Billionaire Formerly of Hedge Fund Faces Judgment for Alleged Fraud Regarding Loans Using Artwork by Hirst, Prince, and Picasso
Art-Backed Loan Saga Ends in Fraud Judgment Against Philip Falcone
Philip Falcone, the former hedge fund manager, found himself on the losing end of a court case involving art-backed loans. The New York Supreme Court ruled in favor of BLCE, a New York-based pawnbroker, in a dispute that stemmed from a series of loans taken out by Falcone and his wife, Lisa Maria, starting in 2013.
In 2013, the couple took out a $92.5 million loan with Melody Business Finance, secured with various assets including 12 artworks. The artworks involved in the case with BLCE include Picasso's "Deux Nus", Richard Prince's "Untitled (Cowboy)", Hirst's "I love you, love buds" and "A Playful Bubblegum Kiss". The loans were secured by a $6.3 million Harry Winston diamond engagement ring and four artworks.
Court documents suggest that Falcone double-pledged these artworks for loans with two different lenders. Falcone and his wife transferred ownership of the artwork to a newly formed entity, First Street LLC, as part of the collateral arrangement. However, court documents detail that Falcone's representations were false, and the loan agreements involved fraudulent misrepresentations about ownership and encumbrances on the collateral.
Between September 2019 and October 2020, Falcone entered into a series of loans with BLCE, secured by the same artworks. Falcone personally delivered the artworks to BLCE. The judge ruled in favor of BLCE's counterclaims of breach of contract, indemnity, and fraud, and ordered the loan company to be granted a money judgment in an amount to be determined at the time of trial or other such resolution of the matter. The ruling against Falcone was issued on July 25, 2023, in a New York Supreme Court.
This art-backed loan saga details how Falcone leveraged high-value artworks as loan collateral, falsely guaranteed ownership free of encumbrances, defaulted, and eventually lost a fraud judgment as uncovered in court documents and confirmed by Grossman LLP, which represented the lending client.
It is important to note that in 2013, Falcone was effectively barred from the financial services industry after reaching a $18 million settlement with the Securities and Exchange Commission. The exact filings related to the UCC (Uniform Commercial Code) are not detailed in the search results, but such art-backed loans typically involve perfected security interests noted in UCC financing statements to protect the lender's claim against the collateral. The transfer to First Street LLC and the successive loan agreements would normally be reflected in these filings to establish the lender's priority rights. The forged or false assertions related to the collateral’s status likely affected the validity or enforceability of these filings.
Philip Falcone, once thought to be worth $2 billion, has seen a significant fall from grace. This latest ruling is a stark reminder of the importance of honesty and transparency in financial dealings.
- The artworks involved in the case with BLCE, such as Picasso's "Deux Nus," Richard Prince's "Untitled (Cowboy)," Hirst's "I love you, love buds" and "A Playful Bubblegum Kiss," were utilized by Philip Falcone to secure an art-backed loan, despite his previous involvement in the financial industry being restricted.
- In the art world, business and finance, the case of Philip Falcone showcases the consequences of double-pledging artworks, making fraudulent misrepresentations about ownership, and defaulting on loan agreements, as seen in his latest fraud judgment.
- The auction value of the arts might have initially seemed like a lucrative source of collateral for loan arrangements, but cases like that of Falcone serve as a reminder in the art world and business circles that transparent and honest dealings are crucial to avoid potential legal issues and maintain standing in the finance world.
