Last spring a rumor spread through the New York art world. Whether or not it proves to be true, it is indicative of the continued corruption at the highest levels of the art market.
According to sources, the office of venerable Manhattan D.A. Robert Morgenthau had informally invited 33 wealthy players in the New York auction and gallery milieu to allegedly confess that they had taken proactive actions to avoid the payment of sales taxes on purchases of fine art by their well-heeled clients.
What has been the result of this alleged overture, which reportedly was necessitated by longtime reputed friendships between D.A. Morgenthau and the highest power players at MoMA, the Whitney, Sotheby's and Christie's?
The answer: Four plea bargains related to avoidance of sales tax payments by uptown galleries specializing in the sale of decorative arts and Old Masters.
Even though the average fine was $200,000 without jail time in these four cases, the pleaders uniformly reacted bitterly off the record.
One Old Master dealer commented, "It's like running a red light -- everybody does it, but few get caught."
The larger question is this: After a major price-fixing scandal in which Al Taubman was sent to jail, Dede Brooks placed under house arrest and numerous former Christie's senior officers were exposed as hypocritical backstabbing cowards, why does business at the high end of the New York market continue, without any major, or minor, reforms whatsoever?
Look no further than the September issue of Art and Auction magazine for a brazen apologia. Three times, in two separate articles, the dean of auction observers, Judd Tully, defends "chandelier bidding," the odious practice by high-end auctioneers of raising false bids at crucial times to goose the bidding, as, in Tully's words, "perfectly legal."
In any other retail business under the purview of D.A. Morgenthau, from home financing to used cars, such practices would constitute out-and-out fraud.
But, do you know what makes auction practices such as "chandelier bidding," "the secret reserve," collusion typified by the Taubman case, and the special attention given to preferred blue-chip galleries, so especially repugnant?
Constipated practices at Sotheby's and Christie's are blocking a gushing river of opportunity, represented by 40-something artists with huge secondary markets, such as John Currin, Inka Essenhigh, Gabriel Orozco, Chris Ofili, the Chapman Brothers, Katy Grannan, Rineke Djikstra, etc. Not to mention 50-somethings such as Peter Halley and Ashley Bickerton, who have yet to realize their auction potential.
It's no secret that the New York gallery scene has thrived through backroom deals made possible by the trade-restrictive in-house practices of elite auctioneers willing to repaint their Potemkin Villages to preserve their jobs, their expense accounts, their low profit margins and their "special" relationships with low-rent media toadies in the art-market press.
To sense the dynamic, just check out the market for Inka Essenhigh's surreal paintings (aka quality + availability =money, what a real auction market should be).
Last year Inka switched her painterly medium to traditional oils, and transformed her icons to the explicitly mythological. Some praised Inka's changes, others did not. At last year's Armory Show, S.I. Newhouse purchased Essenhigh's Unicorn for $35,000. Unbeknownst to Inka, her change in style put a cap on the availability of her previous encaustic-plus body of work. Newhouse reportedly purchased an older Inka for six figures and, according to private dealers who have cleaned up on Inka's work all summer, the minimum price for a pre-2002 Essenhigh painting is now $125,000.
By the way, how much of that goes to the artist -- zero, of course. This is just one example of a market in which regular dealers have a leg up on the traditional auction houses.
Why? Because contemporary and other auctions are, however "legally," rigged. And, consequently, without reforms, the auction houses will miss out on the biggest free-market opportunity in their history, the availability of topnotch work by living artists.
What is to be done? The same reform proposals that have been kicking around for 25 years, but have not been demanded by the Morgenthaus and their privileged ilk.
Eliminate the secret reserve.
What would Ronald Reagan (or Milton Friedman) think? The reserve is nothing more than a hidden communistic price support.
Make chandelier bidding illegal.
If the used-car guy tells you that the Toyota on the lot with 160,000 miles was "owned by a little old lady who only drove it on Sunday," Mr. Used Car can go to jail -- how about Mr. Christie's?
Pay the artist a three percent royalty on resales.
When Robert Rauschenberg proposed this humane option three decades ago at the Scull sale, he was shouted down -- a few years ago European artists pleaded with the European Union not to impose such a royalty -- can you imagine Britney Spears rejecting royalties on her back catalogue? If the painting changes hands, artists deserve payment each and every time.
Require all bidders and buyers to publicly identify themselves during auctions and after purchases.
As Ivan Boesky found out, it's illegal to park stock -- why should fine-art buyers park work with dealers, or with auction houses, to avoid being identified?
Well, don't hold your breath for any of these reforms to occur without legislation or enforcement. But the joke is on the auction houses -- while they're sucking up to Steve Wynn and coddling the few billionaires left to buy inferior Renoirs or inflated Koonses, Chelsea galleries have dominated the next generation of "product"!
CHARLIE FINCH is co-author of Most Art Sucks: Five Years of Coagula (Smart Art Press).