Sotheby’s must face New York claims it helped rich collector dodge taxes

September 28, 2021

By Jonathan Stempel

NEW YORK (Reuters) – Sotheby’s must face a lawsuit by New York’s attorney general accusing the auction house of fraudulently helping a wealthy art collector dodge millions of dollars of sales taxes, a state judge has ruled.

The case concerned purchases by a Sotheby’s client of more than $27 million of works from artists like the painter Jean-Michel Basquiat and sculptor Anish Kapoor.

Attorney General Letitia James said Sotheby’s helped the client obtain bogus “resale” certificates from 2010 to 2015 that portrayed him as an art dealer, entitling him to tax exemptions, rather than as a collector.

In a ruling on Monday, Justice Andrew Borrok of the New York state court in Manhattan rejected Sotheby’s claim that it was excused because only a “very small number” of employees, and primarily one junior employee, knew of the alleged wrongdoing.

The judge pointed to allegations that a “key client manager” had visited the client’s apartment to “admire his artwork on the walls,” and said it didn’t matter that Sotheby’s accountants who reviewed the certificates might have been in the dark.

Sotheby’s had argued that it was “punitive” for James to seek triple damages from the whole company under the state’s False Claims Act, “rather than simply recover sales tax.”

Neither Sotheby’s nor its lawyers immediately responded on Tuesday to requests for comment.

James said at least 12 Sotheby’s employees knew that the client, who runs a shipping business and lives mainly outside the United States, was buying art for himself but used resale certificates.

“No matter how wealthy you are, no one is above the law,” James said in a statement on Tuesday. “We look forward to making our case in court.”

James sued in November, two years after the collector’s company Porsal Equities, agreed to pay $10.75 million to resolve related New York claims over its use of the certificates.

(Reporting by Jonathan Stempel in New York)

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