Sotheby's Settles Attorney General's Lawsuit

By Jonathan Stempel

NEW YORK (Reuters) – Sotheby's will pay $6.25 million and adopt reforms to settle New York Attorney General Letitia James' lawsuit accusing the auction house of fraudulently helping clients avoid sales taxes on art purchases.

This settlement resolves claims that Sotheby's allowed at least eight clients to cheat New York state from 2010 to 2020 by using "resale certificates" that misrepresented them as art dealers entitled to tax exemptions rather than collectors.

James stated that Sotheby's accepted certificates from a client who spent over $27 million on works by artists like Jean-Michel Basquiat and Anish Kapoor, despite knowing he was a collector. Some employees even aided this unnamed client in displaying works at his home.

The total of $6.25 million includes damages, penalties, and legal costs. James asserted that Sotheby's "intentionally broke the law," stressing that all individuals and companies in New York are required to pay taxes.

While Sotheby's did not admit or deny wrongdoing, it opted to settle to avoid litigation's time, expense, and distractions. The reforms include a new policy on resale certificates and enhanced employee training regarding art purchasers' resale intentions.

James had filed the lawsuit in November 2020, seeking damages and civil penalties under the state's False Claims Act. Furthermore, the unnamed client's company, Porsal Equities, had agreed in 2018 to pay $10.75 million to settle related claims regarding the misuse of resale certificates.

Sotheby's stated it remains committed to full compliance with applicable laws and noted it provided much evidence leading to the Porsal settlement.