Articles

In Times Square, Trading Shares of Chinese Art

by Mostafa Heddaya on July 16, 2014

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The ICAPE trading platform (all photos by the author for Hyperallergic)

“You ever heard of Bitcoin?,” John Wallace asks, pointing to his companion. “You’re looking at it.”

“It” is an electronic trading platform, or “virtual exchange,” which is used for all manner of assets, from over-the-counter stocks to the Bitcoin cryptocurrency.

I am here, in the atrium conference hall on the ninth floor of the Westin Times Square, to see a demonstration of this trading platform as applied to fractional shares of individual artworks. The exercise was undertaken, I am told, at the behest of one Mr. Ming.

Mr. Ming, according to Wallace, is a wealthy Chinese collector who is fed up with the fraudulent tendencies of the Chinese market in fractional art trading. It is a market where artworks are made into companies, with ownership sliced up into easily tradeable shares — at least in theory. It is, the men Mr. Ming has assembled say, an electronic bazaar worth “billions.”

Yet this sloppy, unregulated market is apparently beset with problems, the most significant of which is linked to the epidemic of deadbeat bidders and other fraud in brick-and-mortar Chinese art auctions. These bidders’ results help bolster the valuations of the shares of art traded on these informal exchanges, a sort of elaborate penny-stock pump and dump scheme dealing largely in the frothy market for classical Chinese art. The gavel falls, the price of the art shoots up on electronic platforms, the scammers sell their shares, and the auction house is left empty-handed.

I press Wallace on Mr. Ming — his full name, his occupation — but he is not forthcoming: “He has done very well for himself.”

Wallace is chairman of an organization called International Cultural & Art Property Enterprise LLC (ICAPE), founded by Mr. Ming to, among other things, launch an electronic exchange for Chinese art in the United States, so that it can “be regulated,” and so that Mr. Ming can trade shares in his Ming vases with peace of mind.

An internet search reveals that ICAPE LLC was formed the day of my visit, July 11, and lists its primary place of business as the Philadelphia Stock Exchange Building. It claims to be “the first and only fractional art trading platform in the US.”

The banner behind Chairman Wallace reads: “Chinese Dream, World Peace.”

*    *    *

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Before my interlocution with Wallace, I had spent the preceding 30 minutes on the ninth floor, which ICAPE had done up in an elaborate Chinese banquet hall style, speaking to a colleague, the man who designed the trading platform for Mr. Ming. His name is Greg Dudzinski, and he claims to have a background of several decades designing trading platforms on Wall Street.

He tells me that you can trade anything on an exchange, even “toy trains.”

He returns to the example of “toy trains” several times. As we’re cycling through the “Marketplace” screen on the new trading platform, which displays a menu of available artworks, he explains:

“What you do is you take a piece of art, and you make it into an LLC.”

Fair enough.

You then take this LLC, Dudzinski explains, and determine what percentage of it — the work of art, that is — you want to sell, and how many shares of it that represents.

A profile is then created for the artwork on the trading platform, with a full listing of its appraised value, provenance, location, corporate structure (e.g. Delaware LLC), number of shares and ownership stake available, and other relevant information.

The screen (pictured at the top of this post) is what you see when you pull up the trading page for a given work of art. Since the project remains at a theoretical stage, all of the works listed are dummies; the exchange is literally virtual. Dudzinski was up late the previous night, his kids helping him populate it with fake trades.

*   *   *

The idea of fractional ownership in art, or even a full-fledged electronic exchange for it, is certainly not new. An effort called SplitArt failed last year; funded by an Israeli investor and Deloitte Luxembourg to the tune of five million Euros, it never gained approval from regulatory authorities.

Dudzinksi says the platform can also offer derivatives, at least basic ones like options — it’s just another switch in the software, per Dudzinski, though finding a willing counterparty for such trades in art shares may prove much trickier.

*   *   *

Towards the end of our chat, Dudzinski tells me that when they were preparing the platform, “some museum” told them that 80% of artworks in all museum collections are not displayed at any given time. He speculates: what if those works could be put to work, financially, perhaps to fund future acquisitions? After all, if museums can sell even a small minority stake in their artworks, as in a corporate IPO, a significant amount of cash could be generated.

I ask him if this presents a challenge for the trading platform, as museum-owned works are often covered by donor covenants and tend to travel across many jurisdictions.

He assures me that jurisdiction is not an issue — the LLCs for the artworks could be formed in Delaware, or Texas, or wherever is most advantageous. They did have one problem, however, with assuring investor confidence:

“The thing about art is that it doesn’t move, so it’s difficult to put a camera on it.”

He means that it’s hard to be sure about the veracity of a security video feed trained on an artwork in storage or in transit. It’s a strange consideration, what with insurance, but I suppose investors are fickle, and so too is the fixity of art.

The solution, Dudzinski says, is to place a certified clock next to each work. A twist on the old hostage-holding-the-day’s-paper trick.

I imagine a tax-sheltered Geneva freeport, an airport warehouse teeming with art, each work matched by a single camera trained on a clock ticking at its side.

Mr. Ming insists on regulation.

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