Philip Falcone, the disgraced former hedge fund supervisor, has misplaced a fraud and breach-of-contract judgment in a case introduced by New York-based pawnbroker BLCE over a collection of art-backed loans. The ruling, issued July 25 in a New York Supreme Courtroom, stems from a posh scheme involving a $6.3 million 20-carat Harry Winston diamond engagement ring and 4 artworks by Damien Hirst, Richard Prince, and Pablo Picasso.
Falcone, the founding father of Harbinger Capital and the one-time majority shareholder of the New York Occasions, was as soon as considered price $2 billion. He made his fortune in 2007 by betting in opposition to subprime mortgages. In 2013, he was successfully barred from monetary companies trade after reaching a $18 million settlement with the Securities and Alternate Fee. This got here after prices of market manipulation, misusing buyer funds to pay his taxes, and favoring sure shoppers over others.
Courtroom paperwork recommend that Falcone double-pledged artworks for loans with two totally different lenders, then stored these items in his possession. He additionally allegedly used a restricted legal responsibility firm to cover them from searches by different potential collectors.
According to court documents filed by the regulation agency Grossman LLP, which represented BLCE within the lawsuit and focuses on artwork regulation Falcone and his spouse, Lisa Maria, took out a $92.5 million loan with Melody Business Finance in 2013. The mortgage was secured with varied belongings, together with 12 artworks. Quickly after, the couple arrange a brand new entity known as “First Road LLC,” to which they transferred possession of the artworks. By 2018, the Falcones had defaulted on the mortgage with Melody.
Courtroom paperwork present that Falcone then tried to boost cash via a collection of different secured loans, together with a number of from BLCE. One mortgage for $600,000 secured by his spouse’s Harry Wilson diamond ring, which had been valued by BLCE at $6.3 million.
Between September 2019 and October 2020, Falcone entered right into a succession of additional loans with the pawnbrokers, which had been secured by Picasso’s Deux Nus, Richard Prince’s Untitled (Cowboy), and Hirst’s I love you, love buds and A Playful Bubblegum Kiss. Falcone even personally delivered them himself to BLCE, Grossman LLP stated. He then signed contracts claiming that he personally owned the Picasso, Prince, and Hirst artworks and that they weren’t topic to any private property mortgage, safety settlement, or pledge settlement. “However these representations and warranties had been false,” Grossman LLP said in a statement on its website.
Falcone boldly proclaimed that double pledging the paintings “was the equal of taking a second mortgage on a house and giving a second mortgage.” Grossman LLP stated this was a “moderately widespread observe” in supporting paperwork on March 7.
In February 2020, Melody Finance sued Falcone for reneging on the 2013 mortgage and sought to foreclose on the artworks. Nevertheless, Falcone refused at hand them over earlier than utilizing them as collateral within the loans he took out with BLCE. He additionally defaulted on his loans with BLCE shortly afterward.
Because of this, BLCE bought Bubblegum Kiss and Untitled (Cowboy) at public sale. In June 2021, Melody Finance then sued BLCE, claiming to have superior title to the 4 artworks. At that time, it grew to become clear that Falcone had lied about his title and possession of them to BLCE. “Our shopper then settled that dispute with [Melody Finance],” Grossman LLP stated.
“In late 2021, Falcone filed a lawsuit claiming that our shopper mustn’t have foreclosed on the loans and bought the collateral,” the regulation agency said. “Our shopper, in flip, filed counterclaims in opposition to Falcone on the premise that he had dedicated fraud and breach of contract by misrepresenting his possession and authorized standing of the artworks. After securing dismissal of Falcone’s usury and replevin claims on a pre-discovery movement for abstract judgment in 2023, we moved for abstract judgment on our shopper’s fraud and contract counterclaims.”
In court documents, BLCE stated it didn’t learn about “First Road LLC” and its possession of the artworks, which is why they didn’t present up in searches on databases for Uniform Business Code (UCC) filings. UCC filings observe when particular belongings like artworks have been used as collateral for a mortgage or different obligation in a secured transaction.
On July 25, Choose Lyle E. Frank agreed with BLCE’s claims that Falcone made materials misrepresentations “clearly supposed on their face to induce Defendant to concern the loans that later resulted in substantial monetary harm”. The judge ruled in favor of BLCE’s counterclaims of breach of contract, indemnity, and fraud, and ordered the mortgage firm “be granted a cash judgment in an quantity to be decided on the time of trial or different such decision of this matter.
In response to the decision, Grossman LLP stated, “We’re happy to have achieved this favorable final result for our shopper, and proud to proceed our file of litigation victories within the complicated enviornment of art-backed mortgage transactions.”
The regulation agency declined to remark to ARTnews.
John Lonuzzi, the legal professional representing Falcone, didn’t reply to a request for remark.
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