If want to show off your wealth, you might buy a painting by a famous artist and hang it in your home for everyone to see.
That was true for European hedge fund manager Pierre Lagrange, whose prize was this Jackson Pollock:
“The Silver Pollock”
In previous editions of this newsletter, we’ve discussed the history of art as both a status symbol and as an investment. And since the 1980s, abstract expressionist art has appreciated rapidly, especially for famous, dead artists like Pollock.
A painting like the above would be easily worth $20m; Lagrange thought as much when he took the painting to Sotheby’s to be auctioned. Lagrange had filed for divorce from his wife and an asset this large needed to be addressed in the settlement.
To his surprise, Sotheby’s turned him down, as later did Christie’s. They both expressed concerns about the age of certain pigments in the work and subsequently, declined to list it. As one of the roles of an auction house is to verify a work, neither of the auction houses would do so.
Lagrange was a sophisticated buyer; he had purchased the work from the oldest art gallery in the United States, the Knoedler.
Knoedler had a major reputation in the art world, having survived the US Civil War, both World Wars, and the entire 20th century intact. Its earliest clients included leading 19th century industrialists such as J. P. Morgan, Cornelius Vanderbilt, and Henry Clay Frick, and its later clients included the head of Bear Stearns, the royal family of Qatar, and various art museums around the world.
What Knoedler was not famous for was mid-century pieces like the Pollock. The gallery had missed the rise of post-modern artist, whereas other galleries specialized in them.
However, in the late 90’s and early 2000’s Knoedler repeatedly came into possession of a treasure trove of blue chip artworks from mid-century abstract artists like Pollock, Motherwell, and Rothko.
There was just one problem.
The paintings were all fakes. Lagrange’s Pollock was suddenly worth $0.
Are NFTs Any Better?
I know what you’re thinking. This is a newsletter about art x NFTs. Here is where I might point out that every NFT has a digital lineage, as every transaction is recorded publicly for all to see.
In edition #1, I included a picture of Cryptopunk that was flipped for a $1.24m profit in a matter of 26 minutes. Because ledgers are public, anyone can trace the sale of an asset from one wallet to another.
The case of the Cryptopunk, the flipper was NFT Artist Pranksy, who has been active in the NFT world since 2017.
Some people stalk famous wallets and buy on-trend NFTs based what on other collectors are buying. Pranksy minted 1,250 of the original Bored Ape Yacht Club collection, setting a clear bet behind the project early on. (They own a single ape as of today; alas, the original 1,250 would be something like $200m+ #yolo.)
Public wallets also allow users to be found, as I did with Pranksy.
So I asked them, was your plan to flip the Cryptopunk? If so, how do you see the influx of money changing the NFT space?
The reply came:
It was intended to sell on within a few days as I had other NFTs I planned to invest in that were launching… Before we were a bunch of hobbyists and believers, now the sky is the limit.
Here’s the thing about limits though, sometimes they’re very helpful.
Solanapes
Let me show you a recent NFT project, Solanapes:
Solanapes.com
If they look similar to Bored Apes Yacht Club, you’re wrong.
They’re exactly the same. They are right-click-save versions of BAYC, save for two details:
The color of the background
“Text based” cards, mimicking Loot
The speculation in NFT drives this kind of interest. A project that is hyped and minted quickly can be a $1-2m cash grab.
The project narrative on Solanapes is they’re “rejected apes” from BAYC, framing the approach as a critique of the exclusive BAYC membership.
It’s a blatant knockoff, almost to prove a point. In fact, the Solanapes position seems to be: if BAYC can create 10k unique items by changing a few pixels, we can change a few pixels and create 10k even more unique items.
High-end brands, like watch or handbag companies, have always struggled with knockoffs. In the real world, intellectual property rights were never in question because the forged objects exist.
What do you do if you’re a digital only asset?
When Solanapes dropped its artwork, the BAYC discord server lit up with calls for lawsuits to protect their mutual IP. But that requires proof of injury - the laws around knockoffs have to do with injuries to either buyers, who are duped, or the sellers, who own the IP.
In my opinion, it would be very hard to explain who got hurt if a buyer purchased Solanapes thinking they were the real BAYC. (Though, I will gladly offer my services for free as an expert witness to help a 70 year old judge understand why the jpg of BAYC is worth 10x the value of Solanapes.)
In a decentralized world like NFTs, it would be hard to know who to sue.
Certainty Comes with a Price
I don’t expect you to shed a tear for Lagrange, our hedge fund manager who bought the fake Pollock – he was still worth $200M after all. One could make an argument that anyone who is paying that amount of money for an asset should be absolutely certain what he’s buying.
But the art world has always had a process to achieve this certainty, it’s called provenance.
When purchasing an original artwork, a buyer wants to trace its lineage back to the original artist. Ideally, the piece can originally certified from an artist’s catalog, diary, sketches, or in photos of the studio.
This lineage from artist, to collector, to auction house is one that is carefully curated, including every sale, forensics reports, and opinions from art historians.
Which is why the Knoedler story is so outstandingly bad.
The fake masterworks came from a single source, a dealer representing a Swiss heir to an art collection they purportedly did not want. It was a story poorly told, but the art was so convincing - and so cheap - the buyers and Knoedler wanted to believe they were for real.
Even very wealthy people like a good deal.
The problem for Knoedler is that when one sells art to very rich people, they tend to have very rich lawyers.
Lagrange confronted Ann Freedman, the Knoedler dealer who sold the Pollock to him. He was enraged to have been fooled.
Ann tried to placate him, offering to buy back the Pollock and sell it to someone else. After all, no one wants to make the front page news for being duped into buying fake art, if he went public with an accusation, he would look like an idiot.
This was a miscalculation. Hedge fund managers take financial losses all the time, but what they hate more than anything is losing.
During their meeting, Lagrange made a vociferous promise:
I will set you on fire.
True to his word, Lagrange filed a lawsuit.
In response, the Knoedler gallery closed, after 165 years in business, the very next day.
The $80m Scam
In total, Knoelder sold 60 fake paintings for $80.7m over 20 years. The Gallery earned about $40m in profit. The rest went to a middleman who fabricated the story about the Swiss heir and secretly commissioned the works herself.
The artist, it turned out, was a elderly Chinese math teacher from Queens.
Here was his most important work:
A fake Rothko, by Pei-Shen Qian
Knoelder was sued 10 times and settled 9 of the lawsuits before trial.
What finally dragged Knoedler into court? The Rothko.
Its owner was Domenico De Sole who, when he filed the lawsuit, was Chairman of Tom Ford’s brand of luxury goods.
By the time the case made it to court in 2016, there was no way he could settle.
De Sole had taken a new role; he’d recently become the Chairman of Sotheby’s auction house.
Next time:
The perils of brand success
What French Wines can teach us about NFTs
The coming waves of NFT thefts
The problems of authenticity
Tweet of the Moment
Irony bites deep:
Solanapes warns against alt projects SolApe and The SolApes
I have so much more to tell you,
Paul
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