Philbrick sentenced to seven year jail term – a rogue bad apple or a pawn in an industry rotten to its core?

Posted on: June 1, 2022 by

US District Court for the Southern District of New York

Art dealer turned con-artist Inigo Philbrick was sentenced last week by a US District Court to seven years behind bars. Described as “a serial swindler who took advantage of the lack of transparency in the art market” Philbrick defrauded numerous art traders, lenders and investors out of a reported US $86 million in a series of high value scams between 2015 and 2020. A comment by Philbrick’s lawyer following his client’s guilty plea at a hearing last November raised heckles in the art world. Depicting Philbrick as a ‘symptom’ rather than a ‘cause’ of the art market’s machinations, the attorney characterised the industry as “corrupt from top to bottom” suggesting that “many more cases like this would appear if the art world were investigated thoroughly”. A rather depressing indictment – but is it really a true reflection of the entire sector as we know it today?

Philbrick’s story is certainly not unique, nor was his modus operandi. Whilst the deals he struck with investors, lenders and buyers were multi-layered and complex, a couple of recurring patterns were revealed once his glory days as a high-flying dealer were over and his descent into criminality was laid bare. His first trick was to sell more than 100% of a work, taking payment from one party then another, and sometimes yet another for the same work. The second scam involved using works (including those he had already purported to sell, sometimes more than once) as collateral for loans to raise more funds to invest in more works. When the market for the works in question was buoyant the scheme was able to wend its fraudulent way, but when prices fell, the angry chickens came home to roost remarkably quickly. Suddenly, Philbrick was faced with investors calling for sale funds, lenders demanding repayment and collectors wanting their art works – with nothing to offer any of them. Multiple court cases ensued both in the US and the UK, some of which are ongoing as Philbrick’s victims fight it out between themselves as to exactly who owns what in this whole big mess.

Fraud of this nature is certainly nothing new for the art world. Indeed, there seems to have been rather a spate of somewhat similar scandals in recent years. In 2019, UK dealer Timothy Sammonds was sentenced to up to twelve years in prison for multi-million dollar fraudulent schemes carried out in the early 2010s.  Like Philbrick, he raised collateral on art he didn’t own and deceived clients about timings and prices for sales of their works.  A mini-series recently shown on Netflix explored the rise and fall of Anna Delvey (Sorokin) who posed as a German heiress to con elite New York gallerists and philanthropists out of more than US $200,000 before the law caught up with her and a four year spell behind bars ensued. A similar fate befell former dealer Angela Gulbenkian, who pleaded guilty to theft after purporting to sell a $1.4million Kusama sculpture which never materialised and was sentenced to three and a half years in July 2021. A name possibly less well known to followers of the art world is that of Andrew Valmorbida, taken to court in Jersey last year in relation to allegations of fraud after he had secured loans against paintings worth several million dollars consigned to him by clients, which he then went on to sell – a rather familiar pattern.

This litany of sorry sagas certainly seems to paint a rather murky picture. How was it that these unscrupulous individuals were able to perpetrate their fraudulent schemes for so long? How did the market allow them, one after the other, to hoodwink their victims and undermine trust in its standards and operations? Those convinced of the market’s inherent vice would point to its lack of transparency and relative informality, the realm of gentlemen’s agreements and deals struck behind smoke and mirrors.

There are signs, though, that things are changing. The long arm of the law is bearing down, and the courts are stepping up, showing decreasing patience for the market’s attachment to confidentiality. In a case discussed on the blog in 2020 arising out of the Sammonds debacle, the UK High Court was prepared to grant an order (known as a Norwich Pharmacal order) obliging disclosure by an agent of information about a painting the claimant alleged Sammonds had stolen from her. The agent, who was involved in a subsequent sale of the work, was ordered to disclose details about that sale including the identity of the buyer. The court had little sympathy with the agent’s contention that the “well-known custom and practice” of confidentiality should be a “paramount reason against disclosure” and that being seen to protect client confidentiality was crucial to his reputation within the industry. Rather, the court concluded, the custom of confidentiality was not “an absolute obligation” and did not present a good reason why the order for disclosure shouldn’t be made.

A similar scepticism about matters of confidentiality was demonstrated by the Jersey court in the Valmorbida case mentioned above. Here, the parties actually settled mid-trial before judgment was delivered, but the court considered the circumstances of the case of such importance that it should publish its findings in any event – a most unusual step. Given that Valmorbida “appears still to own companies in Jersey and has service providers looking after his interests” it was considered “very much in the public interest for a person with Mr Valmorbida’s profile to have his dealings exposed”.

The approach of the courts in these cases is very much in step with recent regulatory and legislative developments. The application of anti-money laundering regulations to the art market in the EU (applying to deals or series of deals worth at least EUR 10,000) is well known to readers of this blog and mandates a new and more robust level of transparency about who is buying what and where their money comes from. Other developments such as the recent EU import regulation (2019/880) (applicable for the EU and Northern Ireland but not Great Britain) also herald a new era of enhanced scrutiny about the origins of certain works of art on their import into the EU. And of course, these new regimes add extra layers to the existing raft of legislative measures within the general law which protect those who trade in art, and have done for decades and centuries.

Some would say that the historical peculiarities of the art market and the nature of the works it deals in set it apart from other industries. It faces risks and challenges which don’t feature for other business sectors, and yet has lacked the kind of tailored regulatory regime which has long been applied to some of these other sectors. Had Philbrick and the cast of characters discussed above been selling houses, real estate or stocks and shares, would they have got away with their webs of deceit for so long? An unanswerable question, of course, but whilst their actions were utterly reprehensible, it seems unduly harsh to tar the whole art market with the same brush. In the art world, as in any sector, there will always be a few bad actors who exploit the loopholes. But there is also an overwhelming majority of participants who go about their business with honesty and integrity. The marked upswing in regulatory attention the art market is receiving in recent years can only serve to bolster the protection afforded to those of its participants who seek to tread an honest path.

 

Image: United States District Court for the Southern District of New York, where Inigo Philbrick was sentenced on 23 May 2022. Ajay Suresh from New York, NY, USA, CC BY 2.0 <https://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons