A Scandal for All Seasons?

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 underbelly 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 rumors persist that the settlement was not token, implying that Biddulph’s attorneys 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 were 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 the article elsewhere on this site 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.

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