one of the end parties is. All the other people in the middle are pretending to be integral to the deal.”
Regulations are a single medication being viewed as a panacea. Every regulatory framework has loopholes, particularly in an international market where each country’s requirements are different. The scary truth is that the most rigorously regulated markets in the world are all still rife with scams. Finance? Banking? Real estate? Healthcare? Each of these industries is governed by thousands of pages of legislation, dedicated enforcement agencies and strict licensing regimes. Yet people are defrauded in them every day, sometimes colossally so.
The nefarious and the desperate will always find vulnerabilities to exploit. No law can change human nature.
I also remain sceptical that even smartly regulating the US art market would bring in so many new buyers as to meaningfully increase the number of transactions (and thus, lower the stakes) for dealers at modestly-sized galleries. Unless you are a billionaire, the art world is still an expensive and largely unwelcoming space. Access to high-value work is restricted to buyers willing to immerse themselves in an enigmatic education and a demanding social circuit (and do a little groveling along the way).
Nor does such a regulatory shift seem likely to make US banks eager to write loans to small businesses in an industry where the turnover will still be low and unpredictable, the assets will still be difficult to value and the norms will still be esoteric to anyone who does not devote their life to absorbing them.
Thoughtful regulations could redress some of the structural flaws that incentivise fraud in the art trade, and that would be a good thing. But after those rules are implemented, the art world will still turn on a culture of exclusivity orbiting an arcane form of expression anchored by the gravity of extreme wealth. Much of that wealth, by the way, has been built on labour exploitation, tax evasion and other practices that violate laws, ethics or both.
So yes, the latest low tide in the market may have revealed a new group of folks swimming naked. But if you think a little more legislation or a lot more jail time for convicted fraudsters will convince everyone to suit up properly the next time the tide comes in, think again.