Regulation. The air is thick with talk of it. In New York, two court cases involving the dealer Larry Gagosian and the growing opacity of a booming art market amid a prolonged global recession have been some of the many factors that are bringing people round, once again, to proposing greater transparency for the art industry. Could this finally be the end of what Robert Hughes once called ‘the last bastion of nineteenth-century laissez-faire capitalism’?
‘The art world feels like the private equity market of the 80s and the hedge funds of the 90s. It’s got practically no oversight or regulation.’ That’s financier and collector James R. Hedges IV, as quoted recently in a New York Times article auspiciously titled ‘As Art Values Rise, So Do Concerns About Market’s Oversight’. The author of the book Hedges on Hedge Funds (2004), this appropriately surnamed commentator has also had plenty to say about the similarities between art and the ‘alternative investment industry’.
The parallels Hedges makes between the artworld and the early days of hedge funds are telling. Both, according to him, are ‘cottage industries, relationship-based and with zero transparency’, and therefore ‘require special guidance’. Or, one might easily conclude – after considering the short unregulated history of some of these alternative investments – special scrutiny.
As with the subprime mortgage industry and the murky market for credit default swaps, there is mounting concern among artworld insiders that ‘monitoring has not kept pace with the increasing treatment of art as a commodity’. That’s according to the Times, which also notes that primary and secondary market sales currently amount to about $8 billion a year in New York. But the last piece of significant legislation to affect local auction regulations took effect more than 20 years ago – when the money changing hands was less than half of what it is today.
The runaway growth of the art market alone should, by rights, serve as a signal both to art’s players and to authorities that the idea of regulation must be revisited, fast. The fact that the art market has also been home during the last decade to a growing number of financial scandals – most prominently, the $120 million fraud committed by the now defunct Salander-O’Reilly Galleries, the ongoing FBI investigation into the sale of alleged multimillion-dollar art fakes by the once venerable Knoedler Gallery and Gagosian’s public legal wranglings – would appear to drive home the point beyond the obvious. For yours truly, at least, the following conclusion is inescapable: not only is this no longer your father’s art market, but apparently real grownups are suddenly needed to make sure the children don’t go all Lord of the Flies.
Take Gagosian’s spat with business associate Ron Perelman. A ‘longtime friend’ (as he’s been widely termed) turned ‘frenemy’, Perelman has sued Gagosian, alleging fraud – which Gagosian denies – largely because he was unable to sell a Jeff Koons sculpture back to the dealer for what he surmised the work would fetch on the open market. A suit that appears, on the face of it, somewhat lacking in substance, the action has nonetheless pulled the curtain back on the rampant speculation that currently characterises the art market at nearly all levels. If Perelman’s lawsuit is emblematic of anything, it’s that today’s collectors not only expect to reap the kind of profits dealers make when they flip an artwork, but that they’ll go so far as to litigate to get what they think is theirs.
But if the Perelman vs. Gagosian case remains revealing in spite of appearing problematic, Gagosian’s ongoing suit with nonagenarian collector Jan Cowles (she is suing the dealer for selling her Roy Lichtenstein painting without permission) is as serious as cancer. A case in which acting justice Charles E. Ramos has declared that the gallery’s actions ‘sufficiently state a cause of action for fraud’, this suit has produced a deposition that reads like the legal brief version of a smoking gun. In it, Gagosian admits under oath to the fact that he routinely exclusively represents neither the buyer nor the seller in transaction, but rather works both ends of the deal.
According to art lawyer Thomas Danziger – quoted in The New York Observer – ‘under New York agency law, you cannot represent both parties on the same transaction unless there is full and informed consent, and that is clearly what has been missing in a lot of transactions we’ve been reading about’. Regulatory laws protect the fairness of commerce in every other major industry in the US. It’s high time those same protections against fraud and insider information were extended to the rapidly expanding global art market.
This article was first published in the May 2013 issue