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The
headlines have been sensational:
"Dealers
Gain Collectors Trust, Score Multi-million Dollar Bonanza"
"London, Chicago Experts Finagle Holy Grail Cache
of Violins"
"How Nazis Targeted the World's Finest
Violins"
"Trail of Treasures is Lost in Secret
Rare-instrument Trade"
"Survivors Claims Go Unheard"
"Historic Violin Tug-of-War"
A relentless campaign attempting to expose the under-belly of the string instrument
trade has been waged in the Minneapolis Star Tribune, the Wall Street
Journal, and especially in the
Chicago Tribune, which has featured three extensive articles with blazing,
front page headlines, and these articles have since been widely
distributed and syndicated. Suddenly, violin scandal is a hot news item.
The
printed word can be powerful, and one could expect that the dealers named
in these articles have experienced fallout from the light in which this
barrage of negative information has cast them. What is the truth behind
the issues exposed in the articles? To what extent is it possible for
writers from outside the trade to appropriately research, and to
comprehend the implications of that research in such an arcane field.
Chicago Tribune reporters Howard Reich's and William Gaines' barrage of
attacks have been aimed most obviously at the Chicago firm, Bein &
Fushi, but of the major US firms only Machold Rare Violins has been spared
scandal.
Reich's and Gaines' first article in the Chicago Tribune, which ran on
June 17, 2001, featured an extensive, and decidedly slanted, exposé of the
much-ballyhooed Segelman case involving London dealer Peter Biddulph, Bein
& Fushi, the Chicago dealer Kenneth Warren & Son, and the Chicago,
violinist, collector and philanthropist Howard Gottlieb. The Segelman
Estate Executor, attorney Timothy White, has alleged that the Segelman
Estate has been defrauded out of large sums, the proceeds of sales denied
the Estate by the collusive efforts of the four parties. The instruments
from the Segelman Estate were consigned to Biddulph upon Gerald Segelman's
death, by prior
arrangement between Biddulph and Segelman. Biddulph's fiduciary
responsibility to the Segelman estate was clear. The Biddulph case was
settled for an undisclosed sum, but rumours persist that the settlement
was not token, implying that Biddulph's attorney's did not have confidence
that the court would strike down the Segelman Estate's claims that
Biddulph had acted improperly in his dispersal of the Segelman collection.
The Segelman Estate claims against Warren,
Bein & Fushi and Gottlieb are
more difficult to understand. That Biddulph sold instruments from the
Segelman estate to the other three parties is not disputed. That the instruments were
subsequently resold at profits is also not contested. However, several
important issues integral to a complete understanding of why the case is
complicated and still in dispute have been conspicuously absent from the
press accounts.
If there was an explicit written agreement between the executors of the
Segelman Estate and Biddulph, indicating that the Segelman collection
would be disposed of at retail prices, this would have been unrealistic
and unwise arrangement for Biddulph to have entered into. Fine art objects
are notoriously illiquid. With notable exceptions such as extreme market
conditions or in the case of a particularly desirable example, fine string
instruments change hands wholesale at about 50% of the speculative retail
price, and even then not necessarily easily. The retail price must be
regarded as speculative because of the rarity and fickle nature of retail
sales in the string instrument trade, and because of multiple commissions
which are often a part of high end string instrument transactions. Even
the
most successful dealers must, from time to time, retreat from a high
asking price for an item, in order enhance the possibility of a sale and
be able to meet operating expenses. The relative rarity of cash customers
for fine string instruments creates an environment wherein the dealers go
to some lengths to protect the exclusivity of their arrangements with clients.
Thus it is difficult to sell fine string instruments without paying
substantial commissions to more than one dealer. For Biddulph or any other
single retailer to have liquidated the Segelman collection at full retail
prices, in any reasonable time frame, without paying commissions, or
providing incentives to other dealers in the trade seems doubtful,
especially in view of the fact that Biddulph's business had
historically been primarily a wholesale one.
Further,
the years required to retail fine string instruments at full prices would
have been inconsistent with the typical needs of estate liquidation.
Whatever the arrangement between the Segelman Estate and Biddulph was, the
London dealer in fact liquidated the Segelman instruments in the manner in
which he had been conducting business for decades: The collection was
dispersed piecemeal to some of the most successful retailers worldwide at
relatively high wholesale prices. That there was substantial markup when
instruments were resold should come as no surprise, nor is it damning for
any of the parties involved. Substantial markups are a fact of the string
instrument trade, just as they are a fact of retailing in other
businesses. Given the difficulties and expenses faced by dealers in
maintaining a
premise, the thin resale market and the thin supply of the goods, and the liability
explicit in being a vendor of fine string instruments, a mark up of up to
100% on a wholesale purchase should not be construed as unjust enrichment.
Perhaps Biddulph's biggest mistakes were not explaining the facts of the
business to the
Segelman executors, not clearly qualifying his appraisals as estate
appraisals, and not disclosing the nature of, and all of the commissions
paid in the transactions that did occur.
The only arrangement between the Segelman executors, and any of the
defendants besides Biddulph, consisted of Warren's corroboration of
Biddulph's estate appraisal on a number of instruments in the Segelman
collection. Were the appraisals out of line? Or does this simply expose an
ongoing problem in the
string instrument trade: with their extreme lack of liquidity string instruments do not have a single appraisal price. Rather,
an appraisal must reflect a range of circumstances around that appraisal. It is
difficult for those outside the trade to understand the subtlety that appraisals
are tailored to the specific situation, but those with
experience in the business understand this to be a necessity. That is why
the best appraisers qualify their appraisals with terms such as: Estate,
Insurance etc. (see article elsewhere in this
issue with an explanation of appraisal terminology)
From the outside, the case against Bein & Fushi, Warren & Son, and Gottlieb
does not appear to hold up to scrutiny. Reportedly, and apparently as a
matter of expediency, Gottlieb settled with the Segelman executors some
months ago, for an undisclosed sum. Meanwhile, the case grinds inexorably
on for Warren & Son and Bein & Fushi. If the decision goes against the Chicago dealers, then
one hopes that the judgment, which will be a matter of public record,
will explain the case against the defendants more fully. If the Segelman
executors fail to prevail one will have to wonder why they chose to pursue
the case
against the Chicagoans. One somewhat Dickensian explanation could be that
in the absence of
any personal heirs to the Segelman estate to limit them, the Executors stand to gain
extensive fees through prolonged legal action, and stand to gain nothing
through its quick settlement.
The degree of bias which the papers displayed against the Chicago dealers is also
a point of interest. As will be shown here in future articles on the
topic, critical facts have routinely been ignored by Reich and Gaines in
their reporting, seemingly because those facts would have diluted the taint of
scandal. Gwen Freed, the reporter who originally broke the story in the
Minneapolis paper, and in the Wall Street Journal, conducted an extensive
phone interview with this author, prior to the publication of the original
articles, but chose to ignore all of the more moderating perspectives or
facts of the case.
Apparently scandal sells best when it is cast in the darkest light. ###
...next issue, the truth about those Nazi violins.
Stefan Hersh
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