Inigo Philbrick, Trust and the Need for Artclear
On 18th November 2021, Inigo Philbrick, a young rising star of the contemporary art market, pleaded guilty to wire fraud at a federal court in New York. According to U.S. Attorney, Damien Williams, Philbrick “…was a serial swindler who took advantage of the lack of transparency in the art market to defraud art collectors, investors, and lenders of more than $86 million to finance his art business and his lifestyle.” He awaits sentencing and faces up to 20 years in jail.
The lack of transparency referred to by Attorney Williams concerns legal title, physical possession and the existence of liens or other claims upon works of art. These issues are nothing new but when combined with the tremendous growth in the value of the art business in recent decades and increasing interest in art as a financial investment, they create ever more opportunities of the kind that Philbrick was able to exploit.
The good news is that these are precisely the problems that Artclear is being built to tackle.
Philbrick’s frauds were possible precisely because there is no mechanism to prove title to specific works. There were three basic versions of his fraud: selling works he did not own; selling works multiple times and pledging works that he did not own as collateral.
There were several examples of Philbrick selling works that he did not own but the best documented involved Fine Art Partners (FAP), an investment company. FAP financed Philbrick to buy works with a view to sharing the profit with him when they were later re-sold. Crucially, they allowed him to handle both the purchase and the storage arrangements, giving him ample opportunity to onward sell the works acquired to third parties while telling his business partners that title remained with them.
However, he was not content merely with selling the works once. For example, Philbrick sold a painting by Rudolf Stingel, initially acquired on behalf of FAP to two other parties: a 50% share to an investment vehicle called Satfinance and, a year later, the entire picture to another firm, Guzzini Properties. In another case, Philbrick sold a 50% share of a painting by Wade Guyton to V&A Collection in 2013 and then sold the work to Guzzini Properties in 2017.
The final layer of fraud perpetuated by Philbrick was to use works that he did not own as collateral against loans. In June 2020, Athena Finance, a specialist lender against art collateral, filed against Philbrick for the right to sell a painting by Basquiat which had been pledged as collateral against a $13.5m loan on which Philbrick had defaulted. The claim was complicated by the fact that ownership of the painting was also claimed by Satfinance, which had bought it from Philbrick in 2016.
Philbrick’s frauds would have been much harder to pull off had Artclear been available. Once a work is registered with Artclear, the structure of its ownership becomes a matter of record and any transaction involving change of title or location or rights requires the consent of all its owners. Moreover, neutral parties such as storage providers can certify to authorised recipients such as part-owners that they have a specific object in their care. For the first time, parties to transactions have a strong mechanism to record, protect and assert their rights, without giving up their precious right to privacy and security.
One of the consequences of Philbrick’s actions was a recognition that they may represent merely the tip of an iceberg. As his attorney said after Philbrick had pleaded guilty, “While his actions were dishonest and criminal in nature, he’s part of an industry… where this sort of behaviour is really commonplace.” At Artclear, we are working to ensure that this statement becomes a description of the past, not the future.