Export Restrictions and the Art Market

I am getting ready to head out to the International Society of Appraisers annual conference in Kansas City.  While there I hope to post on the progress and speakers at the conference.  ISA, for years now, puts together a great program and the interaction between appraisers is  so strong it is hard to leave without making useful contacts and introductions to fellow colleagues. I hope to see a lot of AW readers in KC.

The Journal will be for sale as well.  If you are not headed to the ISA conference and wish to order the newest version, click HERE.

CNBC recently ran an interesting article on how export regulations can impact the art market, using Italy as an example. Italy has had some very restrictive regulations on art exports, especially those over 50 years of age.  The Italian government is now looking to aid the art market and the overall economy by reviewing some of these regulations on national treasures and other works of art.

CNBC reports
As Italy's new government promises much-needed business and legal reforms to invigorate the country's economy, experts have flagged one area in dire need of change: Italy's art and antiquities export market.

While the country holds a treasure trove of art dating back to the Renaissance and earlier, tough regulations governing the movement of "national treasures" have stifled its market, which is dwarfed by the art-world hubs of New York and London.

A viewer admires the 'Birth of Venus' by Sandro Botticelli, at the Uffizi Gallery in Florence.
Franco Origlia | Getty Images
A viewer admires the 'Birth of Venus' by Sandro Botticelli, at the Uffizi Gallery in Florence.
"The value of the art market in Italy is a small portion of the value in the U.K., whereas the quantity of art in the two states is exactly opposite," said Massimo Sterpi, a Rome-based lawyer specializing in the art industry, who has co-edited a book called "The art collecting legal handbook."

Sterpi said he and his colleagues were lobbying the new Italian government—sworn in under Prime Minister Matteo Renzi this February—for changes to the laws governing the market.

Under Italian law, any object designated a "national treasure" cannot leave the country permanently—it can only be exported temporarily, for a maximum of 18 months. Even if an object is not a national treasure, official approval is required for it to leave Italy, even temporarily, if it over 50 years of age.

"I'm totally surprised that Italy made so much harm to itself by passing these kind of laws and making everything so complex, rather than being the natural top art market in the world," Sterpi told CNBC over the phone.

"We did everything possible to make our markets very weak and we succeeded. There is so much scope for improvement, we hope some innovative government can come to understand one of the biggest industries we have, and help develop a world-class art market."

James Palmer, a consultant at Mondex Corporation—which helps in the recovery of unclaimed property, including art—said a large amount of artworks in Italy are considered national art treasures, which therefore cannot be exported.

"This logically has a negative effect on the art market," he told CNBC over email. "The Netherlands, for example, also has a short list of artworks that cannot be transported, but the list in Italy is far longer."

What defines a 'treasure'?

Most countries take measures to protect national treasures, and European Union (EU) member states are entitled to do so for items of artistic, historic or archaeological value, due to an exemption clause in the treaty on the free movement of goods.

As EU countries are allowed to define for themselves what constitutes national treasures, and exactly how they should be treated, wide variations in practices exist. Italy's definition of a treasure is far more expansive than in countries like the U.K., France and the Netherlands, and its protection measures much stricter.

"In Italy, it is impossible to export artworks in this (national treasure) category. So yes, it is an effective means of preserving art works. However, by hampering the free market, it can certainly have a negative impact on private collectors," said Palmer.

In the U.K. and France, for instance, officials only have the power to prevent an object's export for a limited period of time, after which it can go abroad. The length of the export ban is decided on a case-by-case basis in Britain, and is set at a maximum of 30 months in France, although it is subject to renewal.

In addition, while Italy requires approval for any object older than 50 years to leave the country, both France and the U.K. have minimum price thresholds below which permission is not needed. In the U.K., for example, a basic threshold of £34,300 ($57,655) for items going outside the EU applies.

Philip Hoffman, chief executive of the Fine Art Fund Group, an art investment advisory firm, said export restrictions meant works by Italian "old masters" like Canaletto and Bellotto sold for only 25-50 percent of their true value.

"Nobody bothers to sell because it is too depressing… collectors are a bit stuffed," he told CNBC over the phone.

A pair of Venice landscapes by Canaletto sold for £9.6 million in London in December last year. However, according to Clare McAndrew, the founder of Arts Economics, no Canaletto has sold in an Italian auction since 2007, when one went for just under $500,000 in Milan.
"I have studied the art trade in Europe very closely for the last 15 years, and whenever I'm describing what not to do to have a successful and healthy art market, I use the case of Italy and its regulatory system," McAndrew told CNBC via email.

Hoffman said the market for Italian work over 50 years of age currently stood at "practically zero," with the total Italian market worth just under 390 million euros ($538 million) in 2013. He forecast that the liberalization of export rules could see Italy's art industry explode to over $10 billion per year—a hefty addition to a global industry worth $55-60 billion annually.

As evidence, Hoffman pointed to the healthy market for contemporary Italian art. Unhampered by the need for export permits, this is worth $300-500 million a year. An auction of modern and contemporary art held by Christie's this month in Milan generated sales of 9.7 million euros.

"The Italian market for contemporary works is incredibly strong… the market has just rocketed," he said. He doubted however whether this success would lead to rapid changes to export laws.

"Most of these changes will take 10 years at the least," Hoffman warned.
Source: CNBC


New Journal Now Available for Order

The new, 2014 edition of the Journal of Advanced Appraisal Studies is now available for order. The cost, only $55.00 plus shipping through our print on demand vendor Lulu.

Click HERE to order your copy. 

Much work and effort has gone into this new edition, with 18 articles and 450 pages of appraisal related content. The Journal is published by the Foundation for Appraisal Education, and proceeds support the educational initiatives and scholarships of the foundation. So in reality, when you buy a copy of the Journal of Advanced Appraisal Studies, the purchase price is actually being re-invested into the personal property appraisal profession. If you wish to contribute an article for the next edition of the Journal, please get in touch with me to discuss your proposed topic. Publishing an article in a professional journal is an excellent way to strengthen a specialty area.

Click HERE to order the 2008, 2009, 2010, 2011, and 2012 editions.

Click HERE to order your copy of the new 2014 edition of the Journal of Advanced Appraisal Studies. 

Contributing Authors
Journal of Advanced Appraisal Studies - 2014

• Elizabeth Berman - The Challenges of Appraising Judaica, Part Two

• Soodie Beasley - Women Furniture Designers

• Corin M. Blust - "The Charity Premium:" An Examination of the Market Performance of Fine Art Sold at Charity Auctions

• Bernard Ewell - The Dali Dilemma

• Lisa J. Garcia - An Insider's Guide to the Catalogue RaisonnĂ©

• Rachel Graham - Reattribution in the Market for Old Masters

• Susan Lahey - "Listen to the Object" - Important Strategies for Dating, Appraising and Identifying Fake Chinese Ceramics

• Elin Lake-Ewald - When Mold Attacks Art

• Tom McNulty - Introduction to Research for Art Appraisers

• Jianping Mei - 2013 Art Market Insights and Financial Performance

• Michael Moses - 2013 Art Market Insights and Financial Performance

• William M. Novotny - The Market Shift Factor In Valuation Disputes: A Basis for a Statistical Solution

• William M. Novotny - Large Loss Claims: The Market Shift Factor: Justification for a Statistical Solution

• W. Douglass Paschall - The Value of the Photograph

• Tony Pernicone - Is Art a Good Investment?

• Steve Roach - A move towards quality and rarity: examining the rare coin market in 2012 and 2013

• Cindy Charleston Rosenberg - Connoisseurship and the Fine Art Appraiser

• Daphne Rosenzweig - Musha-E: Japanese Warrior Prints

• Daniel Sheinson - Large Loss Claims: The Market Shift Factor: Justification for a Statistical Solution

• Darlene N. Wong - Chinese Matrimonial Jewelry: Deciphering Symbols and Motifs

 Click HERE to order your copy. 


GSA Seeking New Deal Art

As appraisers of fine we often run into works that have been hiding in obscurity for years, on a wall, in an attic or basement.  The General Service Administration has a program to locate works of art created during the New Deal and the Works Progress Administration Federal Art Project (WPA).

NPR reports on the GSA and its program to located New Deal works from these art projects which included hundreds of thousands of works by ten thousand artists.  The works created under the original programs are actually owned by the US Government, and many pieces are lost, stolen and unaccounted for. So far the recovery project has discovered 200 pieces of art from the New Deal programs.

NPR reports on the GSA
At the height of the Great Depression, President Franklin Roosevelt enacted a raft of New Deal programs aimed at giving jobs to millions of unemployed Americans; programs for construction workers and farmers — and programs for writers and artists.

"Paintings and sculpture were produced, murals were produced and literally thousands of prints," says Virginia Mecklenburg, chief curator at the Smithsonian American Art Museum.

In all, hundreds of thousands of works were produced by as many as 10,000 artists. But in the decades since, many of those works have gone missing — lost or stolen, they're now scattered across the country.

A Transformative Time For American Artists

The biggest New Deal art program was the Works Progress Administration Federal Art Project. Artists could earn up to $42 a week, as long as they produced something.

Mecklenburg says it was a transformative time for the artists: "The idea for an artist to be able to work through a problem, to work through ideas, you know, that's golden. So it was a very special moment, and one that really has not ever been repeated."

To qualify for the work, however, you had to prove yourself as an artist and you had to show you were poor. Mecklenburg spoke to two brothers-in-law who were in the program.

She says, "One of them was saying, you know, you had to prove you were penniless — he said it hurt your dignity. And the other one was so cavalier and devil-may-care about it. He said: Oh, you know, if you thought the relief worker was coming to check out if you had an iron, or anything else that looked like it was of value, you just ran it over to the neighbor's apartment so it looked like you didn't have any possessions at all. It's about as human a story as we've ever come up with in the art world."

Every Recovered Painting Has A Story

Some of the art became famous — such as the murals painted in post offices and other public buildings across the country — but in the 80 years since the New Deal art programs began, many of the works have disappeared.

The General Services Administration, the federal agency in charge of government buildings, has a program to recover the lost art, which remains government property. GSA Inspector General Brian Miller says every recovered painting has a story.

Take, for instance, the seascape Gulls at Monhegan, painted by Maine artist Andrew Winter. "It hung in the [American] embassy in Costa Rica for years," Miller says. "And the ambassador loved it so much that when he left, his staff gave it to him as kind of an unofficial gift. And so it remained in his family and then his granddaughter eventually tried to sell it up in Portland, Maine."

John Sloan's New York City street scene, Fourteenth Street at Sixth Avenue, was also recovered by the GSA. It had hung in a U.S. senator's office and apparently went home with a staffer after that senator's death.

"It's a busy street and there's I guess an [elevated train] that goes over top, and a bustling street with people walking and cars parked and people in all sorts of dress," Miller says. "And this really captures life in New York City"

The painting — appraised at $750,000 — was recovered in 2003 and is now on loan to the Detroit Institute of Arts. Other pieces have been found at yard sales, antique malls and on eBay. Many are identifiable by tags that say "Federal Arts Program" or "Treasury Department Art Project."

The cooperative garment factory in Roosevelt, N.J.

Miller, who is stepping down from his post at the GSA at the end of the week, says the government wants to preserve these scenes of America.

"There are just hundreds of portraits of what American life was like in the '30s and '40s," he says, "and it really captures a piece of America and we want to put it up for America to see."

The GSA has recovered more than 200 works of art so far, and it's looking for leads on the rest.
Source: NPR


Investing in Art Shares

The Art Newspaper reports on another art fund which is selling shares of paintings.  The new platform lets those interesting in owning shares of paintings invest as little as £5.  The fund, called My Art Invest just launched and the founder calls it "part eBay, part e-commerce, part social platform”. Each painting will have 100 shares available to investors, although higher valued works will have additional shares in order to allow a lower share price.  Works are typically valued between £500 to £100,000.

The Art Newspaper reports on My Art Invest
Attempts to divide works of art into equal shares, emulating companies that trade on a stock exchange, have proved problematic, at best. This hasn't stopped Tom-David Bastok, a French collector who gave up his financial studies to develop My Art Invest, a trading platform for art that launches in London today.

“We are different from other [art share schemes] because our aim is simply to be more democratic. We are making the art market more affordable and accessible,” Bastok says. Potential investors need only part with a minimum £5 to own a share of around 100 works available by artists including Basquiat and Banksy. The value of works available ranges from £500 to £100,000, but the “sweet spot” says Bastok is around the £25,000 level. On average, 100 shares are available in each work (though pricier works have more shares available in order to keep their cost down).

The business has been running successfully in France since 2011, where Bastok says he has sold 200 paintings in this way. He sources and buys the works before offering them to his clients (mostly private individuals) who then have the option to trade them through My Art Invest, or hold onto them until Bastok sells the work entirely and divide up the profits.

In reality, there is relatively little trading of individual shares, but the platform has been popular with people who want to participate in the art market “without needing to spend their entire life savings”, he says. It is “part eBay, part e-commerce, part social platform”. And for those who want to take the art home, they need only buy a quarter of its shares to have a work for a quarter of the year.

He is launching in the UK because, he says, London is the “natural place to try something that involves new ideas and new technology.” The platform will be supported by a 230 sq. m gallery in East London on Commercial Street in Hoxton, which will host rotating exhibitions of around 30 works, in which shares are available. It opens on Thursday, 10 April, with a show of street art including Banksy and Shepard Fairey, as well as more cutting edge artists such as D*Face, Katrin Fridriks and the French-born Ludo.

Pierre Naquin—who in 2011 launched Art Exchange, a share-based investment platform for more blue-chip art that never quite took off—cautions that it “took hundreds of years for [traditional] stock exchanges to evolve”. However, he says, he is now raising money from institutional investors in order to “scale-up” Art Exchange and make its offering “less risky”.
Source: The Art Newspaper


Ivey-Selkirk Temporarily Barred from Operating

Due to numerous client complaints over non-payment, St Louis Missouri Attorney General has issued a temporary restraining order on auction house Ive-Selkirk to cease sales. The article states there have been over 40 complaints to the Attorney Generals office and 77 to the Better Business Bureau.  The complaints are for non-payment, bounced checks and refusing to return property.  Ivey-Selkirk has not responded, and local officials fear the number of clients not being paid will rise.

The St Louis Post Dispatch reports
After 184 years in business, a Clayton auction house that has been plagued recently by customer complaints over missed payments is temporarily barred from operating following the issuance of a restraining order sought by the Missouri Attorney General's office.

Missouri Attorney General Chris Koster's office said the restraining order against Ivey-Selkirk Auctions and Appraisals and owner Malcolm Ivey is related to a civil petition it filed April 3 in St. Louis County Circuit Court that accuses the auction house and Ivey of unfair business practices and making false promises in violation of Missouri's Merchandising Practices Act.

Ivey-Selkirk, which specializes in auctioning fine art, jewelry, and automobiles, ceased holding auctions this year as complaints of missed payments mounted. Ivey did not return calls seeking comment.

In its petition, the attorney general alleges customers' checks from Ivey-Selkirk bounced and the auction house refused to return items to consumers when requested.

Koster is seeking to permanently prohibit Malcolm Ivey and Ivey-Selkirk from providing auction services in Missouri, civil penalties and reimbursement of the state's costs for the investigation. It's also seeking repayment for customers or the return of their items.

"We are examining very closely the circumstances that apparently led this company to cease doing business, leaving consumers without payment," Koster said in a statement. "Our priority is to protect consumers who never received the money they were owed."

As part of its investigation, the attorney general's office, the Clayton Police Department and St. Louis County Prosecuting Attorney Bob McCulloch executed a search warrant of Ivey-Selkirk's office on April 1.

The temporary restraining order signed by St. Louis County Circuit Court Judge David Vincent III Monday prohibits Ivey-Selkirk from accepting consigned items, selling goods, removing property from its offices on Forsyth Boulevard, destroying documents or spending funds received from current or former clients. In issuing the restraining order, the court ordered Ivey-Selkirk to post a note on the entrance of its business notifying customers they cannot remove items from the business without proof of ownership.

The attorney general's office said it has received about 40 complaints in recent months from customers who allege they did not receive payments owed from Ivey-Selkirk. The local Better Business Bureau also has received 77 complaints against the company since the start of the year, said BBB investigator Bill Smith.

Because the contracts Ivey-Selkirk signed with customers typically required payment 60 days following a sale, Joe Bindbeutel, chief of the attorney general office's Consumer Protection Division, said he expects the number of affected customers to rise. "There may be a whole lot of victims who don't know they're victims," he said.

Bindbeutel said the investigation, which is ongoing, revealed that Ivey's past practice was to use proceeds from unrelated auction sales to pay customers for money owed on other auctions. "Mr. Ivey was robbing Peter to pay Paul, and that's a business plan that never catches up with itself," Bindbeutel said.

Ivey-Selkirk is facing multiple lawsuits from customers, including a breach of contract suit filed in February by Connie Kling of Webster Groves, who alleges she is owed $50,000 from an auction of her jewelry in December. "The items were sold and the proceeds have not been delivered after numerous requests," said Kling's attorney, Joseph Bante.

Malcolm Ivey purchased the auction house in 2002 from London-based Phillips, which acquired it from the Selkirk family in 1998. The Selkirk family ran the auction house that was founded in 1830 for six generations before selling it to Phillips.

Customers who did not receive payments from Ivey-Selkirk can contact the attorney general's office to file a complaint by calling 800-392-8222 or online at ago.mo.gov/consumercomplaint.htm.
Source: St Louis Post Dispatch 


Sotheby's Responds to Third Point's Investor Presentaiton

Sotheby's has issued a response and its own  presentation to the recent investor presentation by activist investor Daniel Loeb and his hedge fund Third Point. Third Point is the investor group trying to gain control over the future direction and leadership at the auction house. Sothbey's is fighting back against the Third Point investor presentation and accusations.

Click HERE to view the full Sotheby's presentation and response.

In short, Sotheby's states
Highlights of the presentation include:

• Sotheby’s has consistently delivered strong, long-term performance and is executing a clear strategy to drive continued growth and profitability;

• Sotheby’s maintains a strong leadership position within the art market and continues to invest in areas exhibiting substantial growth and potential for attractive returns;

• Sotheby’s Board and management remain keenly focused on expense management and have effectively managed the capital needs of a growing and cyclical business with prudent fiscal discipline;

• We believe Mr. Loeb does not possess the long-term focus necessary to drive value for ALL Sotheby’s shareholders; and

• Sotheby’s Board and management are steadfast in their commitment to strong corporate governance and shareholder stewardship.
Source: Sotheby's


Troubling News for Regional Auction House Sloans and Kenyon

The Washington Post is running a story abut regional auction house Sloans and Kenyon. According to the Post article, Sloans and Kenyon auctioned an Ellsworth Woodward painting (see image) for $21,500.00 including commissions from consignor Robert Fastov's collection. The painting was purchased by a New Orleans broker and appraiser.

So the story gets interesting as the whereabouts of the painting are unknown.  The purchaser does not have it, the consignor does not and the auction house does not.  The post article states the purchaser is suing and claiming that Sloans and Kenyon re-sold the painting after the auction at a higher price.  Sloans and Kenyon deny this.

Fastov, the consignor is not happy with the results the sale of his collection from the auction house, accusing them of not properly promoting the large collection of fine and decorative art. But, he does not think the auction house would have been foolish enough to do something underhanded.

Sloans and Kenyon deny any wrongdoing and state they do not know what happened to the painting, but the sale is not final until payment is made, and they have not accepted payment from the purchaser as they could not deliver the painting.

A suit brought in Louisiana against Sloans and Kenyon awarded the purchaser over $40,000.00 but that decision has been challenged Slaons and Kenyon attorneys and could be reversed.

All in all an interesting read and story to follow.

The Washington Post reports
Some time around 1917, American artist Ellsworth Woodward put the finishing brushstrokes on his impressionist painting of a sun-dappled New Orleans fountain.

In February of last year, that oil-on-canvas was sold at an auction in Bethesda. With the commission, it went for $21,500.

Now, no one knows where exactly the painting is. Not the person who sold it, Washington collector Robert Fastov. Not the person who bought it, Amanda Winstead, a New Orleans art broker and appraiser. Not the auction house that auctioned it, Sloans & Kenyon on Wisconsin Avenue.

You can see the problem.

“Somehow it got misplaced,” said Stephanie Kenyon, the auction house’s owner. She says that after the two-day sale, the canvas was misfiled. “We have a huge facility. It hasn’t turned up yet.”

That does not sit too well with buyer Winstead, who in August filed a lawsuit in a Louisiana court against Kenyon and the auction house, contending that Kenyon didn’t misplace or lose the painting “but rather sold the painting to a third party for a greater amount than what Plaintiffs agreed to pay.”

Nonsense, said Kenyon. “I know she’s trying to send around nasty information about us to try to stir up trouble,” she said.

I first heard about the case when Winstead’s attorney, Lisa A. Montgomery, sent me a news release about it. I’d written a column about the massive Fastov auction: 1,500 works, including pewter plates and Colonial portraits.

Fastov is quite a character. The retired government lawyer and self-taught art expert is no stranger to litigation himself. In 1993, he tussled with Christie’s over one of his paintings, suing it and being sued by it. (Eventually, he was ordered to pay $630,000 to the British auction house.)

Fastov said he hadn’t heard the Woodward painting had disappeared. He’s still sore at Sloans & Kenyon over the auction of his collection. Although he said it earned him about $400,000, not everything sold, and he accuses the auction house of, among other things, not advertising the sale enough. (Said Kenyon, diplomatically: “His expectations were extremely high. The market wouldn’t support that in many cases.”)

Despite his irritation, Fastov doesn’t think Sloans & Kenyon pulled a fast one with the Woodward painting.

“I don’t think even they are dumb enough to do something like that,” he said.

Still, when you buy something, you do expect to actually get it. So the aggrieved buyer has a case, right? Well, it’s more complicated than that.

“No money changed hands here,” Kenyon said. “We didn’t accept her money. We don’t want to take money for something we can’t deliver.”

Well, if Winstead didn’t fork over $21,500, what’s the big deal? No harm, no foul, right?

Not so fast said Montgomery, the plaintiff’s attorney. She said the ownership of an item “transfers at the fall of the hammer. Remember, the auction house doesn’t own the item. They’re taking it on consignment. When the hammer falls, it goes from Fastov to my client. My client by law is the legal owner of the painting.”

Said Kenyon: “That’s not true.” She said the transaction isn’t complete until the check is received, the order processed and the artwork delivered.

This is a bigger deal than it might be because of what happened a few months before the Fastov auction. Woodward (1861-1939) is a respected, if not especially pricey, Southern artist. The estimate on this particular work was $15,000 to $25,000. But in November 2012, a larger Woodward oil sold for a considerably larger sum: $185,225, including commission.

If you could snap up a Woodward for $20,000, you might be looking at a tidy profit.

Would-be buyer Winstead already has made some money, or will if things keep breaking her way. In October, a New Orleans court ruled in her favor and ordered Kenyon to fork over $43,500.

Kenyon is fighting back. Her attorney in Louisiana, Joe Myers, said he filed what’s called an action for nullity to reverse the decision. He said the bidder contract that Winstead agreed to stipulated that any disputes would be settled in a federal court in Maryland, not in Louisiana, and that any liability is limited to the price paid, not twice that amount. He’s livid at the accusations of a switcheroo leveled at Kenyon — and that Montgomery issued a news release, something he considers unlawyerly.

“If we get it nullified, I’m pretty sure there would be a suit against the plaintiffs for malicious prosecution and libel,” Myers said. (Said Montgomery of her news release, “I see that done here, not all the time, but it’s not unusual.”)

Meanwhile, Montgomery says her client has listed the painting with the Art Loss Register, the service that tracks lost or stolen artwork, in case it should surface somewhere unexpected.

Said Kenyon, the auction house owner, “When it turns up, we’ll certainly let everybody know.”
Source: The Washington Post