Dan Loeb’s somewhat rocky investment in auction house Sotheby’s International is coming to an end — and just in time to avoid a lawsuit by a Russian billionaire art collector accusing Sotheby’s of enabling a $1 billion fraud against the collector.
On Tuesday, a New York federal judge said he would allow the lawsuit by Dmitry Rybolovlev, the Russian billionaire who has been engaged in several legal actions against his art advisor, Yves Bouvier, whom Rybolovlev alleges masterminded a fraud involving the sales of 38 masterpieces worth $1 billion. The alleged fraud has been roiling the art world for years.
“Sotheby’s was the willing auction house that knowingly and intentionally made the fraud possible,” the attorneys for the Russian billionaire wrote in their amended complaint, filed June 25 in the Southern District of New York.
“In the 14 transactions involving Bouvier and Plaintiffs that it brokered, Sotheby’s earned tens of millions, or perhaps even hundreds of millions, of dollars in commissions,” the lawsuit alleges.
Rybolovlev claims damages of at least $380 million. Sotheby’s declined to comment.
The judge’s decision to allow the case to go forward follows the news that French-Israeli businessman and art collector Patrick Drahi has reached an agreement with Sotheby’s board to buy the auction house for $3.7 billion, or $57 per share. The sum was a 61 percent premium to the stock price on June 14, according to Sotheby’s.
The deal will be a huge relief (and windfall) to Loeb, whose stake has been underwater for some time. Before the deal was struck, Sotheby’s was trading around $35 — a significant discount to the average price of approximately $44 that Loeb paid for his stake, according to public filings.
Loeb, an art collector himself, is one of the largest investors in Sotheby’s. His Third Point hedge fund owns roughly 14 percent of the stock. Loeb is also on its board, following an activist attack on the venerable auctioneer that began about six years ago and led to a board and management shakeup with a new Loeb-picked CEO.
But the art market is notoriously difficult for the auction houses, especially given the head-to-head competition between Sotheby’s and privately-held Christie’s, as the two have used costly financial guarantees to nab business.
Last year Sotheby’s had net income of $108.6 million, an 8.5 percent decline from the previous year.
The Rybolovlev lawsuit claims that Bouvier was his “agent, counselor, and representative” as he acquired 38 art masterworks for more than $2 billion. Bouvier claimed to be negotiating with sellers, but the lawsuit alleges that was “pure fiction. Instead, Bouvier was negotiating for much lower prices, selling to plaintiffs at markups as high as 145%, and pocketing the difference for himself.”
The lawsuit claims Sotheby’s was involved in 14 sales of famous art masterpieces, including paintings by Picasso, da Vinci, Rothko, and Modigliani — often falsifying documents.
“Before transactions, 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),” according to the lawsuit.
“Sotheby’s actions instilled Plaintiffs’ trust and confidence in Bouvier and rendered the whole edifice of fraud plausible and credible,” it alleged.
According to the complaint, Sotheby’s has admitted its involvement in Bouvier’s scheme. It says Sotheby’s has acknowledged that “Sotheby’s facilitated the sale of 12 of the 37 works to Bouvier, consigned for auction two of the works on Bouvier’s behalf (one of which it previously sold him), and conducted valuations for four of the works (two of which it previously sold him).”
Bouvier has been charged with fraud and complicity in money laundering in Monaco and has been charged with repeated handling of stolen goods in France, according to the complaint, which said that magistrates in both countries are continuing their investigation.
The Russian art collector also sued Bouvier for civil damages in Singapore, his domicile and the site of his art warehousing business. The lawsuit claims that Bouvier has taken measures to liquidate his assets and place them beyond the reach of the Singapore courts.
Plaintiffs also brought criminal charges against Bouvier in Switzerland.
The lawsuit doesn’t seem to have hurt the chances of Sotheby’s sale. The stock closed Wednesday at $58.49, following reports that other buyers may emerge to pay even more for the auction house.
Third Point did not respond to a request for comment.
