157. Taxes: Who Pays Them and Who Doesn't

   No subject can raise more hackles than taxes, including above all income taxes.  Long ago in Alaska, before that territory had become a state, a resident urged me to urge my Congressmen to endorse statehood for Alaska.  And if that meant more taxes, so be it.  “You can’t have civilization without taxes,” he insisted.  This is not an opinion shared universally.  In our Western states, especially, citizens are wary of government, convinced that the IRS is out to grab their hard-earned cash and give little in return for it.  But tax avoidance, so common in many foreign countries, is not sanctioned here.  Back in the 1950s, when I was hanging out at the San Remo bar in the West Village, I overheard snatches of conversation from two Frenchmen, one new to the States and the other his mentor, who were watching “les existentialistes américains,” a scruffy bunch of bohemians imbibing at the bar.  But the Frenchmen were discussing other matters.  Said the veteran to his newly arrived friend, “En Amérique la taxe est sacrée” (In America taxes are sacred). 

     New York is a notoriously high-tax state, and residents of New York City are hit with a triple whammy: federal income tax, state income tax, and yes, believe it or not, a city income tax.  The state income tax alone is grounds for complaint.  In the 1970s, when I was doing research in Putnam County, I observed that if two New York City residents got together, they talked about crime, whereas when two Putnam County people got together, they talked about taxes.  And dodging the state tax was not unheard of.  From a friend who taught there, I learned that some of the professors at Skidmore College in Saratoga listed a summer residence in Vermont as their main address, so as to escape the New York State income tax.  Whether the state ever got wise to this, I have no idea.

     Another form of protest came from the Iroquois people, who claimed to be a sovereign independent state and therefore not subject to New York State taxes.  In 1957 native American medicine man and activist Wallace Mad Bear Anderson led several hundred Mohawks on a march to the courthouse in Massena, New York, burn court summonses issued for unpaid taxes.  Again, how this finally worked out I don’t know.

     One thing is certain: New York State welcoming signs at the state line cannot match Nevada’s, which proclaims

                                     NO INCOME TAX
                                     NO SALES TAX
                                     NO INHERITANCE TAX
                                     NO CORPORATION TAX
                                     NO GIFT TAX

                    A DEBT-FREE STATE WELCOMES YOU

And if one enters that tax-free paradise, as I did once at night on a bus, the explanation becomes immediately apparent.  As the bus sped through the darkness over the bleak and level landscape, at intervals lights would appear in the distance, and as the bus pulled in to the station, one could see a brightly lit interior with rows of slot machines.  With legions of one-armed bandits everywhere, not to mention casinos, there was no need of taxes.

Pcb21

     Since New York State is not so blessed, what do its tax-burdened citizens do?  At tax time – the months and weeks preceding the dread deadline of April 15 -- they go to accountants, of course, to save themselves the ordeal of preparing their tax returns themselves, and to pay the least amount of taxes possible.  And those accountants, those wonder workers, those toilers in the bureaucratic maze, thrive.

     My partner Bob once went to an accountant named Russo (not his real name).  One year, since Bob was in charge of acquiring recordings for the Fine Arts Department of the library system he worked for, Russo suggested that he deduct the cost of all his opera tickets as a necessary business expense.  After all, how can you acquire recordings of current performances, if you haven’t heard the performances and evaluated them?  So Bob, a real opera buff, claimed the deduction.  I thought this a bit of a stretch, but maybe worth a try.  Alas, the IRS didn’t go for it.  They called Bob in for an audit, and when, dismayed, he didn’t contest their finding and cooperated, they let him off and went after Mr. Russo.  What came of it I don’t know, but Russo was a pretty shrewd operator; I doubt if he got more than a reprimand.

     My own accounting adventures had to do with an accountant named Mateo Morales (again, not his real name), another shrewd operator, hefty and glib of tongue, whom I soon nicknamed Immorales.  (Not to his face, of course.)  Having no college degree to his name, he admired those who did and was especially happy  doing their tax returns; he was recommended to me by a fellow instructor at Columbia, who praised him to the skies.  Mr. Immorales too was adept at finding possible deductions, but nothing so dubious as Mr. Russo’s suggestion.  Even so, on one occasion I was summoned for an audit.  The prospect of an audit can be daunting, all the more so in my case, since a friend of mine, very vulnerable, had gone to one, encountered an aggressive auditor, and been devastated by the experience.  So I offered to pay Mr. Immorales whatever he wanted, if he would go in my place, and with some reluctance he agreed.  On the day of the audit I got a phone call from him late in the afternoon.

     “I had a long session with the auditor,” he said in his quietly competent, slightly oily voice, “and at one point I raised my voice within the hearing of all the auditors in the room, ‘Madam, are you accusing me of proposing something illegal?’  That put her on the defensive.  When all was said and done, you owe them nothing more in taxes.  And she was rather intrigued by you and asked if you were married.  At that point, I confess I exaggerated a little, saying you were a brilliant scholar so involved in your studies that you had no time for social life, much less marriage.  I even said your apartment was so jammed with books and papers that you kept books in the oven.”

     By now I was laughing heartily, and all this for a fee of only $25!  Of course this was long ago, when $25 went a lot further than now. 

     Mr. Immorales continued diligently and cannily in his profession, while affording

us, his university clients, glimpses of his yearnings, his vulnerabilities.  He once told me that he could write a story that would glue me to the page, but when I suggested that he show some to an agent, he flashed a sour look and changed the subject, hinting that he had tried this without success.  (Scratch an accountant, you may find a writer; scratch a dentist, you may find a sculptor.  And that’s not just New York.)

     But you mustn’t go to an accountant in his busy season with a mishmash of papers, a friend of mine learned, when I recommended Mr. Immorales to her.  She went at the last minute with a shoebox full of documents, expecting him to do her tax preparation.  First I got a phone call from him, reporting that she had left his office very hostile, since he had declined to take her on at this late date, with her papers in such disorder.  Then I got a phone call from her, very indignant, saying that it was his job to do this stuff.  I announced to both that he was still my accountant and she my friend, and took some responsibility for the incident, having recommended him without realizing her papers were so disorganized. 

     Another friend told me how, when Immorales finished his return, he had asked the accountant if there was any favor he could do him.  There was: could he, using his college diploma, create a fake diploma that Immorales could hang on the wall?  My friend agreed and somehow was able to copy his own degree, substitute Immorales’s name, and so create the diploma, which promptly went up on the wall of the accountant's office.  Rather sad, I and my friend thought; deceptive, to be sure, but mostly just sad.

     There was sadder news yet to come.  Immorales had a stroke, and when that same friend went to see him at tax time, he found him utterly changed.  Instead of the keen mind and glib tongue we were used to, the man was vague, unfocused, slow of speech, lost.  By then I was no longer seeing him, but I was saddened by the news.  What then happened I have no idea, but he must have lost most of his clients.  Yes, sad, very sad.

     For years I did my own tax returns, simply following what Mr. Russo had done for me one year; the figures changed, but the basic pattern didn’t.  I was a freelance editor now with a home office and self-employed, so I had to fill out Schedule C and itemized my business expenses.  A home office and itemized deductions are often red flags to an auditor, but luckily I was never audited.  And when I went to Europe in the summer of 1963, I deducted as business expenses the basic costs – travel, meals, hotels – of the time I spent in French-speaking countries.  Far-fetched?  Not really, since there had been a recent IRS ruling acknowledging that foreign language teachers need to keep up their skills in this way.  I was careful in the deductions and – miracle of miracles! – wasn’t audited.

     In time, computing my own taxes became an arduous ordeal involving this or that form, this or that regulation, and endless mathematical computations: enough to unsettle the sanest of citizens.  All my friends used a tax preparer, and marveled at my doing the stuff myself.  Finally, I tried TurboTax, a system that does it for you online if you feed the proper info to them.  Their website shows an attractive young woman grinning at you, while her laptop announces, “Nice refund, Pat!  $2,744.” I expected no such bonanza, just a lot less computing, but believe it or not, TurboTax found a substantial deduction for my New York State return that I had been unaware of.  I checked the NYS tax regulations online, and they confirmed it, so TurboTax, even if it cost me something, also saved me money.

     It’s fashionable to complain about our broken tax system, and there is merit to many of the criticisms.  Loopholes and special dispensations abound, sometimes through Congress’s negligence and sometimes through its subservience to special interests, who often seem to write the laws.  Recently it was reported by Citizens for Tax Justice (CTJ) that 26 of the biggest U.S. corporations quite legally paid no federal income tax from 2008 to 2012, and 93 out of the 288 analyzed companies paid below 10%.  Critics often decry the high U.S. corporate tax rate of 35%, but many companies exploit tax breaks, loopholes, and accounting schemes to their advantage.  And who are some of the companies that paid no federal tax whatsoever?  Here are a few:

·      Boeing

·      General Electric

·      Verizon

·      Consolidated Edison

·      Corning

·      Duke Energy

·      PG&E Corporation

And many other utilities.  The report is of course disputed by the companies named, who point out that it ignores other taxes that they pay, such as state and local taxes.  True enough, but the report is still pretty damning.  One online article on the subject includes a photo of a white-haired lady holding up a sign in bold print: 

MAKE  DEADBEAT  CORPORATIONS  PAY.

      And people?  Here are some who have been prosecuted for tax evasion and related charges, starting with the most recent:

·      2013: Accounting firm Ernst & Young paid $123 million.

·      2008: Senator Ted Stevens, Republican of Arkansas, convicted on 7 counts of bribery and tax evasion.  He ran for re-election but lost.

·      2008: Representative Charles Rangel, Democrat of New York, paid $11,000 in back taxes and – a truly rare event -- was censured by the House.

·      2006: Lobbyist Jack Abramoff was fined $24.7 million and is now serving 70 months.

·      2006: Representative Duke Cunningham, Republican of California, was fined $1.8 million and sentenced to 8 years, 4 months.

·      2002: Six members of the Christian Patriot Association, a white supremacist organization based in Oregon, were convicted of tax fraud and tax evasion and faced up to 5 years each in prison plus a $250,000 fine.

     But why go on?  The list is endless, includes both major parties, and usually involves those in or close to government.  But often there is more to the story.  Ernst & Young had advised 200 wealthy clients who then avoided  $2 billion in unpaid taxes.  Ted Stevens got off when his indictment was dismissed because of prosecutorial misconduct.  Duke Cunningham was still entitled to a pension for his years of service in the Navy and Congress.  The Christian Patriot Association, which had helped 900 people evade taxes on $186 million over 14 years, believed that white people were the chosen people of God and therefore entitled, apparently, to not pay taxes.

In financial fortresses like this one, who knows what fortunes
are hidden?  And whose?
Palm jumera

     But these are the ones who got caught.  What about all those others with money stashed in offshore accounts maintained by Swiss banks, whose legendary secrecy is now under attack by the U.S. and the European Union?  Not to mention such tax havens as Luxembourg, Andorra, and Liechtenstein, tiny European countries thriving on their tax-haven status, and such exotic locales as the Bahamas, the British Virgin Islands, Monaco, Panama, Singapore, and numerous others.  In the 2012 Presidential campaign Mitt Romney, the Republican candidate, had trouble explaining why he had millions stashed away in Bermuda and the Cayman Islands.  Though not illegal, it looked fishy, and demolished any chance he had (and it wasn’t much) of appearing to voters as an ordinary guy just like you and me.  Obama could be a bit distant and dispassionate, but at least he didn’t have a fortune offshore.

Seven Miles Beach, Grand Cayman Island.  In such an idyllic setting, how could anything
dubious occur?

     Everyone agrees that our tax system needs to be drastically reformed, but few agree on how to do it.  Some want to tax the rich more, some want to tax them less.  And since Congress is a pack of millionaires who, with some exceptions, think the present system is just dandy – or at least have reasons not to meddle with it – meaningful reform is not likely to come very soon.  Meaningful reform may require a groundswell of opinion from below, and there’s little sign of that at this time.

     Here’s a novel solution proposed by nutritionist and WBAI commentator Gary Null and some others: tax both individuals and corporations a flat 10%, with absolutely no loopholes or exceptions.  Doing this, Null insists, would let us abolish the Internal Revenue Service altogether.  An enticing prospect, though I’m not sure how various income groups would fare.  And in the present circumstances there’s no chance of it being enacted or even seriously discussed.

     Everyone – and especially accountants – love to disparage the IRS, and New York State as well.  But I have sometimes including a note with my state and federal returns, telling them that I trust their judgment because they have treated me fairly in the past.  And I haven’t been audited.  Clever on my part?  No, the comment is sincere.  On several occasions the IRS or the state has found an error in my return and sent me a refund.  So a letter from these authorities isn’t always bad news.

     Admittedly, a dreary subject over all.  My advice to all U.S. citizens: when tax time comes, organize your records, get yourself a good accountant, and pray.

New York notes

1.  What three rights do all New Yorkers claim?  (1)  The right to complain.  (About New York, of course.)  (2)  The right to boast.  (About New York, of course.)  (3)  The right to jay-walk.

2.  Even so, at what intersection would I never dare to jay-walk?  Columbus Circle, where traffic comes at you from all directions.

3.  Who are most likely to offer me their seat on a crowded subway train?  African American women.  I usually decline the offer, but it is much appreciated.

4.  Which are the ten most dangerous U.S. cities for pedestrians?  Which have the most pedestrian deaths from traffic accidents?  Surprise, surprise: New York isn’t one of them!  The fatal ten, with 1 being the most unsafe:

1.    Orlando
2.    Tampa

3.    Jacksonville

4.    Miami

5.    Memphis

6.    Birmingham

7.    Houston

8.    Atlanta

9.    Phoenix

10.  Charlotte

     So what’s with Florida, that the top 4 are in that state?  And what's with the South, that all but Phoenix are in that region?  But I have to add that pedestrians do get hit by vehicles in this dear city of mine, especially when the vehicles making a turn cross into a pedestrian crosswalk.  Just the other day, as I crossed in a crosswalk, three cars whisked by me in quick succession without my being aware of their approach.  (They came from behind, not from a right angle, and other sounds masked the noise of their approach.)  The first car’s action was pardonable, since it could go past without making me halt.  The second was about four feet away – too close for comfort.  And the third was even closer; at him I yelled a full-throated expletive.  No wonder the mayor has reduced the permitted speed in the city from 30 to 25 mph, not that this would have saved me, had the third car miscalculated ever so slightly.  But it must be worse in Orlando.   

     Good tidings from the AARP Bulletin:  The last bit of news about pedestrian deaths I found in the December 2014 issue of the AARP Bulletin, which comes to members of the AARP (American Association of Retired Persons), the Golden Oldies club and union, though it welcomes anyone over 50.  Info like this you will find squeezed in among upbeat articles about how great it is to be elderly, and ads for walk-in bathtubs, impotence remedies, auto insurance (yes, they still drive!), travel (yes, they still travel!), a motorized wheelchair ingeniously named the Rascal, and best of all,  SEX.  IT’S  NEVER  TOO  LATE  TO  LEARN  SOMETHING  NEW,  an ad for a video series, with a picture of two dashingly youthful-looking seniors in a passionate embrace.  Among the nonsense, however are useful tips for seniors regarding scams, investing, healthy living, and pending legislation that may affect them. 

     Included in this issue was a map and chart showing, state by state, donations to charity as a percentage of adjusted gross income in 2012.  So what states are the most generous?  New York?  No way.  Utah, with 6.56%, tops the list.  After that come Mississippi, Alabama, Tennessee, Georgia, South Carolina, Idaho, and the District of Columbia, in that order, with DC registering 4.00%.  And New York?  2.86%, in a sort of low middling rank.   And the lowest?  New Hampshire, with 1.74%.  So what should one make of all this?  The most charitable states, it seems, are those where religion still holds fast: Mormons in Utah and Idaho, Baptists and other sects in the South.  Clearly, believers are more ready to part with a buck.  Liberal, more secular New England comes off as the stingiest – or should I just say frugal?  And for this telling bit of data we can thank the AARP Bulletin, that chronicle of dynamic aging.

     Coming soon:  Goldman Sachs, vampire squid or patriot and martyred innocent?  Plus collateralized debt obligations and credit default swaps, but don’t worry, I don’t understand them either.

     ©  2014  Clifford Browder

156. Sotheby's and Christie's and Bunny and Andy, and Who Goes to Jail and Who Doesn't

     Imagine a banquet hall with a long table – the longest I have ever seen – where sixty or eighty elegantly attired guests are dining sumptuously, while uniformed waiters and waitresses stand quietly behind them, bottle in hand, ready to replenish the guests’ wine or champagne glasses, should the need arise.  Except for the contemporary togs, it could be a scene from the Gilded Age, or even the Versailles of Louis XIV.  But no, it’s a photo in the New York Times of a dinner party given by Sotheby’s to provide a preview of furniture, jewelry, and other objects from the estate of the deceased philanthropist Rachel Lambert Mellon, known as Bunny, soon to be auctioned.  When not dining, the select guests perused thousands of objects up for sale – French furniture, porcelain, silver, rugs, crystal, weather vanes, and jewels – all of them a tribute to Bunny’s mania for acquisition, her refined taste, and her love not of flamboyance but simplicity. 

     The late Mrs. Mellon (whom I can’t resist calling Bunny) was no New Yorker, for she and her husband lived on a 2,000 acre estate amid the rolling hills of Virginia where even today a moneyed gentry rides to hounds.  (At least, that was one of her five homes.)  Born to wealth, she had married into even greater wealth and so could have whatever she wanted, but she surrounded herself with just what she loved.  When not collecting art, she gave herself to philanthropy and gardening, and at the invitation of President John Kennedy redesigned the White House Rose Garden. 

     The first auction, comprising 43 of her art works, had already drawn bidders from 32 countries and four continents to a sale that realized $158.7 million, far more than anticipated.  Though William F. Ruprecht, Sotheby’s CEO, emphasized that Sotheby’s knows better than to predict the excitement and outcome of a given sale, it was expected that the general public would bid up the property of a woman who was, if not quite the last of her kind, at least a dazzling representative of a bygone Whartonian age (meaning the age of novelist Edith Wharton), when hereditarily rich Americans lived lavishly and well.  Typical of her discerning taste were two blue pendant diamonds, one light blue and the other described by a Sotheby jewelry expert as “a rare, fancy, vivid, intense blue”; together, they were expected to go for between $10 and $15 million.  And a 34-carat ruby set in a simple diamond bracelet was termed “just über-chic.”  But lack of ostentation was Bunny’s principle.  “Nothing,” she insisted, “should be noticed.”   At least, not until auctioned by Sotheby’s.

The Duchess of Alba
Octavio Aceves

     If I have lingered a bit over Bunny Mellon and the Sotheby auctions of her possessions, it’s because the world of the superrich is terra incognita for me, a vast hinterland on whose shining shore I have never set foot, and therefore, for me, a land of dark and baffling mystery.  And even as I was learning for the first time of the existence of the fabled Bunny, I read an obit of another celebrated heiress, Spain’s legendary Duchess of Alba (the eighteenth of that name), whose flamboyant and much-reported lifestyle forms a sharp contrast with the discerning and low-keyed Mrs. Mellon.  The Duchess – María del Rosario Cayetana Alfonsa Victoria Eugenia Francisca Fitz-James Stuart y de Silva – had even more inherited titles than names, and as head of the five-century-old House of Alba she enjoyed such rare privileges as not having to kneel before the Pope, and the right to ride on horseback into the cathedral of Seville.  (Whether she ever did the latter, I have no idea, but I’d love to have seen it.)  Her second marriage to a defrocked Jesuit priest shocked society, as did her third and last marriage to a commoner of little wealth some 25 years her junior.  A Times photo shows her at 85, her fuzzy white hair a sort of Castilian afro, dancing with hubby no. 3 and, by the looks if it, having a hell of a good time.  I mention her here as a contrast to Bunny Mellon, for if you might expect the European aristocrat to be conventional and hidebound by tradition, and the American to be a bit wild and adventurous, the exact opposite seems to have been the case.  But they were both filthy rich and, in spite of it or because of it, interesting.  To me, at least.

     If a fabulously rich American dies, the estate is bound to end up being auctioned off by either Sotheby’s or its arch rival Christie’s, both of them New York-based American branches of venerable English enterprises dating back to the mid-eighteenth century.  Sotheby’s traces its origins to an enterprise founded in London in 1744, and established its New York branch in 1955.  Today it is headquartered in a soaring ten-story building with a nine-story glass atrium and galleries at 1334 York Avenue, on the corner of 72^nd Street, with exhibition space on six floors that boasts a state-of-the-art lighting system allowing nuances and subtleties of color and surface to be strikingly revealed.  Above its palatial entrance fly the flags of five nations, in testimony to its international operations.  Its premises past and present have seen the sale of such notable items as Napoleon’s St. Helena library, the Duchess of Windsor’s jewels, Rembrandt’s Aristotle Contemplating the Bust of Homer (memorably satirized by the Le Canard enchaîné as de Gaulle contemplating de Gaulle), and the first printing of the Declaration of Independence.  A fitting locale, then, for the sale of Bunny’s estate.

Sotheby's on York Avenue

     But lurking in the offing, always, is its rival, Christie’s.  Dating from 1766 in London – 22 years after Sotheby’s founding – Christie’s came to New York in 1977, once again 22 years after Sotheby’s, and it has been trying hard to catch up ever since.  By the mid-1990s its annual pretax profits were about $60 million, an impressive figure until compared with Sotheby’s for the same period: $265 million.  But Christie's has auctioned off works by Picasso, Rembrandt, Leonardo de Vinci, and van Gogh, and items associated with Marilyn Monroe, and yes, Napoleon.  It is now housed in a 310,000-square-foot facility at 20 Rockefeller Plaza, in the heart of Rockefeller Center, with the flags of three (only three!) nations flying above its soaring triple-height entranceway: a location that might make Sotheby’s location off to the east on York Avenue seem just a trifle out of the way. 

Christie's in Rockefeller Center
David Shankbone

     Of all Christie’s legendary sales, none is more impressive than the one on November 12, 2014, of 80 works of contemporary art, which brought in a record-breaking $852.9 million.  Christie’s experts had promoted the sale for months as a once-in-a-lifetime event, and buyers had flocked not only from the U.S. but also the Middle East and Asia.  Prominent among the works sold were two by Andy Warhol: “Four Marlons” showing a quadruple Marlon Brando in a leather jacket staring defiantly from under a peaked cap on his motorcycle, which went for $69.6 million; and “Triple Elvis (Ferus Type)” showing three overlapping Elvis Presleys in cowboy garb, legs apart, brandishing a handgun, which fetched an astonishing $81.9 million.  Even so, neither topped the $104.5 million paid at Sotheby’s a year before for Warhol’s “Silver Car Crash (Double Disaster)” – a sale that I marveled at in my post #108: “Andy Warhol: Genius or Fraud?”  But the two Warhols eclipsed the other items offered, including works by Willem de Kooning and Cy Twombly that also broke auction records for those artists.

A Christie's auction, circa 1808

     And who paid these remarkable prices?  For the Warhols, two unidentified telephone bidders, for such is the discretion accompanying these headline-making sales.  Someone somewhere can get his (or her) eyeful of Andy’s quadruple Marlon, and enjoy the thrill of having no less than three Elvises point his handgun right at him.  Given what they paid, I wish them well, though therapy might be appropriate.  Still, history was made.  Said one successful buyer, “The quality of the sale was epic.”  But not everyone agreed, as shown by comments appended to a Wall Street Journal online account of the sale:

·      How many royalty payments went to the artists or their estates?

·      I smell a lawsuit coming.  Equal pay for equal work.

·      P.T. Barnum knew his stuff.

·      “Andy Warhol is the only genius I’ve ever known with an IQ of 60.”  Gore Vidal

     Whatever happens at Christie’s can have repercussions at Sotheby’s, and vice versa.  Christie’s “epic” sale, netting a record $852.9 million, far eclipsed the mere $343.6 million that a sale of contemporary art by Sotheby’s had brought in the night before.  It was surely no coincidence that one week later, on November 20, Sotheby’s announced that its longtime CEO, William F. Ruprecht, was stepping down – an announcement hailed by shareholders, it would seem, since shares in Sotheby’s, the oldest listed company on the New York Stock Exchange, jumped more than 7% in after-hours trading.  Mr. Ruprecht’s departure was “by mutual consent,” the company insisted, but there was little doubt that it had been prompted by the well-publicized criticism of billionaire hedge fund manager Daniel S. Loeb, a major shareholder, who had long derided Sotheby’s as “an old master painting in desperate need of restoration,” and fiercely criticized its deteriorating competitive position with regard to Christie’s.  

     Judging from photos, Mr. Ruprecht is a full-faced, chubby gentleman with graying hair who could be your kindly grandfather.  Formerly an auctioneer, he is also an expert in textiles and tapestries, so he knows the auction and art scene well.

     By way of contrast Daniel S. Loeb, only five years his junior, looks younger and leaner; dark-haired, he radiates an aggressive, almost savage energy.  Annoyed by a job inquiry from a U.K. fund manager who cited the applicant’s “place in society,” Loeb replied that his New York-based hedge fund, Third Point, was “a bunch of scrappy guys from diverse backgrounds (Jewish, Muslim, Hindu etc.) who enjoy outwitting pompous asses like yourself in financial markets globally.”  Which echoes his reminiscence of the “prep school snotty kids” who treated him like a “jerk” but failed to get A’s when he did.  Vibrant he is; subtle he ain’t.  And he certainly isn’t your kindly grandfather, more likely an irascible uncle whose visits inspire more dread than joy.  His stated aim: to make money for his shareholders.

     Loeb, who loves the limelight, takes delight in buying up stakes in underperforming companies and then noisily demanding major changes.  Frankly, he thinks Sotheby’s management sucks.  Among his many complaints:

·      Sotheby’s has lost market share in contemporary art.

·      Its board owns only 0.87% of the stock, has little “skin in the game.”

·      Sotheby’s lacks innovation and creativity at senior levels.

·      It is focused on the short term rather than on long-term investment.

·      It is slow in developing an online strategy.

·      It hasn’t wooed millionaire customers in third-world nations like China.

·      It has wasted money on “legal shenanigans.”

·      It disregards shareholder interests.

·      Its CEO remuneration is excessive.

As regards the last point, he mentions Mr. Ruprecht’s $25,000 annual personal automobile allowance (he must be rather mobile), and the company’s paying his country club dues and financial planning fees.

     Certainly Daniel Loeb’s criticism merits attention, since he himself is a serious collector of contemporary art, adorning his residences and Park Avenue office with multimillion-dollar masterpieces such as a giant metallic pink-and-blue egg by Jeff Koons, and a sculpture of a crucified frog by Martin Kippenberger.  His fondness for metallic eggs and crucified frogs shows that he is no chaser after Rembrandts; his stance is defiantly modern, and that’s what he wants from Sotheby’s.  Meanwhile, when not shaking up the business world, he is surfing at a “secret spot” in the Caribbean, or practicing Transcendental Meditation, which involves a 20-minute silent meditation twice a day – a good antidote to the pressures of Wall Street.  (Admittedly, I find it hard to imagine Daniel Loeb silent for 20 minutes even once a day.)

     William Ruprecht will get severance pay of $4 million and stay on at Sotheby’s until his successor is found, but changes are surely on the way.  Will Daniel Loeb’s scathing criticism revive the venerable auction house and let it beat out Christie’s?  Time will tell.

      Ironically, William Ruprecht became Sotheby’s CEO in a time of crisis.  Back in 2000 the art world was shocked, shocked to the bones, to learn that the two colossi of the auction scene had been engaged in price-fixing, which was definitely a no-no and against the law on this side of the pond.  It seems that Sir Anthony Tennant, upon becoming chairman of Christie’s in 1992, invited Sotheby chairman Albert Taubman to get together and discuss the affairs of both houses.  Meeting at Taubman’s digs in London over a breakfast of scrambled eggs and smoked salmon, each voiced his gripes about the other’s firm and lamented the current state of the auction world.  To remedy matters, they then initiated an agreement, the details to be worked out later by their CEOs, not to waive their commissions so as to win major consignments, and even to have a nonnegotiable sliding scale for those commissions, depending on the size of the consignment.  Which was definitely price-fixing.

     The U.S. Justice Department had its suspicions but no proof, until a new majority owner of Christie’s, French billionaire François Pinault, fired Christie’s CEO Christopher Davidge for alleged extravagant spending.  Miffed, Davidge then, like a good citizen, offered his ample notes on the price-fixing deal to Justice in return for amnesty for himself and Christie’s, and an $8 million severance from Christie’s.  In short, he spilled the beans.  The result:

·      Sotheby’s CEO Diana D. Brooks agreed to testify against Taubman, and got 3 years probation, with 6 months detention in her $5 million Manhattan co-op (which must have been rough).

·      Taubman, Sotheby’s chairman, at age 78 got a year and a day in prison, plus a $7.5 million fine and the cost of his incarceration (an estimated $21,601 a year).

·      Sotheby’s was fined $45 million.

·      Christie’s and Sotheby’s both survived the scandal and continue to be the auction houses of choice for the superrich.

     So while Taubman’s codefendant Tennant kept his knightly presence aloof and safe in England, Taubman, an untitled American, took the rap, presumably showing that auction house honchos (at least some of them), unlike bankers, are not too big to jail.  And this in spite of testimonial letters from such luminaries as ex-President Gerald R. Ford, ex-Secretary of State Henry Kissinger, and Queen Noor of Jordan, not to mention the defense’s claims that the defendant was in poor health, a victim of multiple strokes, and taking 26 pills a day, to which the prosecutor replied, “He still hunts, fishes, plays golf, and travels nationally and internationally.”  “No one is above the law,” pronounced the judge.  Taubman did indeed go to prison, but when released in 2003, he was picked up by his private jet and was soon attending celebrity social events in New York, following which he was honored by more than seventy Detroit notables at an event in his home state of Michigan celebrating their friendship with him.  He was, after all, a well-known philanthropist, and a real estate developer credited with pioneering the modern shopping mall.

The Taubman Student Services Center at Lawrence Technological University in Southfield, Michigan.  No wonder Mr. Taubman is popular in Michigan.

     When this scandal broke out in 2000, it was none other than William Ruprecht who succeeded Diana Brooks as CEO of the embattled Sotheby’s, hoping to bring peace to its troubled soul and redeem its once sterling reputation.  Which he did, more or less, until that nasty Daniel Loeb came along.

     But Christie’s has just shocked the art world with a surprise development of its own.  On December 2 of this year, a mere three weeks after he presided over Christie’s record-breaking sale of contemporary art, Christie’s announced that CEO Steven P. Murphy is being replaced by Patricia Barbizet, a longtime aide to M. Pinault, the majority owner.  Why the change, when under Murphy’s tenure Christie’s has clobbered Sotheby’s in sales of contemporary art?  Probably because Christie’s, competing fiercely with Sotheby’s, has been giving up commissions and giving sellers hefty presale guarantees, thus cutting into its profit.  M. Pinault apparently got tired of this, hence the change.  So another CEO bites the dust.  I doubt if I'd care to work for M. Pinault.

     But enough of the doings and misdoings of the superrich.  What is it like to attend a Sotheby’s or Christie’s auction and bid therein?  I have no personal knowledge of such, but a friend of mine does.  She informs me that the presale exhibits of the two auction houses are often the best art and antique shows in town, and well worth visiting even if one has no intention of bidding.  Over the years she and her husband have seen extraordinary exhibits there of Old Masters, French Impressionists, Americana, and English, Russian, Japanese, Chinese, Korean, and Latin American art, not to mention furniture, carpets, books, and historical memorabilia. 

A Rake's Progress, plate 3.  A wild party in a brothel, where the prostitutes steal the drunken
rake's watch.

     A real pro, at the exhibits she has never hesitated to speak to one of the experts for information and advice about how much to bid.  And bid she does, finding it exciting and fun.  She and her husband furnished their East Side apartment with English and American furniture and Oriental rugs from Sotheby’s at prices well below those quoted by retail outlets.  A disciplined buyer, she has never bid more than she intended to, and is never depressed if an item escapes her.  (I confess that I would be, but then, I’ve never been a buyer.)  But the best fun of all, she assures me, comes when you find a bargain because you know more about it than the auction house and the seller.  Once, at Drouot, a leading auction house in Paris, they bought a complete set of Hogarth’s famous prints A Rake’s Progress, which had been mislabeled “estampes allemandes” (German prints).  As for the difference between the two houses, she thinks Sotheby’s is more popular and Christie’s more elegant, but often finds the objects and art they both offer breathtaking.  Her remarks are a reminder that the two houses don’t just cater to the superrich; they have stuff for everyman … and everywoman.

     Coming soon:  Taxes: Who Pays Them and Who Doesn’t.  In the offing:  Goldman Sachs: is it really a giant vampire squid?

     ©  2014  Clifford Browder