After struggling to find anything interesting in ArtNews – for the past 3 years – a little blurb caught my eye. Bruce Taub, former founder of Fernwood Art Investments and purveyor of the most ridiculous art market quote “…Even my secretary could someday own [shares of art] in her 401k…” has had both of the law firms representing him, withdraw.*
On April 5, 2007 it was reported in the Baer Faxt that Bruce Taub was being sued first by Roy Disney’s company Shamrock Estates for $1 million and then again by Whitmore Brey LLc, Hinchliffe Living Trust, Louise + Tom Jones Subscription LLC, Andrea van de Kamp (former chairman of Sotheby’s), William Pearlstein (art lawyer), John Scharffenberger (gourmet food entrepreneur) and Ashton Hawkins (former counsel at the Met) for $1.63 million.
And now, in on a backpage of this month’s ArtNews, Bruce Taub who is being sued for embezzling not $1.63 million but $8 million from his fine art fund “to promote himself and his wife in the art world, and to pay their personal expenses” without launching a single investment fund.
Some background on Fernwood and fine art funds: The opportunity to exploit an inefficient market was the prime factor for developing Fernwood. Fernwood, which began in Boston in 2003 with aspirations to begin purchasing works at the end of 2005, like other fine art funds folded after failing to meet investor expectations, being unable to raise the $100–$150 million suggested capital for its development, and suffering from the effects of conflict of interest among its advisors.
Michael Plummer of Fernwood and formerly of Sotheby’s claimed. “We created an innovative structure that would have worked,” but recalls that “we were concerned whether [founder Bruce] Taub had the financial stability and the wherewithal to manage the funds during their life” (Haden-Guest 2006).
Todd Millay, past executive vice-president of strategy and product development at Fernwood, claimed that he and Taub falsely predicted the ease with which they would create a large-scale fund and find financial support: “Unlike other inefficient, large sectors of the economy, there is no investment boutique focusing on capturing art’s economic opportunities. Even specialty chemicals, medical devices and other kinds of arcane sectors have special private equity firms systematically looking for opportunities. So the first thing that Bruce and I thought was that Fernwood had a much bigger opportunity than just creating an art fund, which would be a fairly mundane and straightforward to do” (Groysberg, Podolny, & Keller 2006, p. 5).
Taub, who had a proven 25-year track record in the financial services and a bevy of seasoned international art advisors, set out to form a fully structured entity. He pointed to fine art’s low correlation to traditional assets and what Fernwood associates argued was “the wealth of comprehensive data never before available.” NB: This statement is disputed by many since art world holdings are estimated at approximately $30 billion and only 30– 50% of the works sold are done so transparently at auction (ABN AMRO 2005, p. 4).
Fernwood was, arguably, using the most favorable business model––the private equity model––and had sound financial thinking at its helm, but was never able to achieve funding. At first I blamed the collapse on the fact that Taub was above all an art collector. He and his wife came up with the vision of Fernwood while on vacation in Canyon Ranch, not the financial milieu that potential investors expect, and at the heart of Taub’s effort to marry art and finance he expanded too quickly and his group lost focus and faith.
But it turns out, I was wrong … you be the judge
* the law firms were Jager Smith and Pachulski Stang Ziehl Young Jones & Weintraub (and all background information on Fernwood was borrowed from my MAAB thesis: The Rationale of Art Funds: Success, Failure and the Future) -LG