Art Fraud Prosecution:

All Bark and No Bite?

Introduction

Anyone following the Fine Art Registry® investigation of fine art scamming over the last few years must be struck by the parallel case of Bernie Madoff. While fraud charges were placed next to the donut and cup of coffee each morning on the SEC investigation desk, no one seemed to notice or care. After ten years and many donuts later someone at the SEC took note that maybe the Certified Fraud Examiner filing complaints had something. Well it is now two years later and no indictments have yet to come down on these cases. Is this another case of bureaucratic incompetency? As it turns out many art fraud and forgery statutes rather than aiding investigators are basically too weak to prosecute art fraud cases. As a matter of fact, if it were not for the United States Postal Inspection Services and various mail fraud statutes many art fraud cases would not get to court.

The Failure to Prosecute Using Art Fraud Laws

In a recent review of 50 episodes of art fraud, this investigator found that only 20% resulted in criminal prosecutions (IFAR). The other 80% fell into civil prosecutions. Recently retired FBI art crime expert Robert Wittman is listed as having solved art crimes worth over 200 million dollars. Yet Wittman's investigations apparently never once resulted in prosecution of any art fraud activities (wiki). On a state level, even when the NY Attorney General found that a New York City gallery was involved with selling fraudulent works of art, the owners were punished with a small fine and a promise not to be bad again. This case was significant in that it took three complaints to the Office of the AG over a period of years before an investigation took place.

Over the last two years Fine Art Registry has been conducting investigations of various entities involved in selling questionable art. These investigations have demonstrated that from forged artist fingerprints to forged signatures to worthless appraisals, some sellers of art are clearly scamming their customers into paying for misrepresented and overpriced items. More importantly, these investigations have exposed and identified the system and structures undergirding fine art scam sales and the lack of governmental activity involved in arresting, prosecuting, and jailing those who commit art fraud, and remain free to continue their criminal activities. In point, even though there are many statutes available for prosecutorial response, so far not one agency stepped up to the plate to take a swing at the art fraud ball and put an end to ongoing fraud.

Art Fraud Laws

According to the International Foundation for Art Research various laws exist to prosecute art fraud and forgery violations: the Trademark Act, the Sherman Anti-Trust Act, the Uniform Commercial Code, the Racketeer Influenced and Corrupt Organizations Act, and the United States Code 18-1341/1343. Except for the United States Code 18 1341/1343 most of the above laws are not used in art and forgery prosecutions.

1341 pertaining to frauds and swindles states: "Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, or to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything represented to be or intimated or held out to be such counterfeit or spurious article, for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail or such carrier according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined under this title or imprisoned not more than 20 years, or both. If the violation affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

1343 pertaining to fraud by mail, wire, or radio states: Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both. If the violation affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both."

The Required Conditions for Prosecutorial Action

The conundrum encapsulating agency response is that in order for a genuine fraud case to be made many conditions have to be present in order for a prosecuting agency to become involved:

1. The person committing the fraud must be aware that he or she is intentionally committing the fraud. The fraudster intended to deceive.
2. The product or service must be misrepresented. The fraudster must provide factually incorrect information, or fail to provide factually correct information.
3. The dupe relied on the misrepresentation.
4. The dupe must suffer a loss.
5. The prosecuting agency must have jurisdiction over the fraud.

Art fraud attorneys, Morris and Stevens have stated in the Art Fraud Virus that art fraud prosecution demands heavy duty evidentiary weight(1). Further, it doesn't help if the prosecuting agency staff is clueless in understanding the difference between genuine and fake art. Training in law does not entail knowing real art from bogus. In point, the nature of the conundrum facing law enforcement response to art fraud consists of identifying those varying aspects of fraud as they apply to fake art. The prosecutor must be able to ascertain where the crime was committed, who committed it, if intention was present, the nature of the evidence supporting the fraud, and the level of authenticity surrounding the piece being labeled as fraudulent.

On a second level, fraud prosecutorial activity must also entertain other aspects of the fraud not always apparent but which may conjoin the crime for a successful prosecution. Fraud conditions may exist on a plane outside of the art fraud but satisfy the conditions of other fraud. In the State of NJ versus Senquiz, prosecutors had to invoke the crime of asserting possession of a college degree when none existed, to win a case of Medicare fraud. The creative use of statutes is not always easy to exercise since the law requires consistency and reliability which are not always guaranteed via creative manipulation of statutes.

What are the issues and problems, or the weightiness of evidence required to activate and process art fraud prosecution? To answer this question it is necessary to first understand the conditions of what must be present to kick in a prosecutorial action against suspected art fraud.

Issues and Problems of Satisfying the Conditions of Art Fraud Prosecution

Intentionality

Without a confession admitting that the criminal intentionally attempted deception, proving intention is difficult. Van Meegren examples are few and far between. (Hans Van Meegren was arrested as a collaborator by the Nazis for selling a Dutch painting. Herman Goring was upset because he was unable to purloin it himself. Van Meegren confessed not to the sale of the valued painting but to a forgery which he readily duplicated in the court rooms.) It is difficult to establish intention to commit art fraud since one has to prove that the person involved in the misrepresentation knows for a fact that the item being sold is a fake. Merely selling a fake does not establish that the seller intentionally attempted to deceive. The seller in most cases is not an art expert but a salesperson merely doing a job, or a gallery owner trying to make a sale. This is not to say that intentionality is impossible to prove. Eli Sakhai was prosecuted under mail and wire fraud laws since he signed Certificates of Authenticity for works he paid others to forge. He knew the works were forged, and stated by way of the certificate that they were not forged but authentic.

Identifying the Perpetrator

Identification of the person responsible for the fraud is another problem prosecutors have to deal with. Since much art fraud may take place in a group setting, over time, and in many different parts of the world, how does one identify the true culprit? The common rejoinder from those at the top is that they had no idea that fraud took place on a lower level.

Misrepresentation

Yes, the piece sold turned out to be a fake. The gallery owner actually sold it but it came with a COA from the original seller. Unless the gallery owner is a certified art expert, it would be difficult to argue that the owner misrepresented the sale. The owner had a document which stated that the piece was authentic. If the owner possessed a document which stated that the COA was bogus and he or she failed to provide the document, then misrepresentation could be charged.

Reliance on the Deception

Did the person scammed buy as a result of the deception or did he buy because he had to have the piece? There are literally thousands and thousands of fakes on the market. Take the fact that 66% of the population does not care if what they purchase is or is not a fake, and as such, the role of deception in the evidentiary mix becomes superfluous and meaningless (2). If the buyer did not care if he was deceived, there is no reliance on the deception, in which case the prosecution would not continue since all conditions are necessary for continuance.

Suffering a Loss

Depending on the agency having jurisdiction over the fraud there are required amounts per complaint to activate an agency response. The Federal Bureau of Investigation states that the amount of any fraud must be at least $2,000 for the agency to become involved.

Please note here that all the conditions must be satisfied in order for an agency to enter into an investigation of an art fraud complaint. Morris and Stevens note that the level of evidentiary weight in art fraud prosecution almost precludes agency response in most cases (3).

Systemic Issues in Prosecuting Art Fraud

Although various governmental agencies seem to have jurisdiction over art fraud, the United States Postal Investigation Service and the Federal Bureau of Investigation are the main investigative bodies. They investigate and hand over the results to the United States Attorney who decides on the basis of evidence if prosecution will take place. State Attorney Generals may also prosecute but rarely do.

The FBI response to art fraud complaints is that they have no "...art fraud unit specializing in art fraud cases." Except for art thefts, ex-agent Wittman's focus, the return of cultural artifacts, and a once in a while pursuit of millions of dollars of forgeries, very little prosecution takes place in the art fraud and forgery milieu. Morris and Stevens note in their "who to call registry" when art fraud is suspected, call the local police or sheriff. Do not bother calling anyone else. Add the fact that, given the massive frauds uncovered in terms of Ponzi schemes, mortgages, student loans, daily corporate plunder, and the stated lack of resources available for art fraud prosecution, it would be unreasonable to expect any changes to current prosecutorial responsibilities in the future. In point, the system of art fraud agency response is systemically without the required elements of money, time, or expertise for enforcement. The criminals are in the big leagues; the police exist as minor league players.

Mail and Wire Fraud Law: Art Fraud's Nemesis

It is not always clear or easy to ascertain the road to be taken in the prosecution of fraud or crime. In the arsenal of prosecutorial big guns, mail and wire fraud laws stand out as success stories. In almost all the IFAR researched cases of art fraud prosecution processes and consequences, mail fraud statutes 1341 and 1343 were used to prosecute and win criminal cases against art forgers and fraudsters. In the Mett/Wiseman Center Galleries Hawaii, Operation Bogart case, the United States Postal Inspection Services led the investigation which lasted nine years, resulting in the conviction of the owners Mett and Wiseman. In the United States v. Pisani, the Second Circuit New York, it was noted that, "To federal prosecutors of white collar crime, the mail fraud statute is our Stradivarius, our Colt 45, our Louisville Slugger, our Cuisanart-and our true love. We may flirt with Rico, show off with 10b-5, and call the conspiracy law 'darling', but we always come home to the virtues of 18 U.S.C. 1341, with its simplicity, adaptability, and comfortable familiarity."

Return of Victims' Monies

If your art fraud complaint results in a conviction, the laws require that the culprit return the funds secured from the fraud. Sarbanes Oxley provided stronger teeth to federal laws, and various states over the last few years have sought to strengthen their victim's rights of returns of ill gotten gains via fraud. As it turns out, government wants to be first in line to be paid for its costs in administering justice and they are. In the above Mett/Wiseman case the perpetrators were penniless by the time the case was completed. The fact that it will cost prosecutors more monies to have the victims made whole by having their monies returned makes it problematic and somewhat improbable that an art fraud victim will have his monies returned for a purchased forgery.

Summary

Art fraud and forgery prosecution are not without laws to protect the citizen and control the crimes. The laws unfortunately are more smoke than fire. Those that break the laws may reasonably expect not to be caught or prosecuted. This is not a case of the criminal being so smart but one in which the laws create problems and issues initiating prosecutorial activities. It doesn't help that art fraud prosecutors do not understand the art world, or are without necessary staff or funding. If you believe you are a victim of art fraud or forgery please note the following:

1. Criminal prosecution of art fraud and forgery will be the exception rather than the rule.
2. Criminal prosecution will not provide a return of your monies spent for the fake.
3. It is more likely that you will have to initiate a civil prosecution of your fraud case.
4. Although there are many governmental agencies positioned to prosecute art fraud and forgery only the USPIS and the FBI seem to be active.
5. If you feel you have the grounds for a complaint, be sure to maintain all documentation supporting your claim.
6. Keep in mind that the kick-off amount for agency involvement (at least in the case of the FBI) is $2000 but may be much higher.
7. More than likely your complaint will not be recognized or acted upon, and as such report it to your local police since it may provide insurance benefits or tax credits.
8. Be prepared for a long, drawn-out court case.
9. Evaluate all the costs of filing a fraud complaint versus the rewards.
10. If the fraud or forgery has a paper trail of radio, TV, wire or mail, pay particular attention to such documents in your complaint.
11. Note that prosecutorial agency personnel will be attorney practitioners and not art experts.

Unfortunately we live in a society where laws are made but lack the teeth to protect the unwary. As always be skeptical, take your time to purchase, ask questions, do your research thoroughly. Note that no one can predict a return on your art investment or infallibly guarantee authenticity.

— by John Daab Ph.D.  |  June 22, 2009

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