CAPITAL ALWAYS IN YOUR HANDS
Madoff Investment Securities LLC was a financial brokerage firm founded and managed by Bernard L. Madoff. Established in 1960, the company operated in various areas of the financial sector, including stock trading, market making, and investment management. Madoff Investment Securities became one of the leading brokerage firms on Wall Street, recognized for its innovation in electronic trading.
However, Bernard Madoff became infamously known for orchestrating the largest Ponzi scheme in history through the investment management branch of his company. A "Ponzi scheme" is a type of financial fraud that pays returns to older investors with funds collected from new investors, rather than from profits generated through legitimate investment activities. This scheme requires a constant flow of new investments to continue paying the promised returns and is doomed to collapse once the influx of new funds is no longer sufficient to support the payments.
Madoff's fraudulent system was discovered in December 2008, when, following the global financial crisis, an increasing number of investors began requesting the withdrawal of their funds, revealing the unsustainability of the structure. Madoff had promised and for years delivered exceptionally high and stable financial returns, regardless of market conditions, attracting individual, charitable, and institutional investors, including pension funds, universities, and foundations.
When the scheme collapsed, it was estimated that investors' losses amounted to about $65 billion, including both the original capital and the fictitious profits that had been credited to their accounts.
Madoff Investment Securities LLC
If the investors in Madoff Investment Securities had had artworks by renowned artists such as Andy Warhol, Lucio Fontana, or Boetti as collateral for their investment, the situation could have had very different outcomes. The art of world-famous artists tends to increase in value over time, especially when we talk about iconic figures in the modern and contemporary art scene. The Value of Art as an Investment
Artworks by recognized artists, like Warhol, Fontana, Boetti, are considered safe long-term investments for several reasons:
- Scarcity: Unique artworks or those in limited edition are naturally scarce, and their availability further decreases when acquired by private collectors or institutions.
- Global Recognition: Artists like Warhol and Fontana enjoy an international reputation and a consolidated place in art history, which increases the value of their works.
- Value Increase: Historically, the art market has shown that the works of renowned artists tend to increase in value over time, especially due to the rising demand and price inflation in the art market.
Impact on the Investors' Situation
If the investments in Madoff Investment Securities had been backed by artworks of this caliber, investors would have had tangible insurance against the total loss of their capital. Even in the event of a collapse, the artworks could have been sold on the market, allowing investors not only to recover their initial investment in full but, paradoxically, to earn much more.
Example:
Alighiero Boetti (1940-1994) Work: "Mappa (for new desires)", 1984
Type: Tapestry
Dimensions: 114.4 x 170.3 cm
Lot No.: 59
Hammer Price: €186,849 (£130,000)
Final Price (including fees): €216,817 (£150,850)
Estimate: €215,595 - €287,460 (£150,000 - £200,000)
Event: The Italian Sale - 20th Century Art
Date: 21/10/2003
Auction House: Christie's
Location: London, United Kingdom
Example:
Alighiero Boetti (1940-1994) Work: World Map, 1988
Type: Tapestry (embroidered)
Dimensions: 115 x 214 cm
Lot No.: 44
Hammer Price: €718,500 (£500,000)
Final Price (including fees): €834,179 (£580,500)
Estimate: €574,800 - €862,200 (£400,000 - £600,000)
Event: 20th Century Italian Art
Date: 15/10/2007
Auction House: Sotheby's
Location: London, United Kingdom
Example:
Alighiero Boetti (1940-1994) Work: Mappa, 1989-1991
Type: Tapestry (Embroidery/fabric)
Dimensions: 259 x 585 cm
Lot No.: 129
Hammer Price: €7,126,496 ($7,400,000)
Final Price (including fees): €8,500,850 ($8,827,100)
Estimate: €7,704,320 - €11,556,480 ($8,000,000 - $12,000,000)
Event: Contemporary Evening Auction
Date: 16/11/2022
Auction House: Sotheby's
Location: New York, United States
Evaluating the prices including expenses, investing in Art Capital with a Boetti's "Mappa" purchased from Christie's in 2003, would have resulted in a profit of €617,362 by selling it in 2007, and a profit of €8,284,033 by selling it in 2022.
Example:
Lucio Fontana (1899-1968) Work: Spatial Concept, The End of God, 1963
Type: Painting (Oil on canvas)
Dimensions: 178 x 123 cm
Lot No.: 19
Hammer Price: €734,177 (£440,000)
Final Price (including fees): €813,852 (£487,750)
Estimate: €333,717 - €500,575 (£200,000 - £300,000)
Event: The Italian Style: Style and Dynamism in the 20th Century
Date: 06/12/2000
Auction House: Christie's
Location: London, United Kingdom
Lucio Fontana (1899-1968) Work: Spatial Concept, The End of God, 1964
Type: Painting (Oil on canvas)
Dimensions: 178.4 x 123.2 cm
Lot No.: 15/B
Hammer Price: €24,079,230 ($25,900,000)
Final Price (including fees): €27,122,138 ($29,173,000)
Event: Post-War and Contemporary Art
Date: 11/10/2015
Auction House: Christie's
Location: New York, United States
Investing in Art Capital in 2000 with a Lucio Fontana's artwork as collateral, one would have recorded a gain of €26,308,286 upon its sale in 2015.
The case of Bernard Madoff is emblematic in the landscape of financial frauds, but it is not isolated. Other notable examples include figures like Gianfranco Lande, known as the "Madoff of Parioli," and Massimo Bochicchio, nicknamed the “celebrity broker.” These individuals used schemes similar to Ponzi's to deceive investors, promising high returns through non-existent or unsustainable investments. Below are some historical examples of financial scams that adopted the Ponzi scheme:
Charles Ponzi: The man after whom the Ponzi scheme is named, Charles Ponzi, in the 1920s promised exceptional returns through a supposed investment in international postal coupons.
Allen Stanford: In 2009, Stanford was accused of orchestrating a massive $7 billion Ponzi scheme, promising high returns to his investors through certificates of deposit with the Stanford International Bank.
Scott Rothstein: A Florida lawyer who ran a $1.2 billion scam, falsely promising high returns through investments in litigation cases.
Tom Petters: Convicted for conducting a $3.65 billion fraud, promising high returns from alleged consumer electronics resale contracts.
These cases highlight how the Ponzi scheme is a recurring fraud model, adaptable to different contexts and capable of deceiving both individual and institutional investors. The promise of high returns with low risk continues to be a powerful, yet dangerous allure that can lead to devastating losses.
If figures like Bernard Madoff, Gianfranco Lande, Massimo Bochicchio, and other perpetrators of similar financial frauds had offered international-level artworks, like those by Mark Rothko, Andy Warhol, or Ed Ruscha, as collateral for investments, the situation for investors today could be radically different.
The art of world-famous artists has proven over time to be a stable and often profitable investment, with works that not only maintain their value but can significantly appreciate. This increase in value is due to various factors, including the scarcity of the works, the rise in global demand, and the cultural and historical significance of the artists.
If investments had been secured with artworks by such artists, investors who did not receive the promised payments could now find themselves in possession of very valuable assets. Instead of suffering financial losses due to the Ponzi scheme, they would have benefited from the appreciation in value of the artworks over time.
For example, a work by Rothko or Warhol purchased or appraised several decades ago is now worth many times its initial value. This would translate into an "unexpected gain" for those who would have retained such works as a form of collateral, demonstrating how art can serve as a long-term value investment, offering a certain form of financial security compared to traditional investments.
The untitled work (Untitled), created by Rudolf Stingel in 2006 and titled "After Sam," was presented at auction as lot number 336. This painting, executed with oil on canvas technique, measures 38.4 x 52.1 cm. During the Post-War and Contemporary Art auction held on May 14, 2009, at Christie's in New York, the work generated considerable interest. The hammer price reached €256,445 (equivalent to $350,000), while the final price, including fees, was €309,566 ($422,500), far exceeding the initial estimate that ranged between €146,540 and €219,810 ($200,000 - $300,000). This result highlights not only Stingel's importance in the contemporary art scene but also the growing appreciation for his works in the art market.
The work "Untitled (After Sam)" created by Rudolf Stingel in 2007 was once again in the spotlight during the "20th Century & Contemporary Art Evening Sale," organized by Phillips in London on June 27, 2019. As lot number 6, this oil on canvas painting, measuring 38.1 x 52.1 cm, captured the attention and interest of art enthusiasts and collectors present.
The hammer price of the work reached an admirable figure of €1,561,660 (equivalent to £1,400,000), exceeding initial expectations. Once additional costs were included, the final price rose to €1,890,724 (£1,695,000), demonstrating a significant appreciation in the value of the work over time. This result is particularly noteworthy considering the pre-auction estimate, which ranged between €1,338,566 and €2,007,849 (£1,200,000 - £1,800,000), indicating strong demand and the increasing prestige of the artist in the contemporary art market.
Considering the investment in Art Capital with the Rudolf Stingel's artwork from 2009 as collateral, if it had been sold in 2019, the profit would have been €1,581,158.
