Fraud is coming – how you can get involved
Anyone who has looked at a Jackson Pollock painting inevitably thinks, “I could do that”. Then the practicalities arise: do I use acrylic paint or oil? Do I first spatter the black, then the brown? How do I create enough chaos for a seasoned critic to describe it as ‘dynamic’?
Wolfgang Beltracchi knew the answers to all of these questions. Together with his wife Helene, he spent years creating beautiful forgeries, and then selling them as undocumented works, lost in the passage of time but miraculously discovered.
Rather than creating duplicates of existing paintings, Wolfgang created works in the style of Expressionists and Surrealists from the early 20th century. He would pass off his own works as those of Max Ernst, André Derain, Georges Braque, Max Pechstein, and others. Actor Steve Martin purchased a fake through the respected Parisian Gallery Cazeau-Béraudière for $860,000, another Wolfgang work was purchased for $3.6 million, another $7 million.
Helene Beltracchi introduced the art world to a collection that she claimed she inherited from her grandfather. Mixing fact with fiction, she told gallery owners and art experts that her grandfather had been friends with a Jewish art dealer and collector, and when the first world war arrived, the art dealer had sold many paintings to her family before fleeing.
Ultimately the scheme began to unravel when Wolfgang ran out of zinc which he had used to create white pigments.
Just as Starbucks cups were not used in the time of dragons in Game of Thrones, titanium (as a paint pigment) was not around at the time of “Red Picture with Horses”, a painting that Wolfgang has passed off as a Heinrich Campendonk from circa 1914. Titanium pigment, as it turns out, came into use in the 1920s.
Reports state that one of the reasons that the Beltracchis were so successful, was because they deceived expert art assessors, and paid others large enough fees to buy their silence.
Why commit fraud?
Indeed the most recent ACCC scams report reveals that Australians have lost a record $3.1 billion to scams in 2022 – an increase of over 80% from 2021.
Although there are relevant cases to be made from psychological or philosophical perspectives, this author believes that it comes down to economics.
Consider the scenario:
You catch the train to work and back. Your journey is $6 per trip, so you spend $12 per day on travel.
If you do not tap on or off, however, your journey is free.
If you get caught, you will pay a $309 fine for fare evasion.
You are, of course, clever, so you consider you have only a nominal chance of being caught. This means that if you manage to escape detection for at least 5 weeks, you will be better off than if you followed the law.
A number of factors are at play in the moment of hesitation before a person decides to tap on: incentive (I will save money); opportunity (no one is around); and rationalism (QRail deserve this for the amount of times one raindrop has caused signalling issues and made me late).[1]
A look at history reveals that most dishonest conduct happens when there are pandemics, recessions, and other economic crises.[2] This is because those three elements come into sharpest focus in hard times.
How to do it
The best schemes out there feature a bevvy of authority figures sagely giving professional opinions about the validity of the thing (whatever that thing may be). This authority figure is designed for its target, and can come in many different forms:
- The demanding socialite who insists on having a high tea with associates to celebrate a new launch of essential oils, crystals, or cosmetics;
- An accent on the phone telling an elderly Australian that the Australian Taxation Office has sent FBI agents to her home;
- An auditor from a well-known accounting firm who believes that he or she is above mistakes issuing a clean bill of health for a hedge fund.
Some involve art.[3] Other, more recent examples include:
- A developer having a relationship with his Instagram-influencer personal assistant, who he then blamed for racking up hundreds of thousands in debt on his limitless black Amex card;[4]
- A property developer misleading investors into withdrawing funds from their employer superannuation funds and savings accounts to invest in a property development at Biggera Waters, Queensland, and then using those funds for purposes other than property development;[5]
- A lawyer submitting fake contracts to obtain a $150m bank loan;[6]
- A fund managing over $100m of assets and returning a 20% return pa via a quantitative trading strategy in fact being a ‘Ponzi scheme’.[7]
It’s your turn
Any seasoned liquidator, auditor, or lawyer has seen a director of a company be held personally liable for breaches of directors’ duties, breaches of fiduciary duties, and other similar provisions found in the Corporations Act 2001, particularly after the collapse of a company.
The next steps usually are as follows:
- The liquidator performs investigations into the director. This might be by way of public examination, or more private methods. Inappropriate use of company creditor cards are found. Some creditor-defeating dispositions are identified, together with some unreasonable director-related transactions;
- The liquidator decides to take enforcement action against companies associated with the former director, and the director personally;
- After much to-ing and fro-ing, the associated companies are wound up (they had no assets anyway), and the director is bankrupted (he never owned property in his name anyway).
In the meantime, the director’s partner posts a photo of a fresh manicure from behind the steering wheel of a C63 AMG, wrist featuring $28,000 worth of Van Cleef and Cartier.
Accessorial liability under s 79 of the Corporations Act, and the parallel extended responsibility recognised in Australia under the so-called ‘two limbs’ of the British case Barnes v Addy provide liquidators with an avenue to pursue such parties.
Are you such a party?
When providing accounting, auditing, legal, or financial advice, all advisors should note that they too may be subject to accessorial liability.
For example, if you are providing financial services to a client, and you begin to believe that your client is engaged in a business practice that may constitute a breach of director’s duties, you are in the firing line.
While there are nuanced differences between a statutory contravention, and knowing assistance at common law, the thrust of each is that if you continue to assist someone in that breach, you will be held liable.
In equity, the level “knowledge” required of the bad conduct varies. However, you cannot simply “play dumb” or “turn a blind eye” to the conduct. If a reasonable person in your shoes would have been suspicious that bad conduct was afoot, you may be held responsible.
Concluding thoughts
Unless you wish to be involved in the consequences of a fraudulent scheme (in which case, skip the extra steps and simply confess to ASIC), do not suspend your disbelief if your client is involved in something that seems unlawful.
Poor conduct is on the rise. Unfortunately, professional advisors are often turned to by fraudsters to provide the illusion of authority for their scheme.
That professional advisor could be you. Make sure you are not a part of the collateral damage. If in doubt, seek advice on your options.
[1] Please do not commit fare evasion.
[2] Levi M & Smith R 2021. Fraud and its relationship to pandemics and economic crises: From Spanish flu to COVID-19. Research Report no. 19. Canberra: Australian Institute of Criminology. https://doi.org/10.52922/rr78115
[3] R v Gant & Siddique [2016] VSC 662
[4] Descon’s Danny Isaac blames Chanel Amenta for Amex bill (20 May 2023) Gold Coast Bulletin.
[5] ASIC Media Release (23-148MR), Gold Coast property developer charged with fraud (5 June 2023).
[6] News.com.au, Update for developer’s daughter accused of $150m bank scam (14 June 2023).
[7] Financial Review, Goldsky’s Ken Grace pleads guilty to dishonest conduct (17 April 2023).
Queries
If you have any questions about this article, please get in touch with a key contact or any member of our Litigation & Dispute Resolution team.
Disclaimer
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.