When an art dealer single-handedly earns more money than an auction house

When an art dealer single-handedly earns more money than an auction house
Marketplace  -   Deals

Is it possible for an individual art dealer to earn more money than an auction house that’s been in business for 300 years? The answer should be no. Yet Yves Bouvier and Sotheby’s have managed to refute this popular belief. Indeed, the huge income the Swiss art dealer apparently generated has raised eyebrows around the world. It’s also provoked fierce legal disputes. One of Bouvier’s former clients, Russian businessman Dmitry Rybolovlev, has launched legal proceedings against the Swiss dealer as well as against Sotheby’s itself, accusing the prestigious auction house of having helped Bouvier defraud him out of massive sums of money.

Sotheby’s auction house encompasses many departments: two of the most profitable are, of course, the auction segment and private sales. Since 2012, the private sales division has conducted business with close to 2,400 clients in 79 different countries—for a total of $4 billion in sales. It is, by Sotheby’s own admission, the department that has experienced “the most rapid growth on the market” while guaranteeing “discretion, efficiency and unparalleled convenience at every step along the way”. Sotheby’s nevertheless became entangled in an apparent scheme to bilk one of its clients, Dmitry Rybolovlev, out of millions by massively overcharging him for artworks.

An organized scheme to overcharge clients?

According to the financial journal Les Échos, the complaint lodged in 2018 by Russian entrepreneur Dmitry Rybolovlev indicates that he bought, between 2011 and 2013, 13 art pieces for a combined total of $867 million. These sales were conducted through his longtime art dealer Yves Bouvier, who had acquired these paintings himself from Sotheby’s—as documents recently ordered released by a U.S. judge show, for a much lower price.

Through this pattern of rapidly reselling works to Rybolovlev at a significant mark-up, Bouvier seems to have generated profits that were often more substantial than anything earned by the auction house itself—or at the very least by its private sales department.  Over a three-year period, Yves Bouvier purchased a total of $570 million in art from Sotheby’s. During that same period, the total sales figures for Sotheby’s private sales department, according to the auction house’s annual reports, amounted to $2.9 billion— meaning that Yves Bouvier’s purchases represented nearly 20% of Sotheby’s private sales. Still more impressive is the fact that based on these same statistics, the auction house “merely” earned $230.6 million in commissions from all its sales put together, whereas Bouvier pocketed a staggering $297.4 million from his transactions with a single client!

According to the same complaint lodged by Rybolovlev, these colossal sums were achieved as a result of a clever business scheme, executed jointly between Yves Bouvier and Sotheby’s. The alleged scheme followed a distinct pattern: first, Sotheby’s sold artworks to Bouvier, which the Swiss dealer would then go on to sell to a single client, Rybolovlev. In order to collect a substantial profit margin, Bouvier sold these pieces to the Russian billionaire, apparently at a huge mark-up. This pattern of overcharging Rybolovlev, the complaint alleges, allowed Bouvier to more than recover his costs while also guaranteeing Sotheby’s consistent sales.

In 2011, Yves Bouvier apparently carried out this scheme with eight artworks— including pieces by Picasso, Rodin, Magritte and Modigliani— which the Swiss dealer purchased for $296 million and then resold for $461 million to the Rybolovlev family trust. These transactions represented 36% of Sotheby’s private sales that year. In total, the auction house’s 2011 private sales earned them $67.8 million in commissions. Remarkably, this figure is 2.5 times less than the $175 million which Yves Bouvier seemingly managed to make from his dealings. This process was presumably repeated in 2012 and 2013, thereby allowing Bouvier to become wealthy at Rybolovlev’s expense.

The case becomes public

In 2013, Yves Bouvier only bought one piece of art, but what a piece it was! Bouvier managed to pick up the renowned Salvator Mundi by Leonardo da Vinci, which he bought and resold to Rybolovlev within 24 hours for a profit of $44.5 million. In other words, Bouvier made a profit on a single painting equivalent to more than half of what Sotheby’s entire private sales division had earned in a whole year!

This staggering amount which Bouvier sold the da Vinci to Rybolovlev for came to the attention of the painting’s previous owners, Robert Simon, Alexander Parish and Warren Adelson. The consortium of these three dealers, upon learning the price for which Rybolovlev bought the da Vinci masterpiece, publicly announced their intention to sue Sotheby’s, who had been brokering the sale for them.

Sotheby’s quickly short-circuited the three dealers’ complaint, however.  Anticipating a scandal, the auction house filed a pre-emptive lawsuit, seeking to prove it had complied with all applicable rules and regulations. Four months later, Simon, Parish and Adelson agreed upon an settlement with Sotheby’s. The terms of this deal remain protected by a confidentiality clause, effectively quashing the growing controversy.

Yves Bouvier, the big winner from this scheme

The final result of all these apparent machinations? Yves Bouvier earned more money in four years from selling to a single client than Sotheby’s private sales department made worldwide during the same period. As such, it seems highly unlikely that the profits Bouvier made by selling pieces to the Rybolovlev family trust could be considered “market”, “skill” or “risk-hedging” adjustments.

At the end of June, Sotheby’s claimed in The Times that the auction house had been unaware of the “prices at which Mr. Bouvier intended to sell works of art he acquired from Sotheby’s, if he indeed decided to sell them at all”. However, given the magnitude of Bouvier’s purchases (€827 million) made through Sotheby’s, as well as the outsize proportion the Swiss dealer’s transactions made up of the auction house’s total private sales, it is difficult to believe that Sotheby’s would have believed that Bouvier was buying these artworks for himself, especially given that Yves Bouvier had personally asked Samuel Valette, Sotheby’s vice-president of private sales, to provide him with details on the Rodin sculpture The Kiss, which he was to show to “his friend” the next day.

The close relationship between Bouvier and Valette is borne out by another aspect of the case. Why, indeed, would officials from the private sales department have acted in way that was detrimental to the auction house’s interests by selling, over a three-year period, works at prices lower than those listed in Sotheby’s own appraisals?

The correspondence between Samuel Valette and Yves Bouvier, as outlined in the complaint filed by Rybolovlev, suggests that Sotheby’s was aware that the Swiss businessman bought these art pieces for “his client” and not to sell on the open market. The extensive messages between Bouvier and Valette even raise the possibility of a conspiracy between the two men, which would profit one or both of them.

According to the auction house’s business code of ethics, “business decisions must be made in the best interests of Sotheby’s and our clients and should not be motivated by personal interest or gain”. The Bouvier affair seems to indicate that Sotheby’s decisions were not always made in the “best interest” of their clients nor their shareholders.

A fierce legal battle is still ongoing, with lawyers for both Yves Bouvier and Sotheby’s flatly denying all the accusations levied against them and insisting that all these transactions were legal and were in no way part of a business scheme conceived to swindle Dmitry Rybolovlev.

At the same time, the prevailing wind in American courtrooms seems to be blowing in favour of the Russian businessman. An important ruling in June rejected Sotheby’s bid to have a New York case thrown out because separate judicial proceedings are already in progress in Switzerland, meaning that the auction house will have to litigate in both jurisdictions.