Strings Attached?
Allegations of Financial Fraud and
Breach of Contract Linger Over Sales of Precious Violins
Copyright Wall Street Journal; New York, N.Y.; Apr 19, 2001;
By Gwendolyn Freed;

BRUISED AND BATTERED by Wall Street, some investors may be tempted by the seductive allure of rare violins Stradivarius and others made in and around Cremona in northern Italy from 1650 to 1750. Celebrated as among the safest of bets, stringed instruments from this golden period are known to appreciate or at the very least hold value through good times and bad, thanks in part to short supply. Only about 2,000 examples exist today of the violin-making work of the greatest Cremonese families: Stradivari, Guarneri, Guadagnini and Bergonzi. Prices have shot ever higher in recent years, with the late Yehudi Menuhin's Guarnerius del Gesu violin going for a record $6 million last year.
But buyers and sellers may want to look before leaping into the arms of the nearest violin dealer. As it has in the fine-arts business from time to time, scandal is brewing in the trade these days: Four prominent dealers are currently mired in lawsuits that raise serious questions about how they do business.

One of the cases begins with the much-beloved late violinist Josef Gingold, former concertmaster of the Cleveland Orchestra and mentor to such virtuosos as Joshua Bell, Miriam Fried and Jaime Laredo, as well as dozens of prominent chamber and symphony players. Gingold served for many years on the faculty of Indiana University's prestigious School of Music and was a founder of the elite International Violin Competition of Indianapolis. He died in 1995.
Gingold left behind a prized 1683 Stradivarius, "The Martinelli," as well as two fine French bows, by Francois Tourte and Arthur Vigneron. In 1998, Gingold's son, George, decided to sell them, turning for help to the respected New York City-based violin shop of Morel & Gradoux-Matt. Proprietor Rene Morel agreed to handle the sale himself.

The following year, Mr. Gingold ended up suing the Morel firm in U.S. District Court in Manhattan for breach of contract and fiduciary duty as well as fraud, misrepresentation and unjust enrichment. According to papers filed in the case, Mr. Gingold claims that Mr. Morel examined the Strad and valued it at $1.25 million, refusing to put it on the market at a higher price because to do so would damage his reputation. According to the complaint, an oral agreement was reached whereby Mr. Morel was to take a 20% commission on the sales, giving Mr. Gingold a minimum of $1 million for the violin, $70,000 for the Tourte bow and $8,000 for the Vigneron. In his motion to dismiss, Mr. Morel counters that these figures were fixed amounts, not minimums, and that Mr. Gingold's claims about oral agreements are incorrect.
In any case, the Strad and the Tourte bow were purchased through a grant from the Lilly Endowment Inc. on behalf of the International Violin Competition of Indianapolis for $1.6 million total, whereupon Mr. Morel paid Mr. Gingold $1,078,000 for the Strad and both bows.

Mr. Gingold asserts that, given the sale price of the Strad and Tourte, he was shorted by at least $210,000 and that Mr. Morel has failed to disclose to him the details of his sales transactions. The magistrate judge in the case has recommended to the presiding district-court judge that Mr. Morel's motions to dismiss be denied.
In an interview, Mr. Morel's attorney Alexander Schmidt said, "We think the recommended decision was incorrect in virtually all respects." Mr. Morel's business partner, Emmanuel Gradoux-Matt, told me the firm "did not make more than 20%" profit on the sale. What of the remaining $210,000 paid to Mr. Morel but not passed along to Gingold? Did any parties receive undisclosed commissions? Mr. Gradoux-Matt declined to comment because, he said, "it is not our practice in this type of transaction to disclose our costs to our customer."

"Sellers should avoid selling an instrument for a flat fee unless they are sure that the flat fee accurately represents the fair market value of the instrument," advises Carla Shapreau, a lawyer, violin maker and co-author with Brian Harvey of the 1997 book, "Violin Fraud: Deception, Forgery and Lawsuits in England and America."
She adds, "The written consignment agreement between seller and violin dealer should require prompt and written disclosure of material information regarding the shop's commission, including the net and gross sales figures, with a detailed description of all expenses involved in the transaction."

Meanwhile, storm clouds swirl miles away over a larger, more complex violin drama presently unfolding on two continents. Like the Gingold story, this one centers on a deceased violin owner, only this one was far from famous and probably couldn't play a note.
He was Gerald Segelman, a Londoner who quietly grew rich from a chain of cafes and cinemas he owned after World War II. Unmarried and without children, he devoted his considerable energy to quietly stocking an exquisite collection of more than 50 rare violins and violas, as well as sundry bows from Cremona's golden period. Given the make and year of the instruments, experts estimate the collection is worth between $15 million and $34 million. The extent of his collection was not known until his death in 1992, which was when the troubles began.

Segelman had willed the proceeds from the sale of his instruments to charity, and it fell to Timothy White (the son of Segelman's longtime solicitor) to execute his estate. Unversed in the ways of violins, Mr. White engaged the elite London dealer Peter Biddulph to sell the fiddles and bows at fair market prices. The two agreed that Mr. Biddulph would take a 5% commission.
As with the Gingold matter, friendly handshakes led to legal fisticuffs. On behalf of the Segelman estate, Mr. White filed two lawsuits in the late '90s (in the U.S. and the U.K. respectively), alleging that from the start Mr. Biddulph had schemed to profit mightily from the Segelman collection, working his plan in collusion with Chicago dealers [unnamed Chicago violin dealer] and James Warren, as well as Howard Gottlieb, a Chicago Symphony Orchestra trustee and violin investor.

Whispers gave way to gasps in the trade in February, when the U.K. suit concluded with a judgment against Mr. Biddulph for <pound sterling>8 million. When Mr. Biddulph stated that he could not afford to pay that amount, the Segelman estate agreed to accept <pound sterling>3 million, paid out over two years. To this end, Mr. Biddulph is putting his London shop up for sale.
Meanwhile Mr. White's lawsuit in America against Howard Gottlieb and the firms of [unnamed Chicago violin dealer] and Kenneth Warren & Son heads into its third year in U.S. District Court in Chicago. The defendants stand accused of, among other things, conspiring with Mr. Biddulph to defraud the Segelman estate.

According to Mr. White, Mr. Biddulph deliberately lowballed his valuations of the Segelman instruments and proceeded to sell some of them at bargain-basement prices to Mr. Gottlieb, [unnamed Chicago violin dealer] and Kenneth Warren & Son. It's alleged that the dealers subsequently fetched substantially higher prices for the instruments and then enjoyed the profits collectively.
Mr. Gottlieb's attorney, Robert Berger, said the claims against his client are "completely baseless and will be shown to be so when the case is concluded either by motion or by trial."

[unnamed Chicago violin dealer] attorney David Letvin said, "Biddulph was obviously entitled to settle his lawsuit if he wished. As far as I can tell, the allegations being made are fiction as against [unnamed Chicago violin dealer]."
Kenneth Warren & Son lawyer Jack Carriglio said, "Warren expects to be fully vindicated at the conclusion of the case."

Industry observers speculate that whatever the outcome, the main casualty of this litigation is likely to be the trust that buyers and sellers have traditionally placed in the expertise and integrity of elite dealers.