Sotheby's faces Russian oligarch's billion-dollar art fraud claims in court

High-value art transactions, apart from occasionally garnering attention in the media, can sometimes escalate into legal disputes.

At the centre of the recent high-stakes legal drama in the art world are Sotheby's, the world-renowned auction house, and Russian oligarch Dmitry Rybolovlev – a billionaire with a net worth estimated between US$6.4 to 11.4 billion, who has bought Ligue 1 football club AS Monaco, the Greek Island of Skorpios where Jacqueline Kennedy wed Aristotle Onassis, and Donald Trump's Palm Beach mansion. 

The trial, which began in Manhattan federal court on 8 January, revolves around allegations that Sotheby's has helped, at least partially, a high-profile art agent bulked up valuations and withheld certain information to conceal large markups in famed pieces of art worth US$2 billion, including the US$450.3 million Salvator Mundi by Leonardo da Vinci. Rybolovlev is seeking US$377 million in damages from the auction house. 

In response to inquiries from The Value, Sotheby's has stated, "Sotheby’s strictly adhered to all legal requirements, financial obligations, and industry best practices during the transactions of these artworks. Any suggestion that Sotheby’s was aware of the buyer’s alleged misconduct or intention to defraud Mr. Rybolovlev is false." 

Regardless of the trial's outcome, this case offers a rare glimpse into the often opaque high-end art world, where billions of dollars of art change hands every year with little or no public scrutiny.

Russian oligarch Dmitry Rybolovlev is suing Sotheby's 

Leonardo da Vinci's Salvator Mundi is one of the four artworks in question

Between 2002 and 2014, Rybolovlev hired Swiss businessman Yves Bouvier as an art broker to help acquire a US$2-billion world-class art collection comprising masterpieces by the likes of Henri Matisse, Pablo Picasso, and other greats. 

What the Russian billionaire did not realize then was that all the while he had actually been buying art from his own art broker, who quietly bought the works himself for one price and charged them another price – millions or tens of millions of dollars higher.

One such work includes Leonardo da Vinci's Salvator Mundi. In March 2013, Samuel Valette, now Sotheby's Head of Private Sales in EMEA, met Bouvier and Rybolovlev at the latter's penthouse on Central Park West for an inspection of the masterpiece. 

Weeks later, Bouvier told Rybolovlev that he was "fighting hard and taking as much time as needed" and that the seller had rejected offers of US$90 million, US$100 million, US$120 million, and US$125 million. The ideal number was US$127.5 million. "But these negotiations never happened", according to court papers. 

On 2 May 2013, Bouvier, but not Rybolovlev, purchased the da Vinci for US$83 million through Sotheby's. The next day, he sold it to Rybolovlev for US$127.5 million, a difference of more than US$40 million. 

In 2017, Salvator Mundi changed hands for US$450 million, the highest ever for any works of art at auction. But that doesn't stop Rybolovlev from bringing the case to court, as his attorney stated on the first day of the trial that "money is not the only issue," but "accountability."

Swiss businessman Yves Bouvier was accused of defrauding Rybolovlev between 2002 and 2014

A key individual in the case is Samuel Valette (the gentleman holding a telephone)

The other three artworks in question include Rene Magritte’s Le Domaine d’Arnheim (1962), Gustav Klimt’s Wasserschlangen II (1907), and Amedeo Modigliani’s limestone sculpture Tête (1911-12).

In the case of the Modigliani – which the Judge considered to be of stronger evidence of Sotheby's actual knowledge of the fraud – two years after Sotheby's valued it at €8 million and a month after the seller consigned it to the auction house for €55 million, in 2013 Valette had sent Bouvier a formal email, estimating the value at €70 to 90 million. Just less than 12 hours later, Valette sent an almost identical email to Bouvier, only this time raising the estimate to €80 to 100 million. 

According to the ruling, "From this evidence, a jury could certainly infer that Valette and Bouvier spoke in the intervening twelve hours and that Valette raised his estimate at Bouvier’s request. Put differently, Valette provided Bouvier with materials inflating the price of the sculpture — circumstantial evidence of Valette’s knowledge of Bouvier’s scheme."

In addition, when preparing the provenance section for the auction of the piece in November 2014, Valette instructed an employee: "Maybe better to cover the tracks slightly and designate as: Property from a Private European Collection." Ultimately, the sculpture’s provenance was listed only as "Acquired from the above."

While such actions have been common practices in the auction industry, "they still 'made a substantial contribution' to Bouvier's fraud," the Judge stated. 

The sale of Amedeo Modigliani’s limestone sculpture Tête (1911-12) is considered by the Judge to be of stronger evidence of Sotheby's actual knowledge of the fraud

Gustav Klimt’s Wasserschlangen II (1907) is one of four artworks in question

Bouvier and Rybolovlev's relationship soured in 2014 when The New York Times published a story about the sale of the abovementioned Salvatore Mundi. When Rybolovlev read that US$75 to 80 million was the true price paid for the work, he felt he had been taken advantage of by Bouvier.

In 2015, Rybolovlev invited Bouvier to Monaco, one of the places where he is based alongside Switzerland, under the pretext of discussing important matters, but Bouvier found himself arrested on criminal charges upon arrival. 

Rybolovlev then filed charges against him for defrauding him out of nearly US$1 billion from 38 works of art, 12 of which were bought in private sales through Sotheby's. Following that were eight years of legal battles playing out across the globe, from Singapore and Hong Kong, to New York and Geneva. 

One of the keys to the case was what role did Bouvier play in dealing with the art acquisitions. Bouvier has insisted that he had been operating not solely as an art advisor, but as an independent dealer, free to set his own profit margins. Rybolovlev, on the other hand, claimed that Bouvier presented himself as an advisor working for him to fetch the best price. 

Surprisingly, the two have recently settled out of court, in an agreement covering all of their legal disputes in all jurisdictions.

Sotheby's Chairman of Europe Helena Newman is expected to testify in court 

Now that their legal dispute has come to an end, the Russian billionaire is turning his focus to Sotheby's, with a civil case opened on Monday in Manhattan federal court, where Rybolovlev appeared in a blue suit after the midday break. 

In the opening arguments, Sotheby's attorney said that Sotheby's had no knowledge of what actions Bouvier took after selling the artworks to him in private sales and that "the plaintiff's quarrel is with Yves Bouvier." 

The attorney added that Rybolovlev had good reason to be angry at himself, as he did not take even "basic steps" to research the prices and representations that were being made to him.

Expected to testify in court are other key individuals involved, including Valette, who will appear in court next week, Helena Newman, Sotheby's Chairman of Europe, and William Ruprecht, CEO of Sotheby's from 2000 to 2014. 

The Value will continue to provide updates on any significant developments in the case.