What Epstein's Emails Tell Us About the Art Market

0:00It's really an unprecedented window into how the art trade, which is pretty opaque, really works. And also it shows how the mega wealthy collectors and investors, how they monetize art.

0:21I'm Kate Brown and this is The Art Angle, a podcast from Artnet News.

0:33There are many ways to read the vast trove of documents tied to the convicted sex offender and financier Jeffrey Epstein, who died by suicide in prison in 2019. The Epstein files offer a window into the rarefied power-brokering circles he inhabited. But the latest tranche, released by the U.S. Department of Justice in late January and comprising some 3 million pages 2 ,000 videos and 180 ,000 images, also provides a behind-the-scenes view of high-level financial maneuvering, including Epstein's connections to the art market, the art world, and the cultural sphere. Revelations in the latest files have already had consequences.

1:10Former French culture minister Jacques Lang resigned as president of the Arab World Institute after disclosures connecting him to Epstein, and French financial crimes prosecutors have opened a preliminary investigation into him and his daughter for alleged aggravated tax fraud laundering. Art collector and film producer Steve Tisch is also facing scrutiny over email correspondence with Epstein in 2013 concerning multiple women. In early February of this year, David A. Ross, chair of the Master of Fine Arts and Art Practice at New York School of Visual Arts, resigned after documents showed his ties to Epstein.

1:41The files also shed additional light on the art holdings of the billionaire Leon Black and his dealings with Epstein. Black, who served as chairman of the Board of Trustees of the Museum of Modern Art in New York from 2018 to 2021, stepped down from that role after backlash over his financial ties to Epstein, though he remained on the board as a trustee. Black has faced civil lawsuits and allegations that he sexually assaulted women introduced to him through Epstein, and Black has denied these claims and no criminal charges have been filed. So we know about Black and Epstein to an extent, but my colleague senior reporter Katya Kazekina recently focused on how the latest documents illuminate Epstein's sophisticated use of financial structures to enhance the value of Black's vast art holdings, and just how and how much of his wealth was effectively stored in art.

2:26Given that this enormous release is so ride-ranging, and touching people in industries far beyond the criminal sexual activity in which Epstein is involved, it bears emphasizing that inclusion in the files does not imply criminal wrongdoing, and more will certainly come to light as journalists and the public sift through these documents. Hi Katya, thank you for joining me. Hi Kate, I'm so glad to be here. So you have been reporting on Epstein's ties to the art world for a while now, but in this latest drop, a lot more became available to you. What was the most striking about that? And how did you even begin to search through them when they first came to light?

3:05Well, we knew that he had like this very creepy taste in art, right? And then years ago when he was arrested, everybody was trying to figure out, is he a collector? What does he own? Obviously, we knew about his connection to New York Academy of Art and the famous painting of Bill Clinton in a blue dress. We knew all of these things. But at that time and for many years, his involvement with any art market in a serious way wasn't really clear. And then our colleague Eileen Kinsella, she mentioned, you know, we really got to look at these documents. And then, I have to give credit, Art News actually found a list of all these itemized works.

3:49For me, the most surprising thing was just the scope and the detail that these documents provide, which are just staggering. It's really an unprecedented window into how the art trade, which is pretty opaque, really works. And also it shows how the mega wealthy collectors and investors, how they monetize art and how they use it for loans, how they calculate gains and losses and all the savvy ways they use art to generate cash and how to generate money. One thing that we knew for years that Epstein advised billionaire financier Leon Black. So who is Leon Black? Can you explain a bit about what kind of a collector he is?

4:42Sure. So Leon Black in the art world is one of the top collectors in the world. He's also a very longtime trustee and former chairman of the board for Museum of Modern Art. He has lent art to museums like the Metropolitan Museum of Art and MoMA and the National Gallery. His wife was for many years on the board of the Met. So kind of a leading family in the art world. This is the top of the pyramid as far as collecting goes. What became clear in this latest dump of documents is that art came into that equation because it accounted for a massive part of his net worth right and that was a bomb for me as a reporter on the art market beat because there was no understanding of how vast his collection was and how valuable it was we're talking about 2.7 billion worth of art at one point.

5:46We're also talking about the collection that's very broad. You know, it has old masters and 20th century modern art, Western, and has Chinese bronzes and walking sticks and a lot of different things. Some of the most expensive works of art ever sold, like The Scream by Munch that Leon Black bought for$120 million and Picasso sculpture that was the subject of a massive legal battle between Black and Qatar royal family, a plaster bust of Marie-Thérèse Walter that was never revealed how much exactly he ended up paying for it until now. One year for a certain period of time, in 2015, Black's net worth was$4.8 billion and art was $2.7 billion.

6:35So it was more than a half of his assets. So other than Leon Black, were you surprised at who else was in these files and how much art world dealing he had in general? Yes, I was very surprised. I initially was really pretty shocked by how many times Sotheby's and Christie's are mentioned hundreds of times, Art Basel hundreds of times, but also art advisors and collectors. And you come up in the files as well. There are so many familiar names. Then I thought, like, well, is anyone not in those filings? And then I thought, am I in those filings? And so then I searched for myself and I'm in them.

7:19I come up three times. You know, and I think it's also like really a good reminder for people who are looking through these documents. I wrote articles that were passed on to Epstein or the lawyers, whatever that ended up in his loop. And I at the time was writing a lot about how art was being used as collateral for loans and how the mega rich collectors were getting 1 % interest loans backed by the art. And he was very interested in that because then subsequently he ended up getting a 1.45 % interest rate for a loan for black. Right. Interesting. Yeah. And we'll get into all of that a bit later.

8:03But I think that this just shows your presence in the files that a lot of these emails that people are talking about, and in some cases, absolutely not. And there is people that are being accused of criminal wrongdoing in relation to these files. But I would say, you know, a big bulk of the people that are mentioned in these files don't often have direct contact with Epsi. And there's a lot of email forwarding going on. And he's, you know, as we'll discuss, quite a shadow operator in a lot of these business dealings. So there's this quite literal spreadsheet that is in the documents that has hundreds of artworks from the tens of millions right down to a couple of hundred.

8:41and you've been able to get a view into this collector's collection and count this and just see how much of his wealth was put in art. And this was quite a surprise. I mean, we knew that Black was a big art collector, but it was not in so much detail until now. No, not at all. And even when I was at Bloomberg, we often did the profiles of billionaires and just turn to understand where the wealth was accumulated. And our profile of Leon Black estimated that he had a billion dollar collection. So clearly it was way off. And obviously we don't even know the current value of his holdings. Now we have estimates by Christie's in 2016 and by Sotheby's in 2014.

9:32But Christie's is much more wide ranging. Christie's spreadsheet includes 935 items. Right. And they're very detailed. The spreadsheet is pretty wild. It has basis, kind of the price of acquisition of the work. Then it has Christie's estimate of the work. Then it has unrealized gain. So how much more the difference between the price and the current estimate at the time or loss. Right. All of this is itemized. Right. I'd like to, you know, get into some of this because I think what became apparent and as you touch on in your reporting is just how art is used as a tool for investing. And of course, we've known this, but a lot of people say that art is actually not a great investment.

10:22But as this shows at the top level, it is actually a very useful tool. So maybe we can start with what you were saying about gains and losses. Can you explain a little bit about how the valuation of an artwork is made and then how a collector could potentially use a change in value to balance their books? And what was Epstein's involvement in this in particular? Well, from what I can tell is that he was there to maximize the returns on all these different assets that Black had. And I think Black even said so in his interview some years ago. And so he set up several companies to hold art for different purposes.

11:08So, for example, there was one LLC called Narrows Holdings. Can you explain what an LLC is for those who might not know? An LLC is a limited liability company. They're often set up in very favorable jurisdictions like in Delaware, for example, or in the U.S. And a lot of times it's to conceal ownership of the work. It's obviously legal so that people who actually own the work are not front facing. If they want to take out a loan or even consign it to an auction house, the entity that operates in front of the collector is this company. For many years, that contributed to this great opacity in the art market.

11:54Because until fairly recently, the names of people who set up these companies were owners. They were secret. They didn't have to be revealed to authorities. Now they have to be revealed and they have to be known. so Sotheby's needs to know that Leon Black is you know beneficiary the person behind an LLC but it's useful to just move money and assets around in that sense also companies are governed by different rules than individuals and again like there are a lot of tax advantages for storing and owning art as well as other assets in this way so most of the collection is separated into the ownership of all these works is broken by all these different companies so that's one obvious way of how it was handled and you know you asked me before about how the value is assigned and created so i'm looking now at this spreadsheet for example right and i see one of the works that appears at the very top is an artwork by mondrian it's called composition c with gray and red and the basis value is 2.7 million dollars and then next to it is the christie's appraisal of the same work it's 40 million dollars so next column is unrealized gain or loss so that was obviously the gain of 37.3 million so that's kind of how they were thinking about it that's a massive gain right like from the purchase to value my guess is that black bought this work in the 80s because i was trying to figure out if maybe he bought it at auction but i see that work with a very similar title it fetched like over four million dollars in 89 i don't know exactly what this work is right now but obviously the value differential right between 2016 appraisal in the purchase moment is massive,$37 million.

14:10So that's why I'm guessing he bought it early before prices for modern and contemporary art started climbing like crazy. Anyway, and so this is for every one of these works. It's very systemized. And we're thinking about these collectors and these collections as great stewards of art and art history at the very high level when we're talking about paintings and priceless really works on paper by old masters by Rembrandt and Titian and Michelangelo and Van Gogh and there's Schill and Kandinsky and Degas and there's Henry Moore and Picasso and Enzor and I'm just like going down this list like there's Canaletto and Bruegel like it just goes on and on and on it's just an extraordinary trove of art You know, I talked to somebody who visited Black's apartment on Park Avenue in the last 10 years.

15:05And the person told me that there was a room for all the works on paper that had this darker light to protect the works from sunshine and direct exposure. There were shades in that room. There was another room, kind of a corner room, looking out on Park Avenue with bronzes. They had a whole collection of Chinese bronzes, you know, and they were displayed on the special shelves that could accommodate the weight of the bronze. And it was like a whole room of bed. And then the person told me that what totally blew his mind was that there was a bathroom with drawings by Egon Schill and Gustav Klimt, like water serpents.

15:50And there's the nudes and described it as like a miniature Neuer gallery. just in the bathroom. So obviously very impressive, very exquisite setting on the one hand, right? But then what we see in the Epstein files is a totally different view of this collection. It's Excel spreadsheets and numbers, just like a lot of numbers. And I think there's this always question, right? When you talk to collectors, why do they collect? Do they collect as an investment or do they collect because of their love of art and everybody will tell you or tell me as a journalist that they buy art because of their love of art that it's not an investment and you know the follow-up question is like at a certain price point it is absolutely an investment right like if you're buying something for 120 million dollars how could it not be i think until now i really haven't seen such a clear indication of how a collector at this level is treating art also as an investment vehicle.

17:03And I think for me, that was the most striking about this visibility into the documents. Exactly. Yeah. And as you've reported, we knew that Epstein, as he is interested in being around these high rolling people, as I said at the top, had some connections to art, But this really shows how much he was really behind some of the machinations of one of the biggest collectors in America. And, you know, beyond that, of course, there's, you know, when you keyword search on the Department of Justice, Sotheby's Christie's, like thousands of results come up, mentions of galleries and art fairs. He was a shadow figure in many ways, but paying attention to this industry, because this is an industry where you can move money around quite easily at the top.

17:49Among these keywords that you could search, one is a 1031 exchange, which is getting a bit into the nitty gritty, but I think it's a really interesting example as well of how art investment was used as a tool by Epstein and Black in this case to manage money. so 1031 like kind exchange was a very popular vehicle of avoiding legally paying taxes on capital gains because what basically happened was this let's say just for argument's sake we've talked before about i mentioned a mandrian right that was bought at some point for 2.7 million but now is worth 40 million, right? So if Black was to sell this Mondrian, he would be on the hook for capital gains of the difference between 27 and whatever he gets for the price.

18:44He could be on the hook for millions of dollars. So in order not to pay this, a collector could buy something of similar value that was also held as an investment. So let's say there were documents in the Abstein files, they're saying one of those LLCs, Naros LP, wants to exchange a Giacometti that it owns for a Cezanne figure study that it wants to acquire. The target price, sale price for the Giacometti is 30 million and the purchase price for the Cezanne is also 30 million. It's like kind exchange. I see. So you sell something and then you can roll in those capital gains into acquisition of something of the like, painting for painting, sculpture for sculpture, of the similar value.

19:38It created this mechanism for deferring paying taxes. Right. It's been going on for decades. And 1031, they exist on obviously other assets from airplanes to stocks, you know, to real estate. It was a very popular method, but it really infused the art market with velocity, I would say. And for many years, I guess from the early odds until 2016, when 1031s went away during the first Trump administration. Because he cut them. He removed them. He cut them for art, yeah. They were like this engine of creation of wealth and just bringing so much liquidity into the art market. Right. And because you're not technically selling it, you're swapping it, you don't pay tax.

20:33And you could, by some intents and purposes, just do this forever. And it's called swap till you drop. Exactly. And then your spouse, for example, inherits your collection. And then there is an automatic, it's called step up in basis. So the work is re-evaluated. At that point, it's given a much higher value or lower, whatever it is. But like, let's say something went up tremendously in value. the new valuation becomes its basis. So they don't have to pay crazy capital gains on that.

21:29so epstein is is as we knew helping black with his estate planning and his taxes but what that is actually meaning, as you've learned, is that this is involving setting up limited liability companies and doing art swaps and harvesting losses on spreadsheets. And it is the gamification of art investments at the highest level. Yes. And one thing we didn't mention is that Black was also using art as collateral for loans. Could you explain how that works? The works are evaluated for fair market value. it could work in many different ways but let's say in case of leon black right he was client let's say of bank of america or jp morgan over the years he had credit lines with different banks but let's say bank of america and he has his assets with bank of america one of those assets is his art collection so he sets up an llc this limited liability company just for the works that will be pledged as collateral to Bank of America.

22:37Usually they would use, let's say it's a$500 million group. They will give him$250 million loan, half, 50%, 50 % loan. At that time when this was all happening, I was at Bloomberg and I remember we were covering these loans and the banks would look at the overall asset picture of their client, not just the collection. So let's say he had 4 billion in assets and art was just half a billion. And so they would allow the works to remain with the collector. They wouldn't take them. And then they would offer a really incredible rates, interest rates to these top clients. And in one of our stories back then, we discovered that Bank of America offered a 1 % rate to some of their top clients, which is essentially free money.

23:33So then they could take this money and they had so many other vehicles to invest. They could put in a stock market, they could put it in real estate, wherever, put it back in their business. They can figure out where this money will make more money because it's essentially free. And so that seems to be what was going on as well. And at different times in these documents for Epstein, There is a$440 million loan. There is a$260 million loan, like talking about a lot of money. Just to step back again. So how was Black using art as an investment? Loans, LLCs, harvesting losses, using 1031 exchange to defer capital gains, pretty much every available avenue.

24:20Right. And to be sure, you knew about the fact that this can be done with art investments, but it's just so rare to get a look into how these discussions happen, who's making them, at what pace. You never get to see this kind of back end dealing. And that's what's really kind of unique about this view into the Epstein files. So there's all these different tools at their disposal. And another one is joint ownership. You know, you had heard rumors for years that Black and this other collector, Ronald Lauder, were doing business together, but this has never been proven or evidenced before until now.

25:00Yes, it was something that I heard from auction people and just advisors kind of whispered. But I could never really figure out exactly how it worked until I spotted on this Excel spreadsheet, one of the companies mentioned had a kind of a curious name. It was called Friends Ventures. And there was only one work that Friends Ventures owned. And that was the work by an early 20th century German artist, Kurt Schwitters. And this is Friends Ventures as an LLC, like one of these entities that we were just talking about. Exactly. Exactly. It's an LLC. And I started digging and looking into it, searching all these files on the Justice Department website.

25:52And so what I learned was that this painting came up for auction at Christie's. It's unclear whether Black or Lauder acquired it, but very soon after the sale, there has been like a flurry of emails between Black's family office and the person who was handling his art collection there, a lawyer, and Epstein. and they were trying to figure out how to structure the purchase of this painting and they decided to do it as a company friends ventures they were like what should we call it and then friends ventures came up because you know lauder and black they're friends presumably they are both trustees of the museum of modern art some of their interest collecting interests overlap, including German expressionism and Austrian expressionism.

26:53So clearly they decided to buy this work and then put it into this LLC. Ownership was split 50, 50%. And the kind of details, which, you know, I'm such a geek, of course, so, you know, it's interesting to me, but I feel like all this stuff just, it's a little bit difficult to talk about because it's very weedy and it's very geeky, but you can structure, I'm convinced, like a course on art investing just by using these documents. In any case, so at the time, this is 2014, right? Like right now there are companies like Masterworks that sell fractional shares to hundreds of investors in the same artwork.

27:30This is early. This is really early days and it goes even before that. But this kind of pioneer art investing in a way. Interesting. Because they were going in together and buying this work, putting it into this company, you know, and just waiting for it to accrue in value. In the meantime, they discussed how are they going to enjoy it? First, they were thought, it was very funny, Epstein suggested that they would flip a coin and decide who will take possession of this work first. And then after that, split it, take turns every two years. ultimately they decided no we're not gonna flip any coins at that time black had a construction in the place in an apartment or house townhouse where he was gonna keep it so lauder got the first dibs on the painting and then they decided to swap it every two and a half years but like this is the kind of banter that is happening these are the kind of discussions and then there's another the discussion because i think that because of the estate planning element of the whole enterprise there was that what's going to happen when one of the partners dies so again like the surviving partner then can buy out at what value like how is it going to die if he passes on this opportunity if he doesn't want to own it how is it going to be liquidated right black wanted it to be put at auction and sold so like all these technical details you know there are so many of them And it's all in these papers.

29:03It's pretty crazy. Incredible. So it stands in such contrast to what we've heard about Epstein and his own taste in art, which I think is quite striking. Like you mentioned at the beginning about, you know, this Bill Clinton painting that he owned with Bill Clinton wearing a blue dress. He didn't exactly have good art tastes. So how do you square those two things in your mind? Or does it not surprise you at all? I don't know. You know, it's very confusing because reading through these documents, at first I was just so shocked because I thought, oh my God, we had this one picture of this guy, but he comes into contact with these great masterpieces in some cases.

29:46was he actually deciding what black was buying? Like, because all of this correspondence goes through him. And, you know, another thing was that, you know, there are emails about, you know, from Ock, from Sotheby's, from Christie's, from dealers. There's so many people are roped in these exchanges. And my question was, oh my God, did everybody know that Epstein was that figure in the background? is the whole art world implicated was everybody dealing with him and we just didn't know and then I went back the following day and I started looking at these emails close and I realized that the communications were pretty much always between the family office and whatever galleries auction houses appraisers bankers you know and then those emails were then forwarded to Epstein.

30:42And he was like this, I don't know, like a puppeteer and like was like shadow figure, like shadow figure. He was like, do this, ask this, this is not going to work. It was like this extra layer. Right. But the more I was kind of looking at them and trying to understand exactly what it meant, what he knew, how was he involved, definitely was not a connoisseur. I don't think it rubbed off on him in any way. So for example, Just again, to understand the timeframe we're talking about from about 2012 to 2017, when he was advising Black on tax and estate matters. There are messages and emails in 2016 when he's asking a lawyer from Black's family office, what's the difference between fair market value and what we need for insurance purposes, for bank purposes.

31:35So like he's been doing it for four years already and he still didn't quite know what were like some of these fine points. And there's nothing in the emails as far as I understand in which Epstein is talking about the artistic merits of the Max Beckman painting that Lauder and Black co-own or anything like that. It is really just that he is helping behind the scenes, navigating how this looks on the books. Yes, I haven't found any aesthetic discussions in any of them. I mean, no, no. And in fact, you know, I do have to say that some of the ways in which Black invested in art predates Epstein, like he set up some of these LLCs for sure, but then some of them have existed for two decades earlier.

32:23Like Black, he's a finance guy, right? Like he has been borrowing from a bank. You know, I found filings somewhere else, you know, going back to 96. Another interesting thing, how Black and Lauder were owning things together. And that definitely some of it predates Epstein too, was actually through Neuer Gallery. Which is Lauder's Gallery in New York. a wonderful museum. There was a very famous painting by Max Beckman. It's a self-portrait and kind of a striped top, very striking. And there was this other painting by Kirchner, Berlin Street Scene, which is very famous work as well. And in all of these cases, the works, they bought them at auction.

33:08There were three artworks that Black owned together with Neuer gallery and these agreements against 50 50 one of them i'm thinking now of the kirschner the berlin street scene noah gallery bought it at auction for a record price for kirschner and then to reduce its financial exposure it sold 50 stake to black and again thinking about what a flax You have a painting of this caliber. For two years, it's hanging at the Neuer Gallery. And for two years, it's hanging in his Park Avenue apartment or wherever they agree it could be. So there are three artworks that Black co-owned with Neuer Gallery. And that was revealed through the papers.