Sotheby’s Found NOT GUILTY by Jury in New York

by Amineddoleh & Associates LLC | Jan 30, 2024 | 0 comments

Nu Couché au coussin Bleu by Modigliani. Image via Artsy.

For years, the art world watched the dispute between Russian oligarch Dimitry Rybolovlev and Swiss shipper-turned-dealer Yves Bouvier. While their relationship’s start seemed fruitful and equally beneficial as it led to Rybolovlev’s acquisition of some of the most highly sought-after art treasures, the tide turned when the Russian billionaire discovered that Bouvier had been dishonest about information related to arts sales. Rybolovlev began a legal battle, engaging in scorched earth tactics to pursue claims against Bouvier in jurisdictions around the world. With allegations by a billionaire collector against one of the art world’s best known freeport owners and lavish dealers, many players in the art world were swept up in the fight. 

At the heart of the dispute is whether Bouvier committed fraud and breached a fiduciary duty to Rybolovlev. The Russian collector alleges Bouvier flipped high-end artworks that he significantly marked up, although Bouvier represented to Rybolovlev that he was only making a 2% commission on the sales. In some instances, Bouvier concealed the fact that he or one of his shell companies had purchased the artwork shortly before selling it to Rybolovlev. The Russian billionaire alleges this was fraudulent. In addition, the collector argues that Bouvier breached his fiduciary duty because he was the seller, despite Rybolovlev’s belief that Bouvier was serving as his agent and advisor, not as a party with an ownership interest. Bouvier argues he was not Rybolovlev’s agent or advisor. The bounds of the relationship are not clear. 

A scorned Rybolovlev filed charges about Bouvier in numerous countries. Eventually, Bouvier was arrested on criminal charges in Monaco in 2015 but was released. Equally salacious were Rybolovlev’s attempts to have authorities prosecute Bouvier, leading to claims that the Russian collector bribed law enforcement to pursue the case against Bouvier. It became known as “Monaco-gate.”

Eventually, Rybolovlev’s legal claims against Bouvier were either dismissed or settled, with the last one settled in December 2023 over claims filed in the United States. However, Rybolovlev felt wronged and thought others were complicit in supporting Bouvier’s fraud, and thus outstanding legal issues remained concerning other parties that were allegedly part of a fraud orchestrated by Bouvier. As Sotheby’s worked with Bouvier to conduct private sales to the collector, Rybolovlev sued one of the world’s leading auction houses in the Southern District of N.Y. (Accent Delight Int’l v. Sotheby’s, 18-CV-9011 (JMF) (S.D.N.Y. Nov. 21, 2023). The highly anticipated trial began during the second week of 2024. Closing arguments took place on Monday with the jury deciding the verdict in under 6 hours on Tuesday, January 30. 

One of the works Rybololev purchased. Tête by Modigliani. Image via Sotheby’s.com.

WHAT WERE THE ALLEGATIONS AGAINST SOTHEBY’S? 

Rybolovlev sought $377 million in damages from Sotheby’s, alleging that the famed auction house was complicit in Bouvier’s scheme. He argued that he relied on documents from Sotheby’s when making lavish purchases of blue-chip artworks. Rybolovlev alleged that Sotheby’s and Sotheby’s, Inc. (together, “Sotheby’s”) aided and abetted Bouvier in committing fraud. The complaint reads: 

“Sotheby’s gave Bouvier written materials designed to induce Plaintiffs to pay inflated, fraudulent prices. After transactions, Sotheby’s lent a veneer of legitimacy and expertise to those fraudulent prices by providing Bouvier with inflated appraisals on demand. Sotheby’s intentionally omitted the sales to Bouvier from the transaction histories listed in these appraisals. In short, Sotheby’s assisted Bouvier in acquiring artworks at prices the sellers were willing to accept while helping him charge Plaintiffs fraudulently inflated prices (and concealing the actual acquisition prices from Plaintiffs).”

To successfully prove that Sotheby’s aided and abetted in the commission of fraud, Rybolovlev would have had to prove: “(1) the existence of an underlying fraud; (2) knowledge of the fraud on the part of the aider and abettor [in this case, Sotheby’s]; and (3) substantial assistance by the aider and abettor in achievement of the fraud. Many federal New York courts additionally consider whether the alleged “assistance” constitutes the proximate cause of the damage. “But-for” cause may be insufficient. See, Pension Comm. of Univ. of Montreal Pension Plan v Banc of Am. Sec., LLC, 446 F. Supp. 2d 163, 201-02 (S.D.N.Y. 2006) (“aider and abettor liability requires the injury to be a direct or reasonably foreseeable result of the conduct.”).

While Sotheby’s filings did not deny that Bouvier committed fraud, the auction house addressed allegations against it. As in any legal matter involving claims of fraud, it is a hurdle proving that someone had actual knowledge about a fraud. (This is what Ann Friedman argued in the Knoedler Gallery scandal—she claimed that she did not know that the forgeries sold through the gallery were not authentic.) As predicted, Sotheby’s denied knowledge of, and participation in, any scheme by Bouvier. As I told many reporters during the trial, I expected that Sotheby’s would not be found guilty for this reason– proving knowledge is a challenge. 

On Jan. 30th, 2024, the New York jury cleared Sotheby’s of the allegations. The jury deliberated for six hours before releasing their verdict, and found in favor of Sotheby’s on four claims. This has the potential to put an end to the decade-long battle that stems from activity between Rybolovlev and Bouvier. 

WHY WAS THIS CASE SO IMPORTANT? 

The allegations in this case were not that particularly shocking because accusations of fraud are common, especially because fraud often occurs in the market. The art market is full of forgeries, price-escalation schemes, unnamed middlemen, collectors who do not conduct due diligence, and parties that do not disclose their interests in artworks for sale. But what is special about this case is that the public gets a glimpse into the rarefied world of art collectors and the uber-wealthy. 

Christ as Salvator Mundi by Leonardo DaVinci. Image via Financial Times.

WHAT WAS NOT SURPRISING? 

It was surprising that Bouvier thought Rybolovlev would not learn about the major markups. Rybolovlev first began to suspect he was being swindled in 2014 – a good twelve years after he and Bouvier began their dealer-purchaser relationship. It is astonishing that Bouvier kept his activity secret for as long as he did, because, in those dozen years, Rybolovlev was mixing with major players in the art world and art media at large – in both formal and informal settings. 

In 2014, Rybolovlev read a N.Y. Times article that reported the price of Christ as Salvator Mundi (from the 2013 Sotheby’s private sale) to have been between $75-80 million. Enraged, Rybolovlev contacted Bouvier, who dismissed the Times’ reporting as a mistake. He stated that the media’s price was faulty, and that it did not include fees and commission.  Rybolovlev was not convinced. Bouvier – panicked – reached out to Sotheby’s to get an appraisal. The ensuing appraisal (made in January 2015) marks the work’s value at $100 million. However, the named price seems to have been prompted by an email from Bouvier, which requests this $100 million evaluation. It further omitted the 2013 sale of the work to Bouvier (which Sotheby’s brokered). 

Even so, from Rybolovlev’s perspective, this appraisal from such a storied and knowledgeable institution could have seemed legit. Bouvier’s subterfuge may have continued to work for another twelve years. However, Rybolovlev was too well connected in the art world for this to continue. While Bouvier scrambled to have the Salvator Mundi appraised, Rybolovlev got his next clue over a casual lunch with a friend in St. Barts in late 2014. Because of Rybolovlev’s connections, it came as no surprise that his lunch partner was an experienced art advisor. The N.Y. Times reports that Rybolovlev was enjoying a casual lunch with his art advisor friend at the Eden Rock hotel on St. Barts when he learned the true price of a Modigliani painting (likely Nu Couche au Coussin Bleu). 

With the art world being so small, it is not surprising that Bouvier’s scheme was uncovered. It was only a matter of time before the constant chatter in the art world eventually led to the dissolution of their relationship and to a bitter feud involving hundreds of millions of dollars and featuring the bluest of the blue-chip artists in the high-stakes art world. There are few collectors with the funds to acquire works at such astronomical prices, and even though parties often remain anonymous, it was inevitable that word would get back to Rybolovlev that he was suckered out of hundreds of millions of dollars. 

WHAT WAS SHOCKING?

The mere fact that the billionaire sued Bouvier in several jurisdictions around the world, and then pursued Sotheby’s, is actually the most shocking part of this ordeal. Rarely are private and uber-wealthy collectors willing to disclose so much about their personal dealings and friendships. When parties engage in litigation, information is disclosed, and the public is eager to learn more about the dealings of both Rybolovlev and Sotheby’s.  

WHAT DOES THIS SAY ABOUT THE MARKET FOR ART AND ANTIQUITIES?

The art and antiquities market is notorious for being opaque. Anonymity is protected for many reasons, many of which are legitimate. The NY Times traces the secrecy in the market to 15 and 16h century Europe “when the Guilds of St. Luke, professional trade organizations, began to regulate the production and sale of art in Europe. Until then, art was not so much sold as commissioned by aristocratic or clerical patrons. But as a merchant class expanded, so did an art market, operating from workshops and public stalls in cities like Antwerp. To thwart competitors, it made sense to conceal the identity of one’s clients so they could not be stolen, or to keep secret what they charged one customer so they could charge another client a different price, incentives to guard information that persist today.”

However, the lack of information causes major problems because market participants cannot make rational decisions about purchases. The lack of information also leads to challenges completing due diligence, confirming title, navigating the authentication process, preventing money-laundering, and even understanding where artworks go after disputes are resolved (like divorces or business dissolutions). And as we’ve seen in the most recent litigation, it’s not possible to follow the money and determine who is profiting from transactions. Here, Rybolovlev did not know that Bouvier was an interested party with an ownership interest—that lack of knowledge led the collector to trust Bouvier. Rybolovlev did not know that Bouvier was acting against his interests and not on his behalf. While Rybolovlev thought Bouvier was his agent, he was actually the party on the other side of the negotiations. 

As Rybolovlev stated during trial, “It’s important for the art market to be more transparent . . . clients don’t stand a chance.” Sotheby’s countered by putting the onus on buyers to do their own homework. The auction house reminded the jury that Rybolovlev is a successful businessman who has conducted major business deals and who should be familiar with due diligence.  Sotheby’s stated, “Throughout Mr. Rybolovlev’s testimony, it was patently clear that, as a self-made billionaire with a diverse and expansive network of interests, none of the care and attention to detail he attended to his businesses were given to his art transactions.” Unfortunately, this is common for art collectors—many do not complete sufficient due diligence. 

WHAT COULD RYBOLOVLEV HAVE DONE TO PROTECT HIMSELF? 

The art market is unusual in that some people pay vast amounts of money on acquisitions without doing much due diligence. This may be because people feel comfortable when operating in such a rarefied world. Some collectors get swept up in the glamor of the art world and act irrationally, forgetting that art world scams occur.

While the art market is not quite ready for full transparency, there are steps collectors can take to protect themselves against predatory practices or fraud. Collectors should have written agreements specifying what a broker/advisor will make on a deal, as well as language that prohibits that advisor/dealer from holding an ownership interest in a work (such as buying it beforehand to flip it, or purchase the work for a company in which he or she has an ownership interest). There are contractual tools used to reduce the risk of deceptive and misleading business practices. An agreement may require parties to disclose information about whether an advisor has an ownership interest in a work. It could also set forth clear information about kick-backs and payments being made to an advisor so that the advisor does not double-dip or play multiple roles in a transaction. To the best of our knowledge, Rybolovlev did not have any of these legal tools in place. If he had them, it would have been easier to sue Bouvier for breach of contract – something easier to prove than fraud.

In addition, collectors should ask for more information and require certain disclosures about parties’ interests. If Rybolovlev had an attorney for the transactions with Bouvier, the attorneys should have required Bouvier to disclose his relationship with sellers and other potential  middlemen. If Bouvier lied in these documents, then fraud claims would have been easier to prove. 

WHAT IS THE SIGNIFICANCE OF THE CASE?  

The case against Sotheby’s was interesting for a number of reasons. First, it reveals a great deal about the art and antiquities market. There are many buyers engaging in transactions with little to no due diligence, whether their acquisitions are relatively inexpensive or in the tens of millions of dollars. Second, because of the lack of due diligence and transparency, some parties misrepresent or decline to provide material information about transactions, including the identities of parties, the actual sale prices, as well as commissions and kick-backs. Without this information, it is easy for parties to engage in fraud, including financial schemes, forgery conspiracies, and the sale of stolen art and looted antiquities. Finally, the case has provided the public with insights about the high-end art and antiquities market, including a glimpse into the business practices and private relationships of high-end dealers, auction houses, and collectors.    

The amount of attention given to this dispute will hopefully encourage art market participants to evaluate their business practices. Although Sotheby’s was not found guilty, the auction house dealt with negative publicity, faced questions about their internal policies, and paid a hefty bill for its legal defense. It would be interesting to learn whether the trial led to Sotheby’s amending any of its internal policies and business practices. 

Today, the art and antiquities market is largely unregulated, particularly because major deals are conducted behind closed doors with little oversight. This litigation is a great opportunity for the court to provide guidance to protect parties to these sales and clarify what information a dealer/advisor must provide to his or her clients.  

Although Rybolovlev was not successful in this legal action, his lawyer stated that one of his client’s aims was met because the case shined “a light on the lack of transparency that plagues the art market.” He also stated, “That secrecy made it difficult to prove a complex aiding and abetting fraud case. This verdict only highlights the need for reforms, which must be made outside the courtroom.”