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Hallie Ayres
Contributing Writer

Reports of all types of fraud have skyrocketed over the past year, and with all the bizarre twists and turns, and the arts industry was not immune. As commerce migrated online for auction houses and art fairs, tax evasion, money laundering and wire fraud grew more common in the fine arts business.

The art market faces unique anti-fraud challenges due to the nature of how transactions are typically managed. In many cases, auction houses allow for both buyers and sellers to keep their personal identifying information private, often using simple monikers like “private collection” instead of someone’s name. This can lead to difficulty in investigating potential fraudulent transactions or dubious actors. Artworks can also be sneaky mechanisms by which fraudsters can operate money laundering schemes under the radar of anti-fraud monitors.

While some of the year’s art fraud cases were a result of scammers taking advantage of the vulnerabilities in the system that COVID-19 exposed, a lot of major art world fraud news came after years-long schemes were finally uncovered and fraudsters were finally charged. Here are four major stories that erupted onto the scene.

Auction house faces tax evasion convictions

In April, Christie’s auction house agreed to pay $16.7 million to the Manhattan District Attorney after being found guilty of evading the collection of New York sales tax on private sales of artworks, totaling $189 million, between 2013 and 2017. The payment is split into two parts: a lump sum of $10 million, and then $6.7 million for penalties, sales tax and interest. The violations spanned Christie’s private sales department and its offices outside of the United States: the auction house was discovered to have failed to collect sales tax on works delivered to buyers in New York, even if the work was sold by an overseas office.

Part of Christie’s infractions stemmed from incorrect information given to the company back in 2013 when a lawyer claimed that the auction house did not need to collect New York tax on transactions made out of their foreign offices. The company’s tax and accounting officials allegedly realized their error in 2015, but internal documents show that the company attempted to cover up their mistake rather than rectify it. Going forward, the auction house’s tax manager logged private sales as sales from their New York office in an effort to evade an external audit.

A spokesperson for Christie’s told Artnet News, “For the past several years, Christie’s has worked in cooperation with the Manhattan District Attorney’s Office to resolve specific issues created as a result of incorrect tax advice Christie’s received regarding the application of sales tax obligations for specific non-US affiliates. The company has since reviewed its advice and internal processes to ensure compliance with relevant tax law. This settlement agreement brings the matter to full resolution.”

Taxpayers fleeced out of millions

Christie’s wasn’t the only auction house to face scrutiny for tax evasion: Sotheby’s was hit with two filings, in October and in November of 2020, alleging the company assisted a collector to avoid $27 million in sales taxes between 2010 and 2015. Both filings, registered by the New York State Attorney General, claim that Sotheby’s accepted and provided resale certificates to an unnamed collector despite knowledge that the collector was not planning to resell the work. According to the filing, about thirty Sotheby’s employees knew of the fraudulent resale certificate scheme, which granted benefits to the collector that are normally given only to dealers.

In a statement, New York State Attorney General Letitia James said, “Sotheby’s violated the law and fleeced New York taxpayers out of millions just to boost its own sales. This lawsuit should send a clear message that no matter how well-connected or wealthy you are, no one is above the law.” Sotheby’s infraction comes on the heels of a 2018 complaint in which Sotheby’s provided evidence that led to a payment to the Attorney General of $10.75 million from Porsal Equities, a company that had evaded taxes on nearly $50 million worth of art purchased through Sotheby’s.

Phony pop art plagues the market

Since the advent of internet commerce, scammers have been able to get away with selling fake art or memorabilia claiming to have a more impressive provenance than is reality. Experts note that art prints are a common tool that scammers use to make money with unsuspecting online buyers. Prints are relatively easy to counterfeit and garner low enough prices that buyers tend to be newer collectors with a less discerning eye for spotting a fake. With e-commerce, buyers do not have to jump through the hoops to validate their phony works that they’d be subjected to if going through an auction house or a reputable dealer. Now, fraudsters can simply list a work with a fake certificate of authenticity on an online platform and expect it to be sold. Throughout this year, as anti-fraud fighters cracked down on other types of virtual fraud aggravated by the massive switch to virtual transactions due to the pandemic, a number of fraudulent art schemes were discovered and held accountable.

In July, Philip Righter, an art dealer from West Hollywood, California, pled guilty to wire fraud, tax fraud and aggravated identity theft after investigations into his practice found he had sold nearly $6 million worth of paintings between 2016 to 2018 by falsely claiming they were by famous pop artists. In his plea agreement, Righter admitted to not only selling fake art but also using counterfeit works as collateral for loans he defaulted on. In addition, Righter acknowledged that he had used works as income tax write-offs, amassing more than $100,000 in tax refunds by lying about donating art to charity.

The anachronistic paint blunder

Also in July, the FBI raided a home in Michigan after an investigation into 60-year-old Donald Henkel, who is accused of having orchestrated a scheme since 2016 wherein he created paintings that he sold to collectors as forgotten or missing works by well-known American artists. The FBI worked with art forgery experts who were tipped off to the scheme after a buyer grew suspicious of a purchased work that was absent from any archive of the purported artist’s work. After reaching out to experts to examine the painting, they discovered that the canvas contained acrylic paint, a material that did not yet exist at the time the alleged artist of the work had been alive. Subsequently, the FBI received a warrant for the raid on the grounds of suspected mail and wire fraud.

The men who trafficked in fake documents

Lastly, on September 22, the U.S. Department of Justice announced the arrest of two Manhattan-based antiquities dealers: Erdal Dere, 50, the owner of Fortuna Fine Arts Ltd, and his business partner, Faisal Khan, 47. The two men have been charged for maintaining a five-year fraud scheme of selling antiquities by fabricating provenance records.

According to the indictment, Dere was also charged with identity theft “for his misappropriation of the identities of deceased collectors who were falsely represented to be the prior owners of the antiquities.” Khan is alleged to have assisted Dere in acquiring new antiquities to sell, scouting potential buyers and falsifying records for these buyers. Fortuna Fine Arts did not maintain a website or list inventory publicly, allowing Khan and Dere to sell directly to known buyers from 2015 until their arrests.

As quoted in the indictment, FBI Assistant Director William F. Sweeney, Jr. said, “Antiquities and art allow us to see a piece of history from a world that existed hundreds and, in some cases, thousands of years ago. As alleged, the men who trafficked in fake documents and used dead people’s names to bolster their lies had no care for the precious items they sold and no regard for the people they defrauded.”

While federal and state law enforcement agencies remain committed to eradicating tax evasion within large institutional settings, the best advice to avoid being subject to a phony art scheme is the same for any type of potential fraud scenario: if something seems too good to be true, it probably is!

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