Manhattan Art Dealer Sentenced to 18 Months for Fine-Art Fraud

(Bloomberg) -- A Manhattan art dealer who admitted to playing fast and loose with works by Pablo Picasso and Edgar Degas to rip off collectors and hide his financial failure was sentenced to 18 months behind bars.

Ezra Chowaiki, who was the face of Chowaiki & Co. Fine Art Ltd. on Park Avenue before its bankruptcy last year, was sentenced Thursday by U.S. District Judge Jed Rakoff in Manhattan. The disgraced dealer pleaded guilty in May and agreed to forfeit $16 million and 25 works of art. He was also ordered to pay $12.9 million in restitution Wednesday.

Chowaiki, 49, had faced as long as 20 years in prison for wire fraud, though prosecutors agreed to recommend a term of four to five years. He sought a term of one year and a day in prison, saying he suffered from "prolonged depression" as his business began to crumble after years of hard work.

"My lying and scheming were antithetical to my conduct; this is why it’s so hard for me to understand why I allowed myself to do something so terrible," Chowaiki said Wednesday, choking back tears. "Why did I do it all? The short answer is I got desperate."

Chowaiki said he deluded himself into thinking he could prop up his business and pay back his victims. "I want the court to know I am a good person who did terrible things."

Rakoff said the freewheeling nature of the art world was a factor in deciding he must impose a longer term than the year sought by the defense.

"One factor that does loom in this case is the seemingly and largely unregulated nature of the art market," he said. "Here, we have something that by its very nature calls for expertise and can easily be the subject of fraud, yet seems to operate without any meaningful constraints. I think that weighs modestly in favor of a higher sentence."

The gallery operator’s arrest last year stunned the New York art world and left collectors scrambling to file claims in the bankruptcy case. The government is still attempting to return dozens of works to their rightful owners, some of whom have made competing claims. Rakoff gave prosecutors and Chowaiki’s lawyers about two months to determine who were the rightful owners.

The fraud "caused far-reaching disruptions in the broader art market that continue to be felt far beyond this criminal case," the government said in a court filing before the hearing. A "significant sentence" is needed to "restore confidence and trust in the market," the U.S. said.

Prosecutors said Chowaiki ripped off at least a half dozen art dealers with sham transactions in which some victims were led to believe they were buying stakes in fine art earmarked for quick resale. Other victims left works at his gallery on consignment and never got them back, including one collector who lost a $1.2 million painting, prosecutors said.

Chowaiki’s scams have helped expose the murkier side of fine-art financing. Such deals often aim to turn a quick profit on famous works, but complex valuations and ownership structures can leave investors burned, especially when a seller’s good reputation is substituted for proper due diligence.

Chowaiki, who lives in Manhattan, opened the gallery in 2004 with partners, and was the minority owner. The criminal case followed three civil suits in November accusing him of the same types of frauds, as well as a lawsuit by Sotheby’s Inc. seeking repayment over a botched deal.

A review of the gallery’s bankruptcy documents by the Federal Bureau of Investigation revealed it had less than $300,000 in assets and almost $12 million in claims by dozens of dealers, including six victims in the criminal case, according to the complaint.

For now, the dispute is shifting to fights between various entities challenging the government’s attempt to forfeit works that Chowaiki misused. Piedmont Capital LLC, for example, urged a judge to let it keep works including Picasso’s 1968 Le Clown and Takashi Murakami’s 2004 Jellyfish Eyes, which it says it has a right to because Chowaiki never repaid a $300,000 loan from 2017 that had the art works as collateral.

The case is U.S. v. Chowaiki, 1:18-cr-00323, U.S. District Court, Southern District of New York (Manhattan).

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