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In June, the fugitive art dealer Inigo Philbrick was caught on a road in Vanuatu, a small island in the Pacific, by a gang of police and FBI agents. He will be sent back to New York to face criminal charges that he organized an artistic fraud that could potentially exceed $ 50 million.
The case highlighted two issues that are likely to become crucial in the art market this year: art loans and guarantees. Both could be affected if the market plunges drastically, which seems likely.
Philbrick is accused, among other charges, of defaulting on $ 14 million from the art lending company Athena Art Finance. Such loans are legion in the art world and legitimately used to finance commerce, but problems arise when values start to tumble.
In Philbrick’s case, his in-depth knowledge of the Rudolf Stingel market proved to be useless when he started filming after 2017. According to data analysts ArtTactic, Stingel’s sales fell 14% at auction in 2018 by compared to 2017. Photorealistic portrait of Picasso by Stingel, bought by Philbrick for $ 7.1 million circa 2017, which only grossed $ 5.5 million hammer when it was auctioned by Christie’s in 2019 By that time, Philbrick had in fact sold over 100% of the work to other investors and allegedly falsified a price of $ 9. I’m the auction house’s guarantee agreement, but that’s a different story.
Philbrick was not the only shopkeeper to find himself swimming naked at low tide (even if he was caught in swimming trunks…). New York art dealer Anatole Shagalov has just been hit with a $ 2 million summary judgment by a Manhattan court for buying, but not paying for, a Keith Haring (he is appealing). Shagalov has repeatedly borrowed from art lending companies, as his former lawyer Matthew Hoffman once explained: “He borrows money, he buys art. He tries to sell it for higher prices. Repeat. What worked until it stopped working.
It seems inevitable that others who have negotiated on this basis – loans for art – will find themselves in trouble because of the Covid-19 pandemic. We have already heard many discount reports, and with lower prices, borrowers can find it difficult to repay their debts.
A shrinking market could also have an impact on another strategy, that of betting on art via auction guarantees. It’s a quick way to kill without spending a dime, as long as someone else steps in to buy the guaranteed job. But if no one else bids, the guarantor ends up with a job they can’t necessarily pay for.
In 2018, Philbrick offered 20 to 25 guarantees on works by popular artists like Stingel, Christopher Wool or Wade Guyton. It was all just great as the market went up, but some of the gilding had already come off this particular piece of gingerbread even before Covid-19 hit: Last year, Art Tactic reported that guarantees had fallen by 43.4% in June 2019, for sales of post-war and contemporary art.
The sale of impressionist and modern art at Sotheby’s in New York on June 29 was half as guaranteed as last year, as was the sale of contemporary art (ten lots guaranteed against 20 last year). Sotheby’s also offered the Ginny William hardware, backed by a 100% guarantee. Only one thing is certain: Philbrick was not bidding on any of them.