and we wanted to effectively ... Okay, well we just have ... Hello and welcome to Inland Marine Underwriters Association webinar titled, The Fine Art of Conversion, Theft, Fraud, and the Art World. This webinar was produced in cooperation with IMUA's Professional Development Committee, as well as the Arts and Records Committee. Please be aware of the IMUA statement. It's my pleasure to introduce today's presenters. Jennifer Schiff is a Georgetown University graduate with a Bachelor of Arts degree in Art History, as well as a Bachelor of Science degree in Interior Architecture from the University of Wisconsin-Madison. She is Vice President and Fine Art and CC Senior Underwriter at Excel Specialty. We also have Christopher Marinello, who's a lawyer specializing in recovering stolen and looted works of art. He works with law enforcement, government, collectors, insurers, dealers, museums, and artists to recover stolen items from Holocaust-era claims to modern day thefts. Mr. Marinello is Executive Director and General Counsel for the Art Loss Register. Thomas Kline, a Columbia University School of Law graduate, is of counsel at Andrews Kurth LLP. He specializes in art and cultural property litigation and advice. Welcome Jennifer, Chris, and Tom. The floor is all yours. Okay, thank you very much. Sorry for the jump start. What we were hoping to accomplish today with this webinar, through the Arts and Records Committee's discussions over topics that are emerging in the fine art industry, is a broad overview of what conversion is, how it affects what we underwrite in the fine art arena, and what we might do to better educate ourselves both about what's gone on in the past and what we might try to do to prevent losses in the future. To that end, we'd start with a very brief definition. Conversion is a very broad topic. If you ask different individuals, I've noticed over the course of the last few weeks in preparing for this, you get very different reactions and very different answers. Considered in a number of different circles to be something slightly different. First, let's roughly start with our own definition. Conversion is defined, as you can see from the slide, when someone knowingly, intentionally, and clearly, wrongfully, without authorization or permission, written or otherwise, commits a distinct act of dominion or control over a piece of property, a movable property of another individual or party, and that's inconsistent and interfering with the true owner's rights and intentions for the movable property. And that's to either allow them to continue to enjoy the property, to use it in whatever fashion they may have been using it, but taking their rights away effectively. So it's a wrongful taking or retaining of property and anything that falls into that category could qualify as conversion. And from here, we'd like to introduce Chris Marinello to discuss some very poignant, fairly visible recent occasions and instances of conversion. Then we will move to a legal perspective by inviting Tom to discuss it. And then as the final segment of this webinar, I'll discuss some of the underwriting issues that this raises and what we can be doing in the future to protect and minimize the risk this type of exposure represents. Chris? Thank you very much, Jennifer. When we were planning this webinar, we were looking at a number of different cases to illustrate the definition of conversion and different ways you can have conversion, what is conversion, what's not conversion. And then incredibly, we took a good hard look at the Salander O'Reilly Gallery case, which is fairly recent, and we realized that this case essentially had it all. So we're going to focus mainly on the events of the collapse of the Salander O'Reilly Gallery. Now here you see an image of Larry Salander with his daughter on the steps of his home. The case of Larry Salander and the Salander O'Reilly Galleries is a case that has gripped the art and the art insurance world since 2007, when Salander's magnificent new gallery, a Renaissance-style palazzo on Madison Avenue in Manhattan, was closed down on the eve of an opening of an ambitious exhibition called Masterpieces of Art. This exhibition was to include works of art by Michelangelo, Titian, and included a $100 million Caravaggio, which according to Salander, was going to be a direct challenge to Damien Hirst's $100 million diamond-encrusted skull. Some of you may remember the Hirst skull with the diamonds he was trying to sell for $100 million. Larry Salander decided that he was going to challenge that with a Caravaggio. The only problem was that the Caravaggio was not his. It belonged to a consignor. Actually, it wasn't even a consignor. It was a colleague of his who had no intention of selling it and was just going to loan it to the exhibit. This is what started it all. Within a month of that exhibition, Larry Salander had filed for Chapter 11 bankruptcy protection, and in March of 2009, he was arrested and indicted on multiple counts of larceny and fraud. Many media reports have been calling the Salander-O'Reilly case and Salander himself, the Bernie Madoff of the art world. Life was very good for Mr. Salander. As you can see, here to the left is the Salander-O'Reilly gallery in the Palazzo, and to the right is Larry's $25 million home not far away. He was living quite large. For years, first on East 79th Street in New York City, and then later in a large townhouse eight blocks away, the Salander-O'Reilly gallery was one of the largest and most varied private art galleries in the city. It displayed everything from Renaissance sculptures to paintings by John Constable, the English landscape artist, and Robert De Niro, Sr., the actor's father. The Robb Report, which most of you know is that glossy lifestyle guide for the rich and famous, cited the Salander-O'Reilly gallery as the best gallery in the world in 2003. Incidentally, the rent for that gallery space you see on the left was $154,000, and that is a month, not a year. What you see next is Larry Salander's new place. That is his cell in Rikers Island, where he's currently spending six to 18 years, right a little bit further away from his previous abode. In 2010, Salander pled guilty to 29 counts of grand larceny and fraud. He was sentenced to six to 18 years in prison, and in court documents and testimony, the 61-year-old Salander outlined his schemes, how he would sell art he didn't own, sometimes peddling the same painting or shares in a painting to two or more buyers, how he falsified records, lied to investors, submitted fraudulent loan applications, sold paintings that were for exhibit only, and pocketed the money to pay for private jets, his multimillion-dollar Manhattan townhouse, and his 66-acre estate in upstate New York. Now, some of the victims are pictured below. The Sound of Fraud ensnared a lengthy list of victims, over 20 individuals and businesses, ranging from museums, banks, individual investors, to consignors, collectors, and former friends. The list includes celebrities, such as the actor Robert De Niro, who consigned his artist father's works to Salander, as well as the former tennis pro, John McEnroe. Towards the end of Mr. McEnroe's career, he decided he would actually intern at the Salander O'Reilly Gallery, learn the business, and then open up his own gallery. Salander also admitted to defrauding Renaissance art investors, collector Hester Diamond, Connecticut-based hedge fund manager, Roy Lennox, and the Gerald Peters Gallery, amongst others. Now, this next slide is for those of you who are not entirely familiar with the Art Loss Register. I'll take a short detour. The Art Loss Register, and I don't want to sound like a commercial at all, is the world's largest private database of lost, stolen, and looted artwork. It is our objective to deter the theft of art collectibles, antiques, through the registration of lost and stolen items and the search for those items on the open market. We perform searches by trained art collectors, looking at each item that's offered for sale and comparing it to possible matches on the Art Loss Register database. So, an insurance company, when they've paid out on a loss or a loss adjuster, will record the item on the Art Loss Register database, hoping that one day we will locate it. So, we are essentially art recovery or asset recovery. We search the marketplace, Sotheby's, Christie's, Bonhams, all the major auction houses. We go to fairs, TAFAS. We're a searchable database. So, anyone out there in the world, police officers, can contact us when they have art in their possession and say, could you please record this on your database? The Salondo O'Reilly case really changed the way the Art Loss Register did business. Previously, we would record what was traditional art theft, someone breaking into a home, an insurance company paying out on the loss. The insurer would record the item on the ALR database. Now, after Salondo O'Reilly, we had a number of individuals who had interests in paintings, who wanted to know where paintings were so they could bring lawsuits. Not necessarily because they were going to win or they knew they were going to win in court or they had a legitimate title claim, but they wanted to know where all this artwork went. So, after the Salondo O'Reilly case, we created a new category, which is art that's in dispute, art that has a lien on it, art where someone is claiming they have a financial interest in a piece. You can now record these items on the ALR database and be notified when an item of interest to you is being offered for sale in the marketplace. Now, we have, right now, about 380,000 lost and stolen artworks with liens against them. We carry out over 300,000 searches a year and since our inception in 1991 here in London, we have recovered over 200 million pounds or $300 million worth of lost, stolen, looted property. A funny thing happened in my office in October of 2007. We started, right when the Salondo O'Reilly exhibition was to take place, we started receiving phone calls from artists, dealers, collectors, insurance companies, loss adjusters, and lawyers, all frantically pushing to register items that were supposedly at the Salondo O'Reilly gallery. We got calls from the FBI, various law enforcement from Florida to Connecticut, as the FBI was investigating the gallery. Even some of Salondo's own employees had contacted my office. One innocent young art historian actually came into the office saying that she was looking for a job. I sat her down and I said, so where are you working now? She says, well, I was working at the Salondo O'Reilly gallery. I said, that's interesting. What are you doing now? She says, oh, I'm still working from Larry's home. And I said, well, wasn't the gallery shut? Oh, yes, yes, she says. The FBI, the court ordered us to close, but Larry asked me to shred a whole bunch of papers, which I'm doing, and we're also moving a lot of paintings out of the country. Now, I didn't fault this young lady at all. She was just doing what she was told. She didn't know, but this was very interesting material, and when she left, I thanked her, and the FBI was extremely interested in what was going on with these paintings that were eventually recovered from Italy. We weren't able to stop all the shredding in time, but we were right in the middle of this type of thing. This all took place after the padlock order, and the court said that nothing should be moved, but eventually the FBI shut that operation down. These are some of the cases. Now, let me go through, skip this next slide, which I've discussed with you already. Here is the Carol Cohen case. Now, these are actual frames that were all that was left of Carol Cohen's Salander O'Reilly consignment. She was the widow of former Madison Square Garden CEO, Alan Cohen, and she entrusted Larry Salander to store 15 artworks worth about $5.8 million while she determined the best way to sell them. Cohen, who auctioned three of the works through Christie's around this time for $2.4 million, expressly told Salander not to sell her artwork. He was only supposed to store it for her until she decided what she was going to do. Of course, Salander paid no attention to that, sold the pieces anyway, used the funds to pay off some of his other debts. The frames we actually located at an upstate New York gallery where they were sold after the bankruptcy. The next case is the Philadelphia Museum of Art case, where the Philadelphia Museum, PMA we'll call them, consigned paintings by Maurice Prendergast and Arthur B. Davies to the Salander O'Reilly Gallery, which sold the Prendergast to another gallery, and then later declared bankruptcy without paying the museum. The museum claimed its insurance policy with AXA should have reimbursed the $1.5 million for the painting because Salander O'Reilly effectively stole it. The insurance company countered that this kind of loss is not covered since the policy was intended to compensate the museum in the event of a physical loss or damage to the works, not financial fraud. Unfortunately, the case was decided on a statute of limitations issue, and the court never got to the issue of whether the insurer needed to pay the museum the $1.5 million for this type of a loss. However, what this case has done is it's pointed insurers to have them look at their policies and start writing policies with exclusions for conversion, meaning unlawful appropriation or the use of another person's property. Tom will get more into that a bit later. Back to Robert De Niro Sr. As you can see, Robert De Niro's father, actually I have Earl Davidson here. Robert De Niro was promoted by, and this is the father, Robert De Niro Sr. was promoted by Larry Salander, who called the artist a friend and called De Niro a friend and said that his father's white expressionist paintings were among the 20th century's highest achievements. Lawyers for the actor spent nearly two years in U.S. bankruptcy court fighting to recover the De Niro paintings that were consigned to the gallery. The actor was able to retrieve them in a settlement, but he had to pay $14,000 to the bankrupt gallery, which would end up going to creditors. Lastly on this page is Earl Davis, the son and the estate of the artist Stuart Davis. Stuart Davis, who died in 1964, entrusted 96 of his paintings to Larry Salander for sale, but only found out later that 90 of them had been disposed of. 90 out of 96 paintings were sold, and Salander did not have any accounting whatsoever, did not know where the paintings were, did not tell the artist's son, did not, of course, pay any of the money for the sales. During the court proceedings, Earl Davis said, had I been robbed at gunpoint or by a thief in the night, it would have been preferable to the ruthlessly drawn out torture that Larry Salander inflicted upon me and my family. The next slide shows John McEnroe, who I discussed briefly before about working at the gallery, and he was ensnared in a fraud committed by Larry Salander, who was selling three halves of a painting. He would sell a half to John McEnroe, take a half interest himself, and then sell a half to somebody else, which, of course, you just cannot do. The next gentleman there is Arthur Edelman, excuse me, Asher Edelman. Asher is a well-known hedge fund guy who was actually one of the models for Gordon Johnson, also in the Wall Street movie. So, here's a pretty ruthless individual getting taken in by Larry Salander. The next gentleman there, Roy Lennox. Lennox was approached by Larry Salander. Lennox was a friend of Salander's and a neighbor in Millbrook, New York, and Salander proposed to Lennox to purchase an $800,000 Corot painting, and then he said he would find a buyer that would pay $1.25 million for the same artwork. So, Lennox would invest $400,000 and earn a little bit of money back, and then Salander would hit him up for $3 million. So, these hedge fund guys were slowly, they would get paid on the first one, classic Ponzi scheme, and then later on find that the next deal they were not paid on, and they were out bigger and bigger sums. The last one here is Renaissance Art Investors, and we were quite heavily involved in this case. Renaissance Art Investors, which is controlled by Donald Shupak, Chairman of Triumph Apparel Corporation, which you may know as Danskin. Shupak was a major investor in the Salander-O'Reilly Gallery, about $25 million worth of artwork, and Salander simply sold off the majority of these artworks, and this was the collection that we believe ended up in Italy when that young lady was in my office. A lot of the artwork was purchased throughout Italy and has made its way every year since the 2007 collapse to the Tefas Art Fair in Maastricht. We have matched every single year, we have located one of these Renaissance Art Investor paintings on somebody's stand, and I have every expectation that this coming March we will find yet another one of these. The next slide here is, of course, after the gallery was closed, Salander declared bankruptcy, and the court then had to sort out where the paintings were, who was entitled to what, lawsuits were filed by everybody, countersuits. I think at this point, the only one that has really recovered anything from this are the lawyers and the auction houses that were involved in winding up the sale of the gallery. In fact, this one piece that you see here, a Botticelli was consigned by Kraken Investments to the Larry Salander's gallery, and the court ruled that because Kraken never filed a uniform commercial code UCC1 form, that this particular painting could be grabbed by the creditors of the Larry Salander gallery and sold on behalf of the creditors. Simply because the creditors took preference over a consigner, and Tom will most likely go more into uniform commercial code filings in his presentation. Lastly, I'm going to show you an interesting These are some of the hundreds of items we are still looking for on the Art Loss Register database. They are appearing slowly as various dealers all over the world contact us and say, look, we want to check this particular sculpture, this particular painting. Is this something that has a title issue? We tell them yes. We point them to either Bank of America, Renaissance Art Investors, Carol Collins Lawyers, you name it. There's at least two or three lawyers involved in every single one of these transactions. So with that, I will pass the baton to Thomas Klein, who will discuss the conversion with more of a review from the legal perspective. Tom? Thank you very much, Chris, for a very scintillating presentation, a very vivid presentation of the problems that come up under the heading of conversion, which as Jennifer said is a very broad heading. What I'd like to do now is review some of the legal principles that we see in these cases, how they might apply to situations like the Salander-O'Reilly case. But let me emphasize, I'm not giving legal advice. I'm just giving you general principles, not giving advice for any particular situation. So if we start by reflecting back on the definition that Jennifer gave us, what we're talking about when we're talking about conversion is an intentional, substantial interference with a property owner's rights and his use and enjoyment of his property. It can start innocently and then become intentional when a demand for return of the property is made and refused. It can include reckless acts. Well, let's take a look at these. One of these is a little bit interesting on the subject of intentionality. Generally speaking, it's intentional, but there can be situations where it's not. The most obvious case and what we see a lot in the kinds of Holocaust cases that Chris referenced is where someone sells art that was stolen sometime in the past. After it's stolen, no one receives the title. Everyone is a converter. Anyone who interferes with it is at risk. The buyer does not receive title, cannot deliver title to the next party. If what we saw in Salander O'Reilly is many cases of property not returned to the consigner or the true owner, the failing to return is a conversion. I had a case involving conservation where someone found a painting underneath what was obviously a fraudulent painting. Some client had bought a painting, think it was very valuable, and then the conservator just took it all off. He'd been asked to conserve the painting and instead removed it. That's an extreme case, but I think someone who does conservation on a painting or any artwork should be sure that they're getting the work from the person with title. Otherwise, they're at risk of being a converter if they do work that the owner does not ultimately approve and it can't be reversed. Now, what Chris was telling us about the Salander O'Reilly case is when the sale is authorized and the clients are not notified, that by itself might not be a conversion, but it's certainly a sign that a conversion is coming when the art is not returned. If an inquiry is made, a demand for removal is made. The interesting question that was raised in the AXA case at Salelsi Museum of Art that Chris mentioned is if a sale is authorized but the funds are retained by the dealer, is that a theft of funds or a theft of the artwork? I'll talk a minute about the problem of entrusting, which dramatizes this problem, but generally speaking, I think that's an undecided issue. I think courts are going to be inclined to find that if someone entrusts art to a dealer and doesn't get the art back, that the art has been lost. Unfortunately, as Chris said, there was no ruling in the Philadelphia Museum case and this remains an active issue. Finally, we have an obvious case where the sale is without authorization. For example, a consignment agreement might require the consigner to give approval or it might set a bottom price or any number of things. If the art is sold without authorization, it is a conversion, even though the buyer may receive title. Here's an example. I was involved in this case, so I'm just going to give you public record information here. Sam Zell consigned work to the Tunkel Gallery. Much like Sounder O'Reilly, Tunkel sold it elsewhere. The works were therefore sold without authorization and they couldn't be recovered. Now, our first point of caution then comes up in the sense that there's a tremendous amount of informality in the art market and that's one of the best ways you can help your insurers is to have them be more vigilant in their dealings, not consign work and just leave it there. Standards for diligence and attention are increasing. They should be dealing with written consignment agreements. They should be making sure that their dealers are dealing with their art as they ask them to do. The risk that they have is that artwork, if sold by a merchant, which is a person who deals in goods of that kind, may be sold with title transferring, even if the sale was unauthorized. Chris gave the example of artwork given to a dealer for an exhibition that ended up being sold. Well, the person who lent the art is generally in a very difficult situation then because the merchant, the person who deals regularly with that kind of art, delivers title when he sells the art. So this is an exception to the general American approach to transfer of title. It does not apply in the case of stolen property. If a merchant is given stolen property, he can't create title. Any of you familiar with European continental art might recognize the good faith purchaser rights there. We don't have that principle except when for non-stolen property, normal property that's entrusted to a merchant, the merchant can deliver title and the rules governing it are that if the buyer is not a merchant, not someone who deals regularly in goods of that kind, he doesn't actually know of the defect. Otherwise, he gets title if he doesn't actually know of the defect. And if the person is a merchant, someone who does deal regularly, doesn't have to be a dealer himself, just somebody, let's say a collector who buys and sells a great deal, he has to follow the customs of the trade. The customs of the trade are not very clear also. There have been cases in a number of directions. Generally, we expect to see some level of diligence in art transactions. So for a non-merchant, the standard is honesty. In fact, not actually knowing, merchant has to be diligent. It could be tied to the suspicious circumstances present. Often we see abnormally low price as a point that's suspicious. And what we at least like to see is that the suspicious circumstances are laid to rest, that the inquiry made by the buyer at least got some kind of reassurance, led to some kind of reassurance. If people are dealing outside their area of expertise, then that's a risk factor in terms of whether they're going to be held to be diligent or not. And of course, then the risk for the consigner, as I said, number one is the level of informality in the art market. Number two is the situation with Tunkel and with Sounder O'Reilly that many of these art galleries are very thinly financed and only a step away from bankruptcy. And then this third problem that entrusting can lead to title being transferred and then the art can't be recovered and the gallery owner is not able to provide a remedy because they don't have any financial depth and the money has been diverted to personal use. The last point I want to make is a little bit technical. Under the Uniform Commercial Code, there's a form UCC-1. It's easy to find on the Internet. One can file this form with the Secretary of State, fill it out easily. It includes the interest of the consigner in the object. It puts the world on notice that the dealer is not the owner and that somebody else is the owner and allows the buyer then to make inquiry to find out whether the sale is authorized. And if the dealer goes bankrupt, as Chris was saying, it puts the consigner in line ahead of the general creditors, general unsecured creditors of the dealer. There are many issues with UCC-1s. There can be conflicting filings, for example. The seller can say, well, I always assumed the person was on consignment but I had no way to know that the person didn't, the dealer didn't have authority. But still, in terms of best practices, another favor you can be doing for your insurance is encouraging them to be filling out these UCC-1s along with their consignment agreements so that they're in a better position to protect their rights and their property. So I'm going to give this something of an overview of the law governing these situations and I'll then pass it over to Jennifer to talk about the insurance implication. Thank you, Tom. So from an underwriting perspective, of course, the question ultimately becomes what do we do with all of this very interesting anecdotal information so that it doesn't become one of our own claim files or problems in the future. As Tom alluded to, consignment agreements are really critical. And while they're not typically a standard form or standard piece of a submission by any stretch of the imagination, nor are they often found in underwriting files, it's very important to know that they should exist, they need to exist anytime in this wildly unregulated atmosphere of high-dollar artwork. And if an object is being entrusted to another party, there needs to be a written document stipulating the scope of the entrustment, whether it's for sale, whether it's just for exhibition. As Chris alluded to in one of the Salander O'Reilly cases, an object was lent for an exhibition but ended up being misappropriated and sold, or that can happen certainly. So it's important to be having discussions with your brokers and clients, if you're communicating directly along the way, to get a sense of how frequently they are consigning. If it's private collection business we're discussing, then are they very actively buying and selling? How much frequency is there in their schedule activity or in their blanket limits? That's kind of an indication as to how much potential exposure for consignment agreements and or loan agreements you might need to be watching for. So the frequency of their activity, the amount of documentation, you may not see or you may not need to ask to see each and every consignment agreement if they're actively deaccessioning, but it is a good idea to ask the question, do they have consignment agreements on file? Does the broker ever see them? To start the dialogue, it's an inexact science because this is a realm of the underwriting risk assessment process that goes well beyond what we do on a normal underwriting basis, but it is important to begin increasing awareness about the topic and starting to have dialogue with all interested parties to hopefully educate yourselves such that you can avoid it as much as possible and or have a better sense of who it is you're dealing with and ideally who they're dealing with. Because that is when these things go sideways. Obviously through all of the case studies presented, there's a chronic situation of individuals being trusted, having good reputations, seemingly above reproach and yet highly questionable and highly immoral at the end it seems. So nothing should be taken for granted. And as I alluded to, the art industry is very unregulated. Dealers aren't certified. They're not licensed. They're not educated formally in a way that allows for common standards and best practices. Of course there are traditions in the art market but it's a difficult industry to regulate and therefore a lot of arrangements are still made on verbal agreement, handshakes and very informal means of agreement which don't help anyone when it's time to deal with the situation of this variety or anything that might end up in an illegal arena. Going to the next slide, I thought therefore it would just be a good idea to discuss best practices and a note about learning the art market because that is in fact what all of this is exposed to, a market that we may or may not know much about. So in terms of best practices, the policy language that is on the market now typically does not address this issue. It's also defined differently or it can be interpreted differently state by state. So it is admittedly a bit difficult to just go the slightly more obvious approach which is well let's apply language that will solve this for us. Certainly a policy could include an exclusion but without knowing all of these other features of the nature of the collectors, the clients, who they're working with as dealers and learning more about the art market, it's difficult to know when you would apply it. So that begs the question would you just apply to everything? I think you'd have a tough time writing business if that were the approach that were taken. So at this stage in the market at any rate, it would be difficult to take the broad brush approach which brings us back to individual account underwriting. So your policy language options are a little bit limited but it definitely starts to go to general account management and awareness and the quality of the information that is consistent with other moral hazard underwriting preventative measures. Is there a lot of activity? Are there questions about value? Are there uncertain terms? Are there seemingly unusual or possibly less than authoritative appraisals or bills of sales being used? None of these items or these issues in isolation is an indication that you're headed towards an issue of conversion but collectively they start to build and allow you to paint a picture of what type of caliber of client you're considering writing or already underwriting. So it goes to the broker client relationships as do so many other aspects of underwriting but it becomes even more important in this area. So I'd say information and awareness are always key in any portion of the underwriting but especially where there is a great deal of buying and especially selling activity. If you see a lot of deletions, the obvious question is where do those objects go? Do they sell them outright? Do they consign them? I think if you see a lot of deaccessioning activity that would be a legitimate time to raise the question of consignment agreements, loan agreements and entrustment issues and best practices in that regard. And then learning about the art market is difficult at times and we're in the insurance industry first but we're certainly dealing in very high value objects that are entirely reliant on the art market. So reputational stories, anecdotes do come into play in trying to understand a little bit about the market. Certainly it's very difficult and onerous to try to understand the dealers from whom every client buys. That's a bit unreasonable. But becoming familiar with the market by reading some of the trade papers and publications, the art newspaper, art news, Art in America, all of them certainly discuss these types of salacious legal battles as they get bigger and they certainly do discuss at times different galleries, reputations to a certain degree and or practices, who's dealing and what types of artifacts and what types of contemporary artworks. And if you're insuring galleries, they often are a very tight knit community of individuals in the art market who know each other quite well. So reputations do precede people and where there's smoke I listed there's often fire. That meaning if there are dealers who are bad at paying their bills, they're quite untimely in their premium payments or they're stretching things out and they're having some issues from time to time of changing values and you're sort of looking at the underwriting of the financial perspective, you might wonder is the record keeping good? Is there a consistent nature or lack of consistency in their business practices that might allude to something that could leave you exposed to an unknown risk? And again, just a reminder that the dealers and the galleries are not licensed or certified to be transacting in hundreds of millions of dollars as many of them do. Certainly lower values are at issue as well. But this is a very unregulated business which is why individuals such as Salander and others, there have been plenty of other case studies. Michelle Cohen a little over a decade ago now or maybe just a little less is certainly another high profile individual where there's a great deal of information in the public domain about selling objects and not returning the funds to the consigner going both ways. I previously had seen claims on both sides of it, someone who consigned a piece to him or entrusted him more accurately and then they were never paid for the sale. Others who bought a piece and it turned out he didn't have rightful title to sell it so they had the object appropriated and confiscated and returned to what the court deemed to be the rightful title holder. It can go sideways quite quickly so it's important to know what your client's activity looks like, what they're up to and the best you can try to understand who they're working with these high dollar transactions. So there's not a quick fix I'm afraid but I think education, awareness and understanding the transactions is the best protection or the best preventative approach. I'd like to basically conclude and then move to a question and answer session but the idea is this is all rather ambiguous as we said at the outset, conversion can mean lots of different things to different people, different states can interpret misappropriation of property differently but it's important to go about things in a cautious manner and trusting but verifying as always. And having insured take better precautions rather in a best practice sort of approach of documenting their objects as best they can, filing the UCC ones as much as they can, being certain that they're not kindly, naively and optimistically entrusting objects to others without any documentation. And as the art market continues to come under increasing scrutiny we put a quote in here just to remind everyone we may never step in the same river twice but if we do it's not the same river and things can happen quite differently in the very same transactional scope of art sales and have very different results for different individuals and create very difficult situations for underwriters, claims adjusters and companies exposed to these risks. So with that we'd love to ask if there are any questions for any of the panelists whether it's something we should all contribute to or individual questions by all means we're happy to field questions. Yes, thank you all for an informative presentation. As Jennifer said at this time we'll take questions. Once again to ask a question simply press the Q and A button in the upper left-hand corner. Once you do a box will drop down where you can type in your question and click ask. And we'll wait a few moments to allow people time to type in a question. Here's our first question. From an underwriting perspective couldn't you just exclude conversion? Yes, as you mentioned you certainly could but I think it becomes a question, a two-fold question. One, is it a market reality that you could put onto every policy, a single sweeping conversion clause, excuse me, but more specifically that requires a definition of conversion which can be difficult to pin down. It's not a well or rather unanimously agreed definition. Tom gave us the fabulous legal definition but that is difficult to then insert into a policy that allows the definition to apply to art objects. And again every state all of this is regulated as we all know on a state basis so you could in theory have 50 fairly different answers. You'd end up with a majority and some similarities but each state could interpret the definitions differently and the filings would obviously be implied so it's a little more difficult than it seems. And therefore the individual risk underwriting is the better approach I think. Thank you. Here's another question. Is there any way to track claims experience on this topic? Technically not really. It's not a covered peril for some of the same legal definition reasons that wouldn't necessarily be in common industry shared loss records. But one of the best ways to understand it or get a feel for trends and or historic occasions is to speak to the independent field adjusters, not necessarily the company adjusters although they'll have some knowledge of these cases. But the independent adjusters who really specialize in the fine art market are the ones who get called on all of the different complicated claims from all of the different carriers so they become sort of a resource for the industry as a whole. There was a dealer in Chicago. They may still even be in business which is terrifying but they're named RH Love and they had converted quite a number of objects, sold them used to funds for their own purposes and not paid the consignors. And when I spoke to an independent adjuster years ago as our company was presented with a claim of that sort, they said oh yes let me get out my spreadsheet. I've got a running tally of the claims that are related to the theft and or conversion by RH Love Gallery. So the folks who are in the field every day and working on the claims are definitely great resources and well worth speaking to as much as possible and if you don't know them directly some of your claims folks will and can certainly make some introductions. Thank you. Here's a question for Chris. What is the jurisdiction of the Art Loss Register? Well we're based in London. When you say what's our jurisdiction, we hope not to get sued at any time but we are a world based, international based organization. We, anybody can report items from anywhere and we generally then tell the insurance company what we found and leave it up to them to take the next move. Either they will have their own in-house counsel deal with a match or a recovery or they will ask me to get involved in the recovery operation or they'll leave it to law enforcement or a combination of law enforcement and me. So our reach is worldwide and as far as jurisdiction is concerned I guess that kind of depends on where liability would take place but we do try to avoid that like I said. Okay thank you. This one is for the group. What are some websites that we can go to for the latest info information on fine art news for recent cases? I would expect that the print media resources that I mentioned the Art Newspaper, Art in America, Art News I think is the other one. They would all have some degree of information although I've not been on any of them recently enough to know whether it's published information free of charge or whether subscriptions are required but there are also newsletters that can be subscribed to. There's one that is called the Bear Fact, it's B-A-E-R-F-A-X-T. It's basically a blogish style newsletter, emailable that is organized and published by a gentleman named Josh Bear who's been in the art industry for many years but what's interesting about his newsletter and I think there's an annual subscription fee. I don't think it's exorbitant but I don't want to quote it. I'm not sure what the figure is but it's a very interesting resource because he lists everything from the winner of the Turner Prize each year to exhibition information, openings for new exhibitions, job openings at dealers. So you do start to piece together some trends. If you keep seeing the same dealers constantly hiring, you have to wonder why they have such high turnover and why their staff seemingly can't stay put or aren't happy enough to stick around. They also mention lawsuits whether they're high profile already in the public awareness or not, disputes between galleries, disputes between auction houses and galleries, disputes between major collectors. There's a bit of gossip feature to this but it is very interesting to see which names pop up over and over again. And if I may, the IMUA does an excellent job of publicizing these types of cases amongst members. Joining the IMUA is an excellent way to keep up on these types of cases and talk them out amongst various insurers. Yeah, I would add just doing Google searches, Bloomberg covers a lot of art business issues. There are other services that report on some of these matters so if you were to just Google Sounder O'Reilly, you have to first know that something is going on. It's pretty easy to get coverage. Thank you. We have two more questions. Once converted artwork is identified at TAS, what happens next? Must the dealers surrender the work immediately or does the case enter international court? Well, we have an agreement with the fair at the Art Loss Register where we basically take the fair director and the offending dealer into a room where we have a very quiet, respectful, discreet discussion about the issue and ask that the item be removed from the stand. Occasionally, we run into a rogue dealer that finds the most obnoxious lawyer they can and flap a lawsuit immediately but that's not the nature of TAFOF. If anyone who's been there knows that quiet discussions and following proper TAFOF procedures is really the best way to go and I've had to admonish more than one of these Sounder O'Reilly claimants that when something pops up at TAFOF, we ask them to play by the rules. Thank you. What can the industry do to tighten up on this type of fraudulent activity? I think overall, it's a matter of education and awareness first and just being as well-informed as possible about some of the issues we've discussed and trying to stay current on it. Certainly, there are many concerns and many issues that affect the exposures we write but I think being as educated as possible and having forums such as this just to raise awareness, we can't exhaustively cover all the different ways conversion can go in different jurisdictions or on different policy types but just knowing that it's there I think is the first step and continuing to be in dialogue with other industry peers to perpetuate the discussion as and when risks seem to present themselves in this domain. Now, I would second that particularly in the area of continuing vigilance with regard to the parties you do business with. I remember how the environmental field evolved and in terms of financial responsibility of people who are handling hazardous waste and I'm thinking eventually dealers may have to demonstrate their financial soundness just like you'd ask somebody coming in your house to do work for a proof of insurance. It's distressing that this problem comes up so often with dealers who turn out to be not financially responsible creating problems for everyone else which land on the insurance company's doorstep. The art market can learn a lot from the banking industry. I mean people or companies we thought could never fail have failed so there's no harm in asking to see financial records, asking if you could file the correct UCC forms and asking for paperwork when you're transacting high value artwork. Thank you. That's all our questions. Now back to Jennifer for some closing remarks. Thank you very much. Yes, we just wanted to A, thank everyone for participating, acknowledge that this is a fairly difficult issue to wrap your hands around from an underwriting perspective but I think each of us participating are happy to be resources going forward. Lillian, do we have our contact information in the? I will email it. I'll email all of the presenters' email addresses when we send out the survey link. Oh, wonderful. Thank you. I don't want to volunteer for the other gentleman but I think everyone's happy to try to assist and be a resource in the future and I would just thank everyone for participating and ask you to keep an eye out for other IMUA webinars and or volunteer if you're interested in participating because I think the collaboration of everyone involved, as we just discussed, is the best way forward for all of us. Thank you. All attendees will receive an email with the link to an electronic survey. Please take a moment and provide feedback to IMUA. If there were several people at your location, please forward the link to them so they may provide feedback as well. On behalf of IMUA's Arts and Records Committee and the Professional Development Steering Committee, I'd like to thank our presenters, Jennifer Schiff, Christopher Marinello, and Thomas Klein for a fascinating presentation. Thank you also to all of our attendees for your participation and interesting questions.

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