The New Paradigm of Corporate Malfeasance: Selling Art on the High Seas, a Case Study:

Seeing Beyond the Shadows on the Wall

Introduction

In Plato's Myth of Gyges, he sets the stage for his theory of knowledge. Plato calls out for the first stage of knowledge which consists of illusion and myth as illustrated by the metaphor of slaves watching shadows on the cave wall. The images seen by the slaves appear to be real and serve as the reality of perception. What the slaves do not know is that the images are produced by unseen candles illuminating individuals passing in front of the candles, similar to a shadow image of a rabbit found on a wall in a darkened room illuminated by a flashlight. The cave images represent false knowledge since real knowledge is found in perceiving the individuals passing behind them. The false images and therefore false knowledge being presented to the art consumer is that purchasing art particularly aboard cruise ships, is protected by law, that the art is authentic, and that the individuals selling it, are not engaging in any duplicity or scam.

Fine Art Sales at Sea

Plato would be happy to know that the cave dwellers and cave masters are not only alive and well, but they have taken steps to ensure that the slaves will have an exceptionally difficult time moving up to the stage of enlightenment or true knowledge. The cave masters have not only set up systems, structures and processes to preclude accessing an authentic awareness of where and how bogus art lies, but are steps ahead in being caught. They operate with impunity knowing that the authorities have no interest in their malfeasant activities, and if they have an interest, prosecution will never come to pass. How is it that the corporation has become so versatile in out maneuvering the law and the consumer stripped of almost all protections against defective products and services? The answer is the dichotomy between legal and illegal has been disrupted by calculated processes and structures serving to free companies from accountability for their actions. In point, the modern day corporation is organized not only to sell a product or service but to prevent attacks and circumvent challenges by a new paradigm which deflects, constrains, removes, and confuses those whose interests may injure the bottom line.

The Consumer's Role in the Scam

It has been suggested that consumers really do not care if what they buy is bogus or real. The BBC recorded that 66% of consumers polled revealed that real or bogus products do not make a difference in their consumption patterns. It would not be unreasonable to argue that the equation is further offset by the factors of trust, indifference, and failure to activate even the simplest of controls to protect themselves such as researching the Internet. Although not infallible, the Internet provides a wealth of information about the safety and standing of products and services sold throughout the world. Problematic art sold beyond the protection of law and regulation has been noted for over three years if not more and yet very smart collectors step up to the plate and make monetary bids for product on floating scam boats. The consumer places his trust in the large non-US companies when the US companies are known for their misrepresented products, and undelivered services. Madoff was caught not by government police but an outsider. If the authorities are not going to prosecute companies on shore does anyone think that they are going after those off shore? Trusting the modern company is like walking into a burning building without a fire protective suit. The consumer in the mix is an easy mark and the malfeasant company is well aware of it.

What is a Paradigm?

A paradigm is a model, a template of activities or processes grounded in structures within a system. At one time in history it was thought that the sun revolved around the earth or that the horizon represented the end of the earth. From these models or paradigms of belief concerning astronomy or geology, theorists and practitioners formed their views of the universe and the world. The history of the American corporation is that while the corporation in the past operated at the cost of lives, laws have been instituted to curtail the corporation’s rapacious forages such that the balance is now in favor of the consumer. White collar crime theory and practice challenges this view and supplants it with the notion that laws have, are, and will more than likely continue to serve the company at the cost to the consumer. Madoff is the poster boy for this view, the Fine Art Registry® investigations demonstrate it continually, and individual billionaires note that they would rather conduct their own investigations into fraud than have government agencies doing the investigation. This sorry state of white collar crime running rampant with almost no controls particularly when it comes to art scams, has reached a point whereby the silence of any governmental agency involvement is heard loud and clear by those companies whose only interest seems to be conning the population. Thus the new corporate paradigm starts with opportunity, rationalization, and an absence of controls. The opportunity for scamming, conning and fraud is always present, is rationalized by a total disregard for the consumer, and cemented by an almost total absence of controls. The new paradigm recognizes that while no enforcement of corporate violations of the law is the standard, safeguards must be instituted to protect the corporation if enforcement does occur, and if somehow malfeasance is recognized, structures are available to curtail, preempt, stifle, and delay the legal process. To understand how the new paradigm operates let us focus on the Fine Art Registry investigations, complaints, and the responses of malfeasant corporations to FAR®.

Case Study

Prior to the Auction

While aboard the cruise ship "Never see your money again", X was told by auction house personnel that he could make some serious money bidding on works of art taking place at sea auctions. Not only did the works come with a certificate of authenticity, they were also appraised by a certified University appraiser. The ship and auction house will even supply credit cards to foot the bidding. X, an attorney and avid collector, surveyed the offerings. With the house backing the authenticity and value, X felt protected especially with the credit card being provided. X was also told that he could secure discounts by bidding on works just to drive up the prices (shill bidding is a violation of law in many states). Before the auction starts, auction personnel start the process by providing alcohol to all involved in the auction.

The Auction Process

Pieces are offered under the heading of "embellished media", "individual variations", and a host of typically unused terms and definitions not usually found in the glossary of art descriptors in a genuine auction. The winning bid results in the execution of paperwork (or signatures) to protect the seller from returns of product and money. More unusual terms such as "equal to" appear in the sales document or invoice along with a host of fees, and costs increasing the price of the winning bid. The "equal to" concept implying that the work to be received at home is the same as the one bid on is a troublesome concept challenged by consumer agencies 1. The Federal Trade Commission argues such concepts foster an invalid belief that the "equal to" product is or brings about the same consequences as the real product. The winning bidder rarely ever sees the work or product he purchased at auction since it must be retrieved from the storage room of the ship or from the warehouse on land and is also wrapped in a frame covering any telltales of fakery or questioned authenticity.

Receiving and Unwrapping the "Valuable" Work

The winning bidder after receiving the work (weeks and weeks later) finally gets the chance to see exactly what he or she has won. The "equal to" on the sales slip reveals how far off the piece presented at auction fails to match the piece received. X may find in the unwrapping that "equal to" means almost anything. X could receive a canvas and frame painted green while his bid was on a blue one and the seller could easily argue that since he agreed on the signing of "as equal" or "equal to" on the sales slip, X received what he paid for.

The Appraisal

What runs true for almost all art purchased at sea is that significant differences exist between the auction house appraised value and the comparable value found on shore. The at-sea value is thousands of dollars higher than the shore value. Appraisal "standards" allow that appraised values could be off as much as 20%; sea art has been found to be off by thousands of percent and much is of questionable authenticity to the point that some evaluators consider the works to be worthless.

Requests for Refunds or Contract Rescissions for Defective Product

The response of the art seller is that almost no one receives a refund or is granted a contract rescission for the questionable value and authenticity of the products sold aboard cruise ships. Few have, and many more have not, to the point that hundreds (400+) complaints have been filed and 6 or more class action suits are in progress. The seller has thrown complainants off the ships selling the art, stonewalled, and brought a SLAPP suit against the complainants.

The Shaping of the Paradigm

To many the sales of art at sea and the concomitant corporate responses and consequences may seem to be a knee jerk chaotic reaction to a bad product or problem. It is argued here that there are structures and a system at work to prevent resolution to a developed approach to sell art products of questionable value and authenticity. The system and structures underlying the process consist of:

Setting up the System and Structures to Prevent Revenue Loss Due to Defective Product Returns

Realizing that white collar crime prosecution and apprehension is almost non-existent in the US and the fact that prosecutorial agencies will be challenged to investigate any activities outside the US sphere of regulation and particularly at sea, setting up an organizational structure competent to con and scam consumers at sea was a brainstorm. The opportunity was present, almost no controls were operational and the reasoning--consumers are stupid as such they deserve to be duped. Trifurcating the intentionality and responsibility between the corporations cruising, selling/auctioneering, and making the art further complicated identification of who or what were the guilty perpetrators. The policy became securing crap art and authenticating and appraising it as the real deal without fear of apprehension due to the at arm's length, obscurity of intentionality and action, and contained within a whirlpool of ambiguity. Complaining against the seller was met with the complainant replying that they only provided the product and others sold it. The cruise lines like the armory which sells various products argued that they only acted as a conduit of sale. The actual seller--the auction house--was not a US company thus not required to follow US laws.

The Paradigm of Corporate Malfeasance: Structures

Selling Products outside the US Consumer Protection Laws

US laws and regulations work only within the outlined territory defined in the State and Municipal laws or the US Constitution. Violations are specific to state and municipalities or those called out by our Federal Constitution. Violations outside territorial definitions, for example at sea, beyond the territorial waters do not normally provide redress. If you buy it at sea you will normally be stuck with the item if it is defective.

Negating Accountability by Spreading out Responsibilities through Different Corporate Entities

As the result of guilty corporate heads being able to sliver out of intentional law breaking by claiming an absence of knowledge about the violation--I am on the top I really do not know what those workers beneath me are doing-new laws such as Sarbanes- Oxley require that corporate heads act diligently to make sure the law is upheld. The easy way around this is to divide the responsibilities among different companies such that the driving company is left out of the legal loop of responsibility by shifting it to many companies. I provide the item to A and what A does with the item is not B company's responsibility. B is just a platform of sales to A, C, and so on. To solidify the negation of accountability such entities are set up as foreign companies with no allegiance to American law or regulation.

The Credit Card of No Return

One of the most significant structures to be created to offset the issue of credit card companies standing in for bad product purchases was the credit card provided on board for purchases. Appearing as an easy stream of revenue to purchase the questionable art, consumers failed to note that the credit card did not allow returns.

Remove the Critic

If per chance there is a critic on board complaining about or letting others know that the auctions on board have known problems, stifle the critic and remove at the first port. Ship regulations allow the captain to carry out the process if he or she believes that the person may cause problems if allowed to remain.

Stonewall the Complainant

Companies that create defective products have found that one of the best policies to reduce returns of monies is to stonewall a customer who wants his money returned. If a customer complains about a product purchased, put him or her on hold—delay, delay, delay. Written complaints can be handled by providing information indicating that the customer did not use the product correctly and as such is not entitled to a refund. The structure which works the best is not providing the refund. It is an accepted fact that prosecutorial agencies will not respond to one complaint or even many. Seldom is the word and companies realize that the probability of being investigated is low, so why provide the refund?

Sue the Bums

If a complainant who is dissatisfied with a defective product files a public complaint the company responds with a Strategic Litigation Against Public Participation (SLAPP) suit. The SLAPP suit is an attempt to further destroy challenges to product and service defects. They cost the complaining party lost time and money spent for legal fees for their attorney to respond to the party allegedly injured via the complaint. SLAPP suits should result in hanging both the attorneys and the plaintiffs upside down until death but result in the defendant in 26 states having no recourse but to spend time in court and money wasted to the point that the defendant victim realizes that thanks to the legal system he or she will never open their mouth, despite so called First Amendment freedom of speech.

The War of the Experts

It often appears that once an expert always an expert. For the court system, Daubert rulings in the 1990s mandated that those serving as experts in court (mainly federal but also state) are allowed only by the Judge hearing the case. Allowing experts to provide testimony about the authenticity of a given work of art is extremely problematic especially for those who have no art industry knowledge. There is no guarantee that one expert can sway a jury about what constitutes authentic art since the domain of expertise has many levels and many contexts which serve to confuse the art scholar but the jurors as well. This complexity and ambiguity serves to protect those involved in assembling the questionable art product. The fingerprint expert can demonstrate to the jury that there is a match between the perpetrator prints and the prints found at the crime scene; such a match in a work of art is the exception rather than the rule.

The Ghost in the Frame

Provide the “or equal to” clause in the sales contract. A Dali lithograph is offered at the auction. The winning bidder is successful at the auction and afterwards signs the sales contract to pay and receive the work. Contained within the contract is the "or equal to" clause. This significant clause allows the auction house on board to basically provide almost anything to the winning bidder. Yes you won a Dali lithograph, but the "or equal to" clause allows the auction house to provide not the work you bid on but anything close to it. You won a Dali but end up with a Dawliy. Since you agreed to the "or equal" anything and everything may fall into the definition, and any redress or request for return will be met with a challenge of proving that the piece you received is not equal to the piece won. Basically you won a ghost in a frame which is amorphous indiscernible, and unidentifiable.

The New Art Form

Fine art is valued by comparables found in gallery, private sales, and auction house results. The process involved consists of finding values in those venues which basically match what one potentially is about to buy or bid on. Unique variations and non-traditional mixed media rarely have comparables suitable to derive an opinion of value. New and unknown art forms such as finding a painted surface of a lithograph and labeling it a unique variation or mixed media do not fare well in pricing for value since the market has not vetted such works. These works might be defined as rare, but until the market establishes them as such, unique defined as rarity should not be confused or associated with highly valuable. Works outside the body of traditional and accepted oeuvre of an artist are risky investments which are suspect and of questionable value. In point, the new art form is a canard developed to titillate and secure higher prices without substantial pedigree and recognition.

Sight Unseen

The condition of a work constitutes the most significant factor in determining value—missing paint, damaged canvas, faded colors, and so on result in diminished value for a work. The current paradigm disregards this factor by packaging which hides blemishes which affect the price but not immediately seen by the buyer. The buyer never sees the problems until he or she receives the package on shore. Unpacking the item at home reveals conditions which if observed during the auction should have been noted by the auctioneer or recognized by the bidder. The auctioneer by hiding the defects hits a home run when he should only have reached first base. Not revealing the defects sets up the work as being in excellent condition when in fact it is in poor condition resulting in a diminished value.

Process

The above paradigm is a five-level or dimensioned system. The defective fine art product has been noted to be inauthentic and over appraised and as a result the consumer purchasing it is being ripped off. It is misrepresented. The second dimension is the set up of the system structures such as "or equal", packaging to conceal condition, the ghost in the frame, the new art form, to semantically change the presentation of scam into an unrecognizable product offering no telltales of being of questionable authenticity or value. The third level of the system is that the party leading the scam has set up the process of sale beyond the administration of law by the sale taking place outside US regulation, and/ or divorced entities from the initiator of the product. It is wrapped in the cloak of invisibility. A provides the resulting amorphous or ambiguous product presented as genuine, in perfect condition to B who sells the product at sea whereby no controlling mechanisms are present to prevent scams or to administer reprisals. If the buyer X recognizes that the product has problems and attacks the system, the system responds by removing X, stonewalling the complaint or filing the SLAPP suit to remove it from the public domain. If the defective product moves into the court system, use experts of a celebrity status (even if they lack expert credentials) to attack and spin the complainant’s accusations is employed.

Comments

One would think that instead of providing a defective product and engage all the steps necessary to safeguard the defective product; the company would just provide a product without problems. The fact here is that the absence of regulation and prosecutorial activities creates a tidy stream of revenue for the defective product. Foisted on a trusting public indifferent to and accepting of the faux or fake or inauthentic product, with a government unprepared to prosecute, fine art defective sales at sea represent Madoff at its best. This system of malfeasance is years ahead of the law.

1. www.consumeradvertisinglawblog.com

— by John Daab Ph.D.  |  August 1, 2010

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