The Perelman Gagosian Battle

The NY Times takes a look at the battle and lawsuit between collector Ronald Perelman and gallerist Larry Gagosian. The lawsuit is supposedly going to expose the dirty side of the $60 billion a year high end art business. The article touches on the commodification of the high end art, auction guarantees and art speculation.  Really nothing new, and nothing that has not happened in the past, although the dollars involved is are certainly impressive. An interesting article, and worth the few minutes it takes to read.

The NY Times reports

Ronald O. Perelman slides into a chair in his office surrounded by proof of his “wall power”: an Andy Warhol print, a Roy Lichtenstein landscape and one of Cy Twombly’s giant squiggle paintings.

Mr. Perelman has collected art for as long as he’s been collecting companies. His trove of postwar and contemporary work, amassed over more than 30 years and spread among his Manhattan townhouse, East Hampton estate and 257-foot yacht, is estimated to be worth more than $1 billion.

Today, however, he wants to exhibit a different side of the art world. Through a lawsuit against his former friend and art dealer Larry Gagosian, Mr. Perelman has set out to expose what he calls the “dirty” side of the glamorous, opaque, $60-billion business of buying and selling high-end art.

“Art is such a beautiful thing,” Mr. Perelman told me recently in his first interview on the subject. “But it’s been sullied by an ugly business. It needs to be fixed.”

Mr. Perelman has his own share of critics, of course. This 71-year-old billionaire C.E.O. of MacAndrews & Forbes Holdings — which owns or controls companies including Revlon, Scientific Games and Deluxe Entertainment — is better known for his public divorces and hardball business tactics than he is for moralizing about market reform. He is one of the most sophisticated players in the art market, with his own special art fund and curator. He is the consummate insider.

In a statement, Mr. Gagosian’s lawyer, Matthew S. Dontzin, said that “Ron Perelman’s disingenuous claims that he is a crusader are nothing more than a cover for the fact that he is a notorious bully with a well-known history of filing meritless litigations who once again won’t pay what’s owed.”

Mr. Gagosian declined to comment for this article.

Still, whether or not they sympathize with Mr. Perelman, many dealers and collectors appreciate his well-funded effort — he’s spent millions on lawyers and a team of investigators. The art market, many say, is now driven more by speculation and trading than by long-term collectors or underlying value. Even as prices reach glittering new highs, with $58 million Balloon Dogs and $142 million Francis Bacon triptychs, art remains one of the world’s largest unregulated markets, with remarkably little disclosure or conflict-of-interest rules.

Auction houses, for instance, now use “third-party guarantees,” in which an anonymous investor or collector agrees to buy a piece before auction at an undisclosed price. Those investors can also bid on the work and get a share of profits if it sells to someone else for a higher price. Dealers commonly buy back work from their own artists to support prices, collectors and gallerists say. And more top works are being bought, traded and sold by groups of individuals with undisclosed business ties.

“The market has certainly become more commodified,” said David Nash, the New York gallerist and former Sotheby’s executive, who isn’t involved in the Perelman-Gagosian feud. “Art’s considered much more of a tradable asset now. I would agree there is a need for greater transparency.”

Back in 2011, Mr. Perelman and Mr. Gagosian were close friends and had been for more than 20 years, attending parties and charity events together and partnering on a restaurant in the Hamptons, the Blue Parrot.

Mr. Perelman had bought or sold nearly 200 works of art through Mr. Gagosian, helping Mr. Gagosian become one of the world’s most powerful dealers, with more than $1 billion in sales and galleries in New York, London, Paris, Hong Kong, Rome and other cities. In turn, Mr. Perelman built a collection of prized works that have soared in value over the last decade.

One afternoon in April 2011 at Mr. Gagosian’s gallery on Madison Avenue, Mr. Perelman was captivated by a shimmering blue Twombly painting on the wall; it was titled “Leaving Paphos Ringed With Waves.” Mr. Gagosian said it was valued at around $8 million. Mr. Perelman offered around $6 million.

According to court filings, Mr. Perelman approached Mr. Gagosian a little more than a week later with another offer. But Mr. Gagosian had already sold it — to an entity based in the Cayman Islands controlled by the Mugrabi family, megacollectors who often partner with Mr. Gagosian to buy and sell art. The Mugrabis bought it for $7.25 million, paying in part with their ownership stake in artwork also co-owned by Mr. Gagosian.

Mr. Gagosian didn’t tell Mr. Perelman who the buyer was. But he told Mr. Perelman that if he still wanted to buy the piece, the new price would be $11.5 million. In September, Mr. Perelman agreed to pay $10.5 million, giving the Mugrabis a quick $2 million profit and Mr. Gagosian a $1 million commission.

The deal shattered their friendship. Mr. Gagosian and Mr. Perelman sued each other on the same day in 2012. In his suit, Mr. Gagosian accused Mr. Perelman of breach of contract, saying he failed to adequately pay for the Twombly and other works, offering cash and “unwanted” art in exchange that fell $1 million short of the promised payment. (That suit was withdrawn, but Mr. Gagosian still says he was never paid in full.) In suing Mr. Gagosian, Mr. Perelman contended fraud, saying the Mugrabi sale was a “sham” aimed at jacking up the price.

“The striking jump in price, the lightning-fast chronology of events and the absence of a typical invoice for the sale, all call into question the propriety and bona fides of the sale,” Mr. Perelman’s lawyers said in court filings.

Mr. Perelman declined to comment on the case’s specifics or on Mr. Gagosian, but said his desire to shine a light on the market went far beyond his Twombly purchase. “This is the tip of the iceberg,” he said. Mr. Gagosian’s lawyers say the Mugrabi purchase was an “arm’s-length transaction” supported by all the proper invoices and documentation.

In the last few months, Mr. Perelman has turned the art world upside down. His lawyers have sent subpoenas to some of the biggest players in the business and sent art experts to galleries and dealers and even to visit artists. He subpoenaed members of the Mugrabi family. (Jose, David and Alberto Mugrabi gave depositions last month.) He has also submitted subpoenas to the auction houses Sotheby’s and Phillips, according to court filings.

He’s even enlisted a former F.B.I. agent who is well versed in the art business to interview big collectors and dealers, according to two gallery owners. Major artists close to Mr. Gagosian have also been questioned, these gallerists say.

According to court papers, Mr. Perelman is seeking information related to dealers, collectors and investors who deal with Mr. Gagosian. Mr. Gagosian’s lawyers say the interrogation is an effort to “harass Gagosian and disparage the gallery.”

Mr. Perelman has already spent an estimated $3 million or more on lawyers and research. A settlement looks unlikely. At a recent mediation session ordered by the court, Mr. Perelman and Mr. Gagosian sat in the same room, but didn’t speak to each other.

Source: The NY Times