As Lawsuits Draw Scrutiny of Art Trade Practices, a Clear Need for Transparency

As Lawsuits Draw Scrutiny of Art Trade Practices, a Clear Need for Transparency
Ronald Perelmen is engaged in a legal battle with Larry Gagosian over Jeff Koons's "Popeye" sculpture.
(Boris Roessler/AFP/Getty Images)

Much attention has been paid recently to the ethics of dealing — specifically, to art dealers’ divided responsibilities to buyers and sellers. I am referring to the recent high-profile court cases in which Larry Gagosian has found himself involved, one of which alleges he “took advantage of his position of trust” to induce billionaire Ronald Perelman to agree to an unfair deal.

Gagosian is understandably mounting a spirited defense of his staff, galleries, and successful business practices. I am not going to speculate on the veracity of these claims or on the possible outcome of the cases, but I’d argue that the lawsuits offer a rare, possibly even welcome chance to shine a light on some important issues. The depositions reveal some long-term conflicts of interest in art dealing, how easily people who are unaware of them can lose out, and how the problem is made worse by the lack of transparency in the art trade. These issues should be of concern to everyone.

Auction houses represent the consignors or the sellers, and not the bidders. This much is clear. Day to day, they actively seek to drum up interest from multiple buyers, they set reserves so that sellers aren’t forced to part with work at unreasonable prices, and in the most recent and contentious development, they even contract for guaranteed bids to secure the object and ensure the seller will not get burned when a work goes unsold.

The situation gets messier for secondary-market dealers, who remain pretty much free of regulation — industry bodies like the Art Dealers Association of America seek to impose basic standards through its accreditation process, but the standards remain vague and largely lack enforcement mechanisms. So what does this mean? Well, first, whereas it is often assumed that the job of secondary-market dealers is, like the auction houses, to maximize profits for sellers, some dealers who take works on consignment may look to reward themselves and frequent buyers to the disadvantage of consignors who may not be familiar with the value of the work in question. So be it. Such dealers make their money at the margins.

Different issues arise when a dealer purchases art outright for what he or she knows to be less than fair market value. The traditional secondary art market trade was always one in which dealers owned all their stock and therefore looked where they could to take advantage of both the sellers and the buyers. They would switch out frames or invest money in conservation to revive the value, with the discounted purchase price working as a hedge against the risk of having to hold on to a work until they found the right buyer and right price. To some, this is the art of the deal. After all, buying low and selling high is how most merchants make money.

In the current legal cases, the courts will ultimately have their say. We will all just have to wait and see how they rule. In the meantime, let’s take the opportunity to elevate the talk beyond cocktail-party gossip and spiteful e-mails to a discussion of what is and isn’t ethical. The questions involved are difficult, and there will be genuine disagreement. Nonetheless, I think these cases and the art market journalists who cover them can be lauded for bringing to light the details so that the business’s conflicting interests can be examined and discussed. One thing we should all be able to agree on is the need for greater transparency.

This article was published in the March issue of Art+Auction.