UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ECF CASE JOHN D.

HOWARD, individually and as as assignee of Jaime Frankfurt, LLC, Plaintiff, -againstANN FREEDMAN, GLAFIRA ROSALES, KNOEDLER GALLERY, LLC, d/b/a KNOEDLER & COMPANY, MICHAEL HAMMER, 8-31 HOLDINGS, INC., JOS CARLOS BERGANTINOS DIAZ, and JAIME R. ANDRADE, Defendants. AMENDED COMPLAINT AND DEMAND FOR JURY TRIAL 12-CV-5263 (PGG)(HBP)

Plaintiff John D. Howard (Howard), by his attorneys, Cahill Partners LLP, as and for his amended complaint against defendants, Ann Freedman (Freedman), Glafira Rosales (Rosales), Knoedler, LLC, d/b/a Knoedler & Company (Knoedler), Michael Hammer (Hammer), 8-31 Holdings, Inc. (8-31 Holdings or 8-31), Jos Carlos Bergantinos Diaz (Bergantinos Diaz), and Jaime R. Andrade (Andrade) alleges as follows: BRIEF SUMMARY OF THE ACTION AND KEY FACTS 1. At the core of this case is defendants use of a venerable gallery as the front for a

massive fraud. Defendants peddled dozens of forgeries for tens of millions of dollars that the defendantstwo of whom (Freedman and Hammer) are millionaires many times overare still refusing to return to their victims despite (a) having conceded that the artworks that they sold are fakes recently painted in a Queens garage and (b) that every dollar of the millions taken by defendantsagain, including the millions still held and being spent by Freedman and Hammer are the proceeds of multiple crimes to which there has been a guilty plea. The proceeds of those

crimes are, it is now clear, what kept Knoedler going and generated outsized income for both Freedman and Hammer personally. 2. Plaintiff purchased a work from a venerable gallery that was represented

personally by Freedman to be a rare landscape by the Abstract Expressionist master Willem de Kooning being sold by the son of a Swiss collector who wished to remain private, but was known personally by Freedmanwho never mentioned once that the work was in fact being purchased from a virtually unknown Long Island dealer attached to Bergantinos Diaz, a shady art world figure linked to forgery. That was a variation on the central lie that Freedman, Rosales, Bergantinos Diaz and Hammer used to defraud many art-buying victims like plaintiff of $63 million. 3. Other art collectors and the art market have likewise been shaken by this fraud,

not merely because the defendants and their confederates actions in perpetrating and the covering up the fraud were so wanton and reckless, but also because of defendants brazen and surreal pretense following the exposure of the fraud that they did nothing wrong. Faced with overwhelming evidence of their guilt, defendants publicly claimed that they could demonstrate that each of the forged works is authentic. Later, when defendant Rosaless guilty plea made such claims not only ridiculous but impossible, defendant Freedman claimed to be a victim herself and actually sued another art dealer who criticized her lack of diligence claiming that she and Knoedler conducted diligence concerning the works provenance that met the gold standard. 4. New York law has been clear for decades that it does not permit, countenance or

condone commercial standards of sharp trade practice or indifference as to the provenance, i.e., history of ownership of artworks. As detailed in this complaint, Freedman and her co-

defendants lied about the provenance, hid the true facts, and then covered up their unlawful conduct. That defendants, especially Freedman, were at best indifferent to the provenance cannot be disputed: a. Freedman and Knoedler did no research or checkingnoneconcerning defendants Rosales and Bergantinos Diaz when telephone calls and online research would have raised red flags about them; b. Before she started selling the forgeries, Freedman never checked or even asked for a document, redacted or otherwise, authorizing Rosales to sell works on behalf of the putative collector whose was dubbed Secret Santa by Knoedler or even how many heirs of the fictional collector she called Mr. X there purported to be, sometimes describing a single son (Mr. X, Jr.) and sometimes describing a son and a daughter or even two brothers not speaking to each other; c. Freedman knew early on, from no less a reliable source than the Diebenkorn Foundation, that the provenance of other works brought to Knoedler by Rosales was highly doubtful and probably false; d. Freedman and Knoedler recorded that Mr. X, Jr. had only five works of art by Abstract Expressionists in June 1998 (including a single Motherwell Elegy) and then proceeded sell more than 20 after that time, including four purported Motherwell Elegies, two of which were shopped to Howard; e. Freedman claims to have surmised that an artist named Alfonso Ossorio was involved in the provenance of the forgeries, a conjecture she confirmed with Rosales but only researched the Ossorio archives after the nonprofit IFAR called such a provenance inconceivable, discovering (via paid expert Stephen Polcari, who acknowledged that Ossorios possible role was simply an idea of Freedmans) that there was no relationship between Ossorio and any of the so-called Rosales Collection; f. After Ossorio flamed out as a possible source of the Rosales Collection (per Polcari), Freedman did not question Rosaless reliability despite her earlier, false confirmation of Ossorios part in the provenance; instead, along with other defendants, she simply concocted a new possible source, David Herbert, a person she had later described as critical but who her own expert (Polcari) had not heard of; g. Research into Herbert was a sham and a ruse, turning up not a single document or reliable piece of information connecting either Herbert or a single artist to which a Rosales Collection work had been attributed to even one painting in the Rosales Collection and resulting in research memoranda prepared by another paid expert, E. A Carmean that bear no resemblance to any academic research and that merely posit circularly that Herbert must have been the source of the mysterious Rosales Collection as he was there, like Zelig;

h. The so-called research into Herberts purported role in the provenance did not even include extensive interviews of his closest friends and none of those spoken to could identify a single work sold by Herbert individually from any of the artists at issue, much less from the Rosales Collection; i. Not a single one of the dozens of the works sold from the Rosales Collection was ever exhibited or published (a common aspect of provenance research) until after Knoedler and Freedmans involvement, which, even then, resulted only in just one published article that repeated as fact information about the works and the collector that defendants and their paid experts were merely speculating about despite having found not a shred of evidence concerning any of the works to support their speculation; and j. Knoedler and Freedman made no inquiry concerning the provenance to the de Kooning Foundation or other de Kooning scholars, none of whom has any records or documents reflecting the sale by de Kooning of paintings through Herbert or Ossorio. 5. Although Freedman claims to have left no stone unturned and had no doubts

about Rosales, Bergantinos Diaz, or the works in the Rosales Collection, there were numerous red flags: a. The price paid to Rosales ($750,000) was less than 20% of the market value that Knoedler itself established by selling it virtually simultaneously to Howard via Frankfurt for $4,000,00this was more than a bargain basement price, it was a price that virtually announced that there was something wrong with the painting and Rosales (who, as a purported dealer, would have the knowledge and no incentive to sell something truly valuable for a tiny fraction of its value); b. Rosales insisted on being paid in cashhighly unusual if not unheard of among reputable galleriesin amounts that avoided federal banking reporting requirements and had the bulk of monies she earned (ultimately totaling more than $10 million) wired offshorenot to Switzerland or Mexico where the owner is claimed to have livedbut to a Spanish bank account shared with the dubious family of Bergantinos Diaz; c. The Diebenkorn Foundation expressed serious doubts about works delivered by Rosales; d. IFAR expressed serious doubts about a painting delivered by Rosales that caused Knoedler to change the provenance to eliminate Ossorio and add Herbert; e. The Dedalus Foundation expressed serious doubts about paintings attributed to Motherwell; f. Orion Analytic, the leading forensic examiner of artworks in the world, expressed serious doubts about paintings Knoedler hired it to examine,

including that an old canvas had been sanded down (presumably to eliminate other paintings) and painted over; g. Rosales herself balked at authenticating the paintings; h. None of the research concerning Ossorio or Herbert yielded a single connection by either of them or a single attributed artist to a single one of the paintings delivered by Rosales; and i. Other than paid experts and those with an apparent financial interest in the paintings, no one gave written opinions of authenticity on any of the paintings and at least one key and authoritative expert, Eugene Thaw, clearly indicated that a Pollock work from the Rosales Collection was not authentic. 6. Defendants either ignored or, worse, suppressed information about these and other

red flags, e.g., by trying to intimidate IFAR and heap calumny on Orion despite the nowindisputable accuracy of their conclusions. Counting on the well-established reluctance of experts to give opinions on authenticity, Freedman nonetheless deceived them and others by showing them works and then characterizing their polite and even indifferent reactions as positive attributions. The experts who viewed Rosales works did so in the context of the Knoedler Gallery, without knowledge of Rosales and the other red flags, and yet Freedman has shamelessly tried to cast them as having been fooled as she claims to have been though none of them had any apparent hint of the red flags with which she was surrounded. Hammer, who has tried mightily to distance himself from Knoedler and this fraudinitially by shutting down the gallery in the midst of an exhibition and destroying any potential for valuecarefully managed to keep information about the fraud from going public and never took any concrete steps to alert any of the victims of doubts concerning the Rosales Collection works. 7. Plaintiff knew nothing of the provenance issues and other red flags of which

Freedman, Hammer and others were aware. Although he is, like many of the at least 32 victims (with more perhaps made and still being made in the secondary market), a successful businessperson, he is not an art merchant nor connected to the art trade. The de Kooning
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Foundation did not authenticate works of art and, as a person who loves art and acquires it for pleasure, Howard would have had no reason not to rely on Knoedler and Freedmans unqualified and enthusiastic endorsement of the painting he bought as a de Kooning from a reliable source. SUMMARY OF THE LEGAL ISSUES AND RELATED FACTS 8. The legal claims in this action are for (1) substantive violations of the Racketeer

Influenced and Corrupt Organizations Act (RICO); (2) conspiracy in violation of RICO; (3) breach of warranty; (4) common-law fraud, (5) aiding and abetting fraud, (6) conspiracy to commit fraud; (7) unilateral mistake; and, alternatively, (8) mutual mistake. 9. The so-called de Kooning that Howard purchased from Knoedler in June 2007

(the Work) is a forgery. 10. The painting sold to Howard for $4 million was, upon information and belief, at

least the twentieth work sold by Knoedler from the Rosales Collection despite a written record that the fictional collector had but five in 1998. 11. Likewise, every work that Knoedler sold or attempted to sell from the Rosales

Collection, about 40 in all, were forgeries. They were peddled as having been painted by the hand of the leading artists in the Abstract Expressionist movement: de Kooning, Jackson Pollock, Robert Motherwell, Mark Rothko, Richard Diebenkorn, Clyfford Still, Franz Kline, Barnett Newman and Lee Krasner. In reality, they were all painted by a single artist in his garage in Queens, New York. 12. The inauthenticity of every single Rosales Collection work has been established

beyond any doubt. Rosales herself has admitted the circumstances of the works manufacture, treatment, and conveyance to Knoedler as part of her guilty plea to nine felonies, including some

of the very acts of wire fraud that are part of this Amended Complaint. The additional key facts to which Rosales has admitted are addressed later in this Amended Complaint. 13. The federal criminal investigation into what is by any measure one of the largest

art frauds in United States historyresulting in sales by Knoedler alone of more than $63 million from fake artis continuing. 14. Review of the defendants illegal conduct logically begins with Ann Freedman.

Far from being the central victim of fraud, as she has claimed in the wake of Rosales guilty plea, she is its central perpetrator. Simply as a matter of common sense, the central victim of a fraud does not receive $10.4 million (of which she has returned not a penny to the actual victims who bought the phony art from Knoedler). Moreover victims do not, as Freedman did, purchase a Motherwell for $15,000, and then claim that purchase (the amount of which she of course did not disclose) as a reason that a potential purchaser of a Motherwell from the same series should trust her and pay an asking price of $3.5 million (i.e., 500 times what she had paid) for a similar Motherwell. That is the act of a party committing a fraud. 15. Freedman has claimed that her ongoing diligence in investigating the

authenticity and provenance of the Rosales Collection met more than the gold standard. In reality, however, her diligence was devoted solely to covering up their origin and to developing a provenance that was as phony as the paintings themselves. Even if it is assumed for the sake of argument that Freedman did not affirmatively know that the Rosales Collection was entirely fake, and instead was merely willfully blind to that fact, the evidence (detailed at paragraphs 69 through 104 of this amended complaint) demonstrates conclusively that her goal was not to learn the truth about the Rosales Collection, but to sell the Rosales Collection to unwary purchasers despite the truth.

16.

The phony provenance provided to Howard and to most potential purchasers, at

least after October 2003, was: The artist (via David Herbert*) Private collection [i.e., Mr. X] By descent to present owner [i.e., Mr. X, Jr.] *David Herbert often acted both as agent for the artist and as advisor to the collector. 17. Freedman and Knoedler presented this phony provenance to Howard and other

purchasers as established facts. Freedman made sure to provide additional factual details to flesh out the story. She identified Mr. X as a Swiss/Mexican who was married with a son (or sometimes a son and daughter she told different versions of the story), but was a deeply closeted homosexual who, not surprisingly in light of the repressive views of homosexuality in the 1950s, was extremely secretive. She stated that David Herbert, an actual person who had died in 1995, was gay, had a clandestine affair with Mr. X (which was unsupported by any evidence whatsoever) and was known to have close relationships with Rosales Collection artists such that he was able to sell their works on their behalf outside of the galleries to which they were contractually bound (which also was unsupported by any evidence whatsoever). 18. Freedman, and by extension Knoedler, has stated that she never learned Mr. X.s

identity, or even whether he existed, but simply relied on information provided by Rosales. E.A. Carmean, Jr., the scholar Knoedler hired to research the David Herbert connection, has admitted that no affirmative evidence exists linking Herbert to private sales of Rosales Collection artists. In 2008, when Knoedler and Freedman were still trying to sell Rosales Collection works using the David Herbert connection, a Knoedler researcher named Edye Weissler who worked with Carmean acknowledged in an e-mail to David Anfam dated June 24,

2008 that we havent enough to go on with D. Herbert. 1 It of course goes without saying that no evidence existed or could exist linking Herbert to specific Rosales Collection works because those works are forgeries that were painted in a Queens garage in the 1990s and 2000s. 19. But Freedman and Knoedler committed unlawful acts far beyond passing along a

merely plausible story as being certain. They invented the story, or at least major parts of it. Freedman and Knoedler clearly wanted the provenance to include at least one reference to a person who indisputably had been alive at one point. Prior to October 2003, the designated person in the David Herbert role was an art dealer and collector named Alfonso Ossorio. However, that month, an independent organization named the International Foundation for Art Research (IFAR) stated unequivocally that Ossorios role in the provenance was inconceivable. Knoedler and Freedman suppressed the report, but sub silentio acknowledged its accuracy by changing the story going forward. With Orwellian efficiency, all references to Ossorio were eliminated from the provenance of the Rosales Collection works, and David Herbert substituted in his place. In fact, the provenance of the very work that was the subject of the IFAR Report, a Jackson Pollock, was changed, and potential purchasers were of course not made aware of the change or the IFAR Report. 20. The David Herbert connection was concocted by Ann Freedman, just as she had

concocted the Ossorio connection. At about the time as the issuance of the IFAR Report, she had read about Herberts employment by two galleries, the Betty Parsons and Sidney Janis Galleries, who had represented many of the famous Abstract Expressionists. She also read about his acquaintance with Lois Orswell, a well-known collector of Abstract Expressionist art whose collection was then on display at the Fogg Art Museum at Harvard University. The materials she
1

Tellingly, the researcher ended the e-mail in question by writing am deleting this, since exposure of that fact would have been fatal to the scheme.
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read convinced her that Herberts existence was sufficiently Zelig-like to support his inclusion in the provenance of Rosales Collection works. Then, for many years, she had Carmean and the other researchers attempt to create a paper trail of evidence to bolster the story. Thus, for example, it was deemed highly relevant proof that Clyfford Stills address was in Herberts address book, even though there were no records that Herbert had sold any of Stills works as an independent agent. 21. The Knoedler researcher who stated in 2008 that we havent enough to go on

with D. Herbert subsequently explained her belief that: Ann pushed the Herbert thing on her [Rosales],that is she suggested it and Glafira just said yes and signed something that stated that he was the agent. AF was further interested in Herbert through her Lois Orswell show that she took from the Fogg. Jamie [Andrade] with David would visit Orswell. 22. Tellingly, for many years Weissman, the other gallery to whom Rosales supplied

works, continued to claim that Ossorio was the agent. In 2007, Freedman told Rosales to tell Weissman that the latter should substitute Herbert for Ossorio so that the stories the two galleries were telling prospective purchasers would match. 23. The culpability of Rosales and Bergantinos Diaz, (who is described in the

Superseding Indictment as Rosaless boyfriend and identified therein as Co-Conspirator 1) is amply set forth in the Superseding Indictment, the truth of which Rosales admitted in her guilty plea. Bergantinos Diaz and Rosales procured the paintings from a painter in Queens. (Superseding Indictment 6). They sold about 40 of them to Knoedler and 23 to Weissman, knowing them to be fake. (Id. 18-19.) Bergantinos Diaz was primarily responsible for dealing with the painter and for treating the paintings to make them look suitably old. (Id. 18.) Rosales acted as the intermediary with Knoedler and Weissman. Rosales and Bergantinos Diaz together

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were at least partly responsible for the Mr. X story and another alternate story covering about 13 works involving the long-defunct Vijande Gallery in Madrid, Spain. (Id. 21.) 24. Defendant Jaime Andrade, a long-time Knoedler employee, was accurately

described by Knoedler as the gateway between it and Rosales and Bergantinos Diaz in an email memo from Frank Del Deo to Hammer dated August 3, 2009. Moreover, he played a crucial role in legitimizing the David Herbert connection. Andrade was a long-time close personal companion to Herbert, with whom he had lived for decades prior to Herberts death. He was also an executor of Herberts estate. Even though he knew that the connection between Mr. X and Herbert was phony, Andrade agreed to the use of the story to sell Rosales Collection works, and profited from their sale. 25. At all times relevant to this action, Hammer was the owner (through 8-31

Holdings) and Freedman was the Director and President of Knoedler. Founded in 1846, Knoedler was the oldest gallery in New York City. For over a century, it was one of the citys most respected galleries. Knoedlers role in the sale of the Rosales Collection, at Hammers and Freedmans behest, was essentially to provide its reputation as a front to the fraudulent enterprise. The defendants utilized (and ultimately destroyed) Knoedlers reputation to effectively launder forged (albeit well-crafted) art that could never have been sold by Rosales and Bergantinos Diaz directly. 26. In turn, sales of Rosales Collection works were Knoedlers virtually sole

sustenance. From 1994 to 2011, Knoedler earned net income of $29 million from the sale of those works (and excluding the one-off sale proceeds of Knoedlers building). Its net income from the sale of other works was negative $3.2 million. From 1994 through its 2011 closing, therefore, Knoedler in essence existed solely to sell Rosales Collection works. Its abrupt closure

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on November 30, 2011 one day after Orion Analytical determined that the Lagrange Pollock was a forgery and one day before Pierre Lagrange filed the first of the lawsuits in this Court reflected the fact that it had no reason to exist once the sale of Rosales Collection works became impossible. 27. Hammers denial of his involvement with the scheme is as phony as the Rosales

Collection works themselves. Hammer was aware contemporaneously of every Rosales Collection sale, including the fact that they contained a phony provenance, and was aware of each one. He then happily pocketed the proceeds of each. Through the IFAR Report, Hammer further knew that Knoedler was selling a Pollock that could not be attributed to Pollock, and approved the attempted resale of that work with a revised phony provenance. Hammer knew that the price Knoedler paid for the works was suspiciously cheap and that Knoedlers mark-up was grossly in excess of reputable market practices. He knew based on the financials that Knoedlers sole raison detre after 1994 was to sell Rosales Collection works. Finally, after the FBI investigation forced Hammer to fire Freedman and halt sales, he engaged in an affirmative cover-up of information that would put purchasers on notice that they had a claim. Simply put, he wanted, and continues to want, to keep the $6.5 million he reaped from the sale of forged art. PARTIES, JURISDICTION AND VENUE 28. Illinois. 29. 30. 31. On information and belief, Freedman resides in New York, New York. On information and belief, Rosales resides in Sands Point, New York. On information and belief, Knoedler is a Delaware limited liability company, Howard resides in New York, New York and has previously resided in Chicago,

which lists its most recent principal place of business with the New York Secretary of State as 19

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East 70th Street, New York, New York but, on information and belief, is actually located in a room at Cirkers Art Warehouse, 444 West 55th Street, New York, New York. 32. Knoedlers sole member is defendant 8-31 Holdings, Inc., a Delaware corporation

which lists its most recent principal place of business with the New York Secretary of State as 19 East 70th Street, New York, New York but, on information and belief, is actually located in a room at Cirkers Art Warehouse, 444 West 55th Street, New York, New York. 33. On information and belief, 8-31 Holdings, Inc. also owns Hammer Galleries, LLC

(another art gallery) and until recently Knoedler Archivum, Inc., the latter of which, on information and belief, owns one of the most-valuable art archives and libraries in the world. 34. Hammer is (and was, at all relevant times) directly and via 8-31 Holdings

responsible for Knoedler, the managing member of Knoedler, and an officer and director of 8-31 Holdings, of which he is the owner. 35. Hammer lists his address with the New York Secretary of State as 9510 Jefferson

Boulevard, Culver City, California (the address of a foundation) but, on information and belief, Hammer resides in or near Santa Barbara, California. 36. On information and belief, Bergantinos Diaz until recently resided with Rosales in

Sands Point, New York. Further on information and belief, he fled the United States to avoid facing arrest for the criminal activity detailed in this amended complaint. 37. 38. On information and belief, Andrade resides in New York, New York. This Court has personal jurisdiction over all of the defendants pursuant to

N.Y.C.P.L.R. 301.

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39.

This Court has subject matter jurisdiction over the RICO claims in this action

pursuant to 28 U.S.C. 1331 and 18 U.S.C. 1964(a), and over the remaining claims pursuant to 28 U.S.C. 1367. 40. Venue is proper in this District pursuant to 28 U.S.C. 1391(b)(2) because a

substantial part of the events or omissions giving rise to this action occurred here. SUMMARY OF FACTS A. 41. The Origin of the Rosales Collection Freedman testified in her depositions in this action that she has no knowledge of

the origin of the Rosales Collection works outside of what Rosales provided. Hammer testified that he had no knowledge of any kind about the Rosales Collection. Thus, Rosaless admission of the relevant allegations in the Superseding Indictment effectively preclude them, as well as Knoedler and 8-31 Holdings, from claiming that the any of the works are authentic. 42. In the early 1990s, Bergantinos Diaz encountered a painter identified in the

Superseding Indictment only as the Painter, but who has been identified in The New York Times and elsewhere as Pei-Shen Qian, selling art on a lower Manhattan street. 43. From in or about the early 1990s through in or about 2009, Qian painted the

Rosales Collection works at the specific request of Bergantinos Diaz. Bergantinos Diaz paid Qian several thousand dollars per work. Upon receiving the works, Bergantinos Diaz subjected the works to various processes, such as heating them, cooling them, and exposing them to the elements outdoors, in an attempt to make the works seem older than, in fact, they were. 44. Rosales brought the works to Knoedler and Weissman with full awareness that all

of them had been painted by Qian rather than the artists to whom they were falsely ascribed:

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Willem de Kooning, Jackson Pollock, Robert Motherwell, Mark Rothko, Richard Diebenkorn, Clyfford Still, Franz Kline, Barnett Newman and Lee Krasner. 45. Even Ann Freedman, who until a few weeks ago continued to maintain that the

works were genuine despite overwhelming evidence to the contrary, has recently acknowledged that the works are forgeries. In an exclusive interview in New York Magazine dated August 27, 2013, she was quoted as acknowledging that the works were forgeries. 46. Rosaless guilty plea and allocution have now proved conclusively and beyond

question that all of the works in the Rosales Collection are forgeries. 47. The findings of Orion Analytical (Orion) and its principal, James Martin,

confirm that Rosaless plea is accurate and that the works are all indeed forgeries. B. 48. The Scheme is Devised In the mid-1990s, Andrade, who was an employee of Knoedler and 8-31 as well

as a personal friend of Rosales, introduced Rosales to Freedman and others at Knoedler. Andrade was later described to Hammer as the gateway to the Rosales Collection. 49. Knoedler and Freedman had no relationship with Rosales prior to the introduction

by Andrade. Nevertheless, they accepted her fantastic stories uncritically. i. The Diebenkorns 50. In the 1990s, before the Mr. X story surfaced, Knoedler sold five Richard

Diebenkorns to collectors, including the Kemper Museum of Contemporary Art in Kansas City. These works purportedly came to Bergantinos Diaz and Rosales through the Vijande Gallery in Madrid, Spain. 51. In approximately 1994, Richard Grant, Diebenkorns son-in-law and the Director

of the Diebenkorn Foundation, informed Freedman that at least two of the five works did not

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look authentic. Phyllis Diebenkorn, who was Richards widow, and John Elderfield, a family advisor who was for many years the Chief Curator at the Museum of Modern Art in New York, were at the meeting and concurred. 52. Knoedler nevertheless subsequently sold those two works and three other

Diebenkorns. It did not take a single step to address the concerns expressed by Diebenkorns representatives and, per its usual practice, did not notify potential purchasers of those concerns. 53. In 2006, the Kemper Museum pulled the Diebenkorn it had purchased from

Knoedler from public display because of doubts about the works authenticity. Knoedler and Freedman were well aware of the museums action, but as with all negative news, Knoedler kept it secret and otherwise ignored it. 54. Notably, however, no more Diebenkorns were discovered (i.e., were ordered

from the forger, Mr. Qian) after the original five. Moreover, Rosales and Knoedler simply abandoned the Vijande Gallery story. 2 ii. 55. Masaccio On January 5, 1994, Knoedler, with Freedmans approval, purchased an artwork

attributed to de Kooning from Anthony Masaccio (the Masaccio de Kooning). 56. Anthony (Tony Cha Cha) Masaccio was, like Rosales, a source for Knoedler of

art that was at best dubious. 57. 58. Upon information and belief, Masaccio was paid cash. Masaccio is a known purveyor of forged art who is a key figure in admitted art

forger Ken Perenyis tell-all autobiography Caveat Emptor: The Secret Life of an American Art Forger.
2

Of course, that story turned out to be as bogus as the Mr. X story. In 2012 Vanity Fair interviewed the son of the deceased gallery owner, who found the story incredible.
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59.

When he was Knoedlers Associate Director, Del Deo expressed concerns about

Masaccio, noting that he was a disheveled character and didnt appear to be all that trustworthy. 60. Upon information and belief, Knoedler does not treat the work purchased from

Masaccio as a genuine work of de Kooning and does not believe it to be such. 61. Knoedler never requested information or an opinion about the artwork purchased

from Masaccio from the de Kooning Foundation. 62. Knoedler did no research concerning the work purchased from Masaccio before

purchasing, relying instead solely on Masaccios representation as to the provenance. 63. The artwork purchased from Masaccio had no exhibition or publication history

when it was purchased from Masaccio. 64. Knoedlers paid expert, Stephen Polcari (Polcari), even informed Defendants,

including Freedman, that he had doubts that the Masaccio de Kooning was authentic. 65. Del Deo relayed to his superiors that a more verifiable provenance for the

[Masaccio] work would be preferred before we engaged in selling them. 66. iii. 67. Del Deos concerns were not heeded. Mr. X As a child (apparently in Mexico), Rosales claimed, she met a husband and wife

who were European Jewish migrs. According to her story, for business reasons, the husband travelled frequently to the United States between the 1940s and the 1970s and, on those trips, bought a number of artworks directly from a veritable whos-who of now world-famous Abstract Expressionist artists, including Mark Rothko, Jackson Pollock, Franz Kline, Clyfford Still, Robert Motherwell, and Barnett Newman. The couple died in the early 1990s, and these

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worksthe number of which was then unspecifiedwere bequeathed to their children, a daughter and son, who resided in Mexico and Switzerland, were uninterested in art, wished to remain strictly anonymous, and were looking to sell. 68. 69. Rosales offered no corroboration for her story. Freedman did not require, or even ask for, the documentation, including customs

records, that exist for valuable works of art that are imported into the United States. 70. In one meeting, Rosales asserted that letters had been exchanged between the

various artists and the anonymous collector, but that they were disposed of after his death. Rosales did, however, report that the purported collectors son remembers seeing artists in his fathers home. 71. In a subsequent meeting with Freedman, Rosales further explained the lack of

documentation by stating that all purchases had been made in cash. Again, Rosales reported that [t]he son of the collector remembered seeing his parents pay in cash to one of the artists. 72. Notwithstanding this uncorroborated, undocumented, and thin story, Freedman

admits that she did not investigate Rosales or her partner Bergantinos Diaz. Had she or anyone at Knoedler investigated, they would quickly have learned that Bergantinos Diaz had previously been implicated in the sale of forged artwork. 73. In or around 2000 Freedman and Knoedler invented the purported Alfonso

Ossorio connection. In Freedmans own words (drawn from her recent defamation complaint in New York Supreme Court): Based on various pieces of information Rosales disclosed, Freedman and Knoedler surmised that Alfonso Ossorio, an artist and collector with close connections to many of the artists represented in the Rosales Collection, might have played some role in helping the original collector acquire the works. Freedman presented this view to Rosales, who purportedly received
18

confirmation through the owner that his father purchased through Ossorio. 74. As with the Vijande and David Herbert stories, it is evident that the defendants

felt the need to tie the purported owner of the works to a figure in the art world who had indisputably existed. All of these stories were purportedly backed by research. Thus, in or around 2001, Knoedler employees and retained experts attempted to verify Rosaless story regarding the connection between the anonymous collector and Ossorio by, among other things, reviewing files relating to Ossorio and Jackson Pollock at the Smithsonians Archives of American Art. No corroborating evidence was located linking the works in the Rosales Collection with Ossorio, linking Ossorio to a Mexican/Swiss collector who might have purchased those works, or, indeed, confirming that any of the Rosales Collection works existed before their arrival at Knoedler. Nevertheless, Knoedler blithely associated Ossorios name with the provenance of Rosales Collection works, including in connection with its sale in 2002 of at least one work by Mark Rothko for $5.5 million to the Hilti Foundation (the plaintiff in Case No. 13-CV-0657 (PGG), which is before this Court. C. 75. The Number of Works Grows Beyond What Knoedler Recorded On June 18, 1998, Knoedler employee Melissa de Medeiros (de Medeiros) took

part in a meeting between Rosales and Freedman, in which they discussed Mr. X, Jr. 76. During the meeting, de Medeiros noted that Rosales informed Freedman that

[t]here is still another Still, a Gottlieb, two de Koonings (a painting and a work on paper), a Motherwell Elegy, a Newman, one or two Calders a small standing mobile. 77. By June 18, 1998, Defendants had sold zero de Koonings, zero Motherwells,

zero Pollocks, zero Newmans, one Still, three Klines, and four Rothkos from the Rosales Collection.
19

78.

According to de Medeiross notes, Mr. X, Jr. only had five works remaining

from the Abstract Expressionist artists sold by Knoedler. 79. Yet after June 18, 1998, Knoedler nonetheless purchased five Pollocks, four

Rothkos, four Motherwells, three Stills, two Klines, two de Koonings, two Newmans, and one Krasner from the Collection of Mr. X, Jr. 80. In total, Defendants purchased twenty-three additional works from a collection

that they were told in 1998 contained only five more works. 81. Howards de Kooning purchased in June 2007, was the twentieth work that

Defendants purchased from Rosales from the Collection of Mr. X, Jr. in the decade since they were directly told by Rosales that only five works remained. D. The Ossorio Connection Falls Apart; Freedman and Knoedler Invent the David Herbert Connection 82. Among the Rosales Collection works Knoedler handled during this period was an

untitled painting purportedly made by Jackson Pollock in 1949 and sold to Jack Levy (the Levy Pollock). 83. Knoedler had purchased the Levy Pollock from Rosales in March 2001 for

$750,000 and sold it to Levy several months later for $2 million. 3 Consistent with the thencurrent version of Rosaless taleand despite the lack of corroborating proofKnoedler and Freedman induced Levy to purchase the work by representing that it was purchased directly from Pollock with the assistance of Alfonso Ossorio and made no mention of Rosaless role. 84. The contract of sale to Levy was accompanied by a rider acknowledging that

Levy would submit the work for review by IFAR and providing that, if IFAR determined that the work has been misattributed to Pollock, Knoedler would refund the purchase price. This 150% markup was outsized by industry standards, but small potatoes compared to the margins Knoedler obtained from later sales. See infra, 133-35.
20
3

85.

IFAR issued its report on the Levy Pollock in October 2003 (the IFAR Report).

With respect to Rosales and Knoedlers claim that Ossorio had acted as the agent for the anonymous collector who supposedly purchased the Levy Pollock from the artist, IFAR was definitive. Based on expert analysis, archival research, and interviews with Ossorios associates, IFAR deemed the Ossorio story inconceivable, improbable, and difficult to believe, particularly given the lack of any proof linking Ossorio to the Levy Pollock or even substantiating the general notion that Ossorio might have acted as a conduit for undiscovered Pollock paintings. 86. With respect to authenticity per se, the IFAR report stated that some of the

experts consulted were firmly convinced that the painting was not by Pollock, and even those who endorsed it did not do so unequivocally. 87. IFAR concluded that: Since there was no unanimity of opinion as to the works authenticity, although the negatives were very convincing, and provenance research has been unsuccessful in linking the work in any way to Alfonso Ossorio, and because it is not mentioned in the literature or extant correspondence, has no exhibition history, and does not conform to any of Pollocks known missing paintings, IFAR believes that too many reservations exist to make a positive attribution to Jackson Pollock. 88. At Freedmans explicit direction, the IFAR Report was promptly sent to Hammer.

Hammer thus knew not only that the Ossorio connection was discredited, but that there were grave concerns about the works authenticity. Hammer also directed that it be sent to David Mirvish, who had expressed an interest in co-owning the work with Knoedler. Hammer also was provided documents demonstrating Knoedlers efforts to verify the connection between Ossorio and the Rosales Collection. In and around this time, Hammer also had at least nine conversations with Knoedlers attorneys.
21

89.

Hammer and Freedman arranged to have a detailed discussion regarding the IFAR

Report and its implications. In anticipation of that meeting, Knoedler and 8-31 CFO Peter Sansone and Hammer Galleries executive Richard Lynch sent Hammer a memo outlining various questions that Hammer should raise with Freedman. The memo acknowledged that the IFAR Report raised questions about the Levy Pollocks authenticity and authorship, and noted that IFAR is held in high esteem by galleries, museums and the art world in general. Hammer reviewed this memo carefully, even raising a question in a follow-up email about certain mathematical calculations at the bottom of the memo regarding future investments in the work. 90. Further in a fax cover to Hammer dated December 15, 2003, Freedman discussed

fallout from the IFAR Report with Hammer (specifically, the willingness of a partner to continue to invest in the work). Notably, a handwritten note on the reverse side of the fax cover sheet contains the following phrases in quotation marks: dont kill the goose thats laying the Golden egg. Since the notes were taken by Freedman and the notes do not appear to be the words of Rosales, the only reasonable conclusion is that Hammer made those statements. 91. Hammer testified that he read the IFAR Report very carefully, and understood

that IFAR had raised questions and concerns about the work. Hammer further testified that he told Freedman that the Levy Pollock should not be re-sold until we get answers to the problems identified by the IFAR Report. Finally, Hammer testified that he personally insisted that David Mirvishwho planned to partner with Knoedler and Freedman in investing in the work and attempting to profit significantly from its re-salebe provided a copy of the Report. However, Hammer admitted that he never took any further steps to ensure that other, subsequent potential purchasers of the Levy Pollock or any other Rosales Collection work would be

22

provided with a copy of the IFAR Report. And, in fact, no actual or potential purchaser of a Rosales Collection workeven of the Levy Pollock itselfwas ever provided a copy of the Report. 92. After the IFAR Report was issued, Levy returned the work and Knoedler

refunded the purchase price. It did so, however, only after an effort to cajole Levy to disregard the report. For example, a letter dated November 8, 2003 to Levy from Stephen Polcari (one of Knoedlers paid experts), sent at Knoedlers behest, described the Report as amateurish. 93. Although Freedman and Knoedler claimed at the time that the conclusions in the

IFAR Report were inaccurate, their actions prove otherwise. Ossorio disappeared from the provenance of the Levy Pollock without a trace. 4 Out of thin air, David Herbert was divined to be Mr. Xs intermediary, and a whole backstory created out of whole cloth, including the existence of an affair between Herbert and Mr. X. The David Herbert connection was Freedmans brainchild, and Andrade (Herberts companion for many years) and Rosales went along with it to preserve the sales of Rosales Collection works. 94. Notably, in his deposition in this action, Andrade testified that as far as he knew,

Herbert had never met anybody who fit the description of Mr. X, and had no connection to any of the Rosales Collection works. Like the IFAR Report itself, this material fact was hidden from potential purchasers. 95. As with the Ossorio story, no documentary evidence was ever found to

corroborate any link between Herbert and the Rosales Collection works, despite the fact that Andrade was the executor of Herberts estate, which included an extensive archive of materials
4

This rewriting of history sub silentio occurred with other works as well. For example, when the DeSoles purchased their Rothko in 2004, David Herbert was listed on the provenance. However, the plaintiffs learned in discovery that Knoedler had previously claimed that Ossorio was the intermediary for the sale of that work, and as with the Levy Pollock, simply deleted him after October 2003.
23

relating to Herberts art dealings that Andrade had donated to the Archives of American Art and other institutions. Knoedler employees and experts on Knoedlers payroll would later comb these papers in vain seeking support for this new story. In 2008, when Knoedler and Freedman were still trying to sell Rosales Collection works using the David Herbert connection, a Knoedler researcher who worked with Carmean acknowledged that we havent enough to go on with D. Herbert. Tellingly, the researcher ended the e-mail in question by writing am deleting this, since exposure of that fact would have been fatal to the enterprise. 96. This same researcher later confirmed that: Ann pushed the Herbert thing on her [Rosales], that is she suggested it and Glafira just said yes and signed something that stated that he was the agent. AF was further interested in Herbert through her Lois Orswell show that she took from the Fogg. Jamie [Andrade] with David would visit Orswell. 97. Even E.A. Carmean, Jr., Freedmans and Knoedlers lead in-house researcher

(and arguably the most vocal cheerleader for the Rosales Collection beside Freedman herself) testified that the David Herbert connection was plausible at best. But it was not presented to Howard and the other victims as a plausible theory. It was presented, fraudulently, as a fact. 98. Knoedler made further efforts to sell the Levy Pollock in 2007 to members of

the Taubman family (who are the plaintiffs in a related case involving a previous purchase). 5 Freedman did not disclose the IFAR Report and did not disclose that Herbert had been substituted for Ossorio in the provenance. 99. She did, however, add at least one new affirmative and material misrepresentation

to the sales pitch: that the Levy Pollock would be included in a revised catalogue raisonn of Pollock works. Some of the materials Knoedler prepared in support of its efforts were sent by Freedman to the Taubmans attorney, Francesca Lisk, by mail or hand delivery, on or about April 30, 2007.
24
5

100.

Freedman made the same misrepresentation to Pierre Lagrange to induce his

purchase in 2007 of a different Pollock for $17 million. 101. Neither the Lagrange nor the Levy Pollocks were ever included in a revised

catalogue raisonn of Pollock works. 102. Neither the Lagrange nor the Levy Pollocks were ever considered by anyone for

inclusion in a revised catalogue raisonn of Pollock works. 103. Freedman has admitted under oath that no revised catalogue raisonn of Pollock

works has ever been in process. 104. Knoedler and Freedman knew that there were no plans for a revised catalogue

raisonn of Pollock works when Freedman made that representation to the Taubmans and to Lagrange. E. i. 105. The Scheme Unravels The Exposure of the Fake Motherwells In three meetings during December 2007 and January 2008 between Freedman

and the Dedalus Foundation, Inc.which is responsible for the Robert Motherwell catalogue raisonnDedalus advised Freedman that it believed seven purported Motherwell works from the Rosales Collection, including four Knoedler had handled (Weissman handled the other three), were fakes. Notably, Dedalus rejected Freedmans assertions thatjust like the Work herethe Motherwell works were sold, through David Herbert, directly by Motherwell to a collector. On December 12, 2007, Dedalus informed Freedman that the Motherwell works included stylistic anomalies and were of questionable provenance; on December 20, 2007, Dedalus reiterated its conclusions; and, on January 10, 2008, at a third meeting, Dedalus board member Jack Flam explained in detail the factors causing Dedalus to suspect the works were

25

fakes, challenging the tale of their provenance and Herberts supposed role in assembling the collection. 106. Under pressure from Dedalus, Knoedler and Freedman again asked Rosales to

provide information that would support her claims regarding the provenance of the Rosales Collection works. In letters in January 2008, Freedman informed Rosales that Dedalus had charged that the Motherwells were false, illegal, or part of a dishonest scheme, and that Knoedler needed a bonafide defense to respond to the charge (which, apparently, they did not have). 107. In an effort to induce Rosales to provide corroborating evidence, Freedman and

Knoedler (a) signed a confidentiality agreement promising not to disclose any information about the purported owner; (b) drafted a letter for the purported owner to sign confirming the essentials of Rosaless story and the authenticity of the works; (c) drafted a second letter, addressed to the owner, informing him that Dedalus had strongly questioned the authenticity and legality of these paintings and suggest[ed] that we are selling and trading in art that is counterfeit; and (d) provided Rosales a blank form for her to complete disclosing the identity of the original collector and his son. 108. 109. Rosales refused to disclose or obtain any of the requested information. At Flams direction, Knoedler retained James Martin of Orion Analytical, LLC, to

conduct scientific testing of two of these paintings in its possession. 110. Martins analysis only confirmed that the works were suspect. Martins testing

found anomalies in these works, including staining on the canvas backs and pigments on the surface that post-dated the attributed dates of the works by ten years and were inconsistent with the understanding that the paintings were made in the 1950s. Martin noted the use of acrylic

26

polymer emulsion paint on the workspurportedly from 1953 and 1955which he found was remarkably inconsistent with what is known about Motherwells use of acrylic paints and that raise[s] questions about when the works actually were painted. He further observed that the same anomalous paint appeared in both of the works under review. Finally, he noted that both paintings display patterns of circular abrasions, visible only with magnification, that point to use of an electric sander. 111. Apparently unhappy with their experts opinion, Knoedler embarked on a

campaign to convince Martin to abandon his conclusionsproviding hypotheses for how Motherwell might have obtained seemingly anachronistic paintsbut Martin repeatedly reiterated his findings. 112. Knoedler, Freedman, and Andrade also sought to salvage the situation by taking

the then-familiar approach of asking Rosales to have the owner confirm new facts that could explain away Martins findings. Thus, on October 24, 2008, Freedman met with Rosales and told her about the preliminary report from Orion and the problems it raises regarding the dating of the works, and asked Rosales if she might ask Mr. X whether his father might have, in fact, purchased works as late as 1964 or 1965 (when the anomalous paints Martin detected were on the market), despite the previous assumption that such off the record purchases must have ceased in 1959, when David Herbert opened his own gallery. 113. Freedman also asked Mrs. Rosales to approach Mr. X and ask again if there

exists any tangible evidence related to these transactions or something which documents the link to David Herbert and/or the artists in some way. 114. Through Rosales, the anonymous owner conveniently and promptly confirmed

that the transactions between Mr. X [his father] and the artists continued from the late 1940s

27

through 1964, and that the owner remembers travelling with his father to artists studios and remembers this ending in 1964. As always, however, no tangible evidence or documents were provided. 115. Freedman also induced Rosales to sign a letter attesting that she represented Mr.

X, Jr. Freedman prepared the letter (on Knoedler letterhead), dated November 27, 2007. Freedman, through her assistant, Melissa De Medeiros, forwarded Rosaless letter to Flam by mail with a cover letter dated March 12, 2008 as evidence of the authenticity of the Motherwells. 116. Freedman also induced David Anfam to send an e-mail to Flam (the Anfam-

Flam e-mail) arguing in favor of the authenticity of the Rosales Collection works handled by David Herbert. This email was sent on May 11, 2008. 117. Knoedler ultimately decided to simply dismiss Martins analysis as conjecture,

and provided Dedalus only a redacted version of Martins report, omitting Martins ultimate conclusions. Nevertheless, even Martins truncated analysis confirmed Dedaluss independent conclusion that Motherwell did not make these two paintings. 118. Further, Dedalus declined to certify as authentic a third work attributed to

Motherwell from the Rosales Collection that subsequently became the subject of litigation against the Julian Weissman Gallery (which had sold it). As a part of the settlement of the action against Julian Weissman, the Rosales Collection Motherwell at issue in that case now bears an indelible, unalterable stamp that reads: AFTER PHYSICAL EXMINATION AND FORENSIC TESTING, THE ROBERT MOTHERWELL CATALOGUE RAISONN PROJECT OF THE DEDALUS FOUNDATION, INC., HAS DETERMINED THAT THIS PAINTING IS NOT AN AUTHENTIC WORK BY ROBERT MOTHERWELL BUT A FORGERY.

28

119.

Despite these events, the schemeand the salescontinued. In 2008, Knoedler

sold a Rosales Collection Rothko for more than $7 million and a Rosales Collection Kline for more than $3 million, turning a profit on those two sales alone of approximately $4.7 million. 120. Also during this period, in April 2008, Hammer personally approved an increase

in Freedmans profit sharing, increasing her take from 25% to 30%. Notably, this profit sharing increase was approved by Hammer only six days before the sale of the $7 million Rothko. ii. The FBI Investigation Convinces Hammer to Stop Selling Rosales Collection Works Upon information and belief, in or around 2009, a grand jury was empaneled to

121.

investigate Freedman, Rosales, Knoedler and the Rosales Collection works. In September 2009, the grand jury issued subpoenas to Freedman and Knoedler seeking information. 122. Freedman. 123. Under Hammers direction, Freedmans departurewhich attracted significant Shortly after Knoedler received the grand jury subpoena, Hammer fired

press attentionwas carefully managed to ensure that no connection could be drawn between Freedmans supposed resignation and the Rosales Collection works. 124. Hammer, in his role as Chairman of Knoedler, also sent letters to every Knoedler

customer and contact informing them of this personnel change without stating the truth, which as Freedman herself characterized it, was that she had been kicked out. 125. Even though press reports noted that Knoedler was losing important artist clients

as a result of Hammers deliberate decision to leave the issue murky, Hammer kept the real reasons for Freedmans termination quiet so that no one, including plaintiff and the other victims, suspected that she had been kicked out in connection with the sales of questionable artworks from an undocumented source.
29

126.

In August 2009, Hammer convened a special committee of the board of 8-31

Holdings to investigate the Rosales Collection, and hired the firm of Herrick Feinstein to conduct the investigation. As a result of that investigation, Hammer also personally saw to it that the remaining Rosales Collection works in Knoedlers inventory were marked not for sale. However, he kept the actual findings secret (and continues to do so), and Hammer also directed employees not to speak about the Rosales Collection with any third parties. Thus, although the information in the firms report was sufficiently important and credible to warrant the end of new Rosales Collection sales, Hammer suppressed it. He did so in order to retain the money he had earned from the sale of the Rosales Collection forgeries. 127. On October 27, 2009, Hammer sent a letter by mail on Knoedler letterhead to all

of Knoedlers clients. It announced Freedmans resignation, but was silent about the fact that she had been terminated, let alone the reason for her termination. The purpose of the letter was to inform clients falsely that all was well with Knoedler, and concluded by stating that Hammer very much look[ed] forward to the continuance of our much-valued relationship with you. 128. In reality, without the Rosales Collection to prop up the business, Knoedlers

profits promptly disappeared. According to Hammer, in 2009 Knoedler incurred an operating loss of $2.3 million, and incurred a $1.6 million loss in 2010.

30

F.

The Scheme in Operation 129. While the fraudulent scheme involving the Rosales Collection dates back to at

least 1994, the most significant activity occurred in the 2000s. The chart below is based on Knoedlers own records concerning activity in the Rosales Collection from 1994 forward. Work Date of Purchase Richard Diebenkorn Unknown Untitled, 1972 (33 x 22 7/8 in.) Richard Diebenkorn Unknown Untitled, 1972 (30 x 22 in.) Richard Diebenkorn Unknown Untitled (Ocean Park), 1972 (33 x 22 in.) Richard Diebenkorn Unknown Untitled (Ocean Park), 1976 Richard Diebenkorn Unknown Untitled (Ocean Park), 1972 (23 x 33 in.) Sam Francis Unknown Untitled, 1957 (29 x 41 in.) Sam Francis 1999 Untitled, 1957 (26 x 20 in.) Willem de Kooning 09/2005 Untitled, 1958; Barnett Newman Untitled, 1949 (Purchased together) * Willem de Kooning Untitled, 1956-57 06/2007 Purchase Price Consigned for $60,000 Date of Sale 12/1997 Sale/Asking Price $94,000

Consigned for $54,000

02/1998

$148,500

Consigned for $30,000

07/1997

$110,000

Consigned for $50,000

02/1994

$95,000

Consigned for $47,500

11/1994

$82,500

Consigned for $95,000

1999

$150,000

$55,000

2004

$148,500

$390,000 and $1,000,000 respectively (total $1.39M) $9,000 cash; $35,000 check; $1,346,000 wire transfer $750,000 $9,000 cash; $30,000 check; $711,000 wire transfer
31

Not yet sold

Asking $5,000,000 and $18,000,000, respectively

06/2007

$4,000,000 paid by John D. Howard by wire transfer

Franz Kline Untitled, not dated Franz Kline Untitled, 1957 Franz Kline Untitled, 1953 Franz Kline Untitled, 1955 Franz Kline Untitled, 1956

05/1997 03/1998 05/1998 Consigned 01/2000 Consigned 06/2008

Consigned for $300,000 $250,000 Consigned for $315,000 Net to owner $375,000 Net to owner $1,250,000 $9,000 cash; $21,000 wire transfer; $1,220,000 wire transfer Net to owner $80,000 $8,000 cash; $72,000 wire transfer $90,000

06/1997 08/1999 01/1999 03/2000 07/2008

$535,000 $475,000 $560,000 $900,000 $3,375,000

Lee Krasner Untitled, 1949

Consigned 02/2007

02/2007

$1,000,000

Robert Motherwell Spanish Elegy, 1953 (22 x 28 in.) Robert Motherwell Spanish Elegy, 1953 (16 x 20 in.) Robert Motherwell Spanish Elegy, 1953 (32 x 41 in.) Robert Motherwell Spanish Elegy, 1955 Barnett Newman Untitled, 1950

12/1999

03/2000

$350,000

08/2000

$15,000 paid by Ann Freedman Net to owner $475,000 $9,000 cash; $16,000 check; $450,000 wire transfer $850,000 $9,000 cash; $841,000 wire transfer $800,000 $9,000 cash; $45,000 check; $746,000 wire transfer $670,000

Not yet sold 02/2006

Unknown

Consigned 12/2005

$2,200,000

08/2008

Not yet sold

Asking $3,500,000

03/2006

Not yet sold

Asking $14,000,000

* Jackson Pollock Consigned Untitled 1949 (28 09/1999 x 15 in.) Jackson Pollock, 09/2000 Untitled 1949 (18 x 11 7/8 in.)

04/2000

$280,000 paid by Ann Freedman

Not yet sold

$3,100,000 paid by Frances White by check sent by mail Unknown

32

Jackson Pollock, Untitled 1949 (18 x 23 in.)

03/2001

$750,000

12/2001

Jackson Pollock 09/2002 Untitled, 1950 (15 x 28 in.)

Jackson Pollock 05/2007 Untitled, 1950 (22 x 22 in.) Mark Rothko Untitled, 1959 (29 x 21 in.) Mark Rothko Untitled, 1959 (28 x 20 in.) Mark Rothko Untitled, 1959 (29 x 22 in.) Mark Rothko Untitled, 1959 (28 7/8 x 21 7/8 in.) Mark Rothko Untitled, 1959 (29 x 21 in.) * Mark Rothko Untitled, 1956 (49 x 31 in.) 12/1996

$950,000 $9,000 cash; $25,000 check; $916,000 wire transfer $2,250,000 $9,000 cash; $2,241,000 wire transfer $225,000

11/2007

$2,000,000 (then repurchased, current asking price $15,000,0000) $15,300,000 paid by Lagrange by wire transfer

Not yet sold

Asking $12,000,000

04/1997

To Ann Freedman as a trade $360,000

10/997

$150,000

10/1997

05/1998

$155,000

07/1998

$325,000

05/1998

Consigned for $170,000

06/1998

$320,000

05/1999

Consigned for $155,000

10/1999

$615,000

01/2002

* Mark Rothko Untitled, 1956 (50 1/8 x 40 in.)

12/2002

$750,000 $9,000 cash; $30,000 check; $711,000 wire transfer $950,000 $9,000 cash; $15,000 check; $926,000 wire transfer

11/2002

$5,500,000 paid by the Hilti Family Trust by wire transfer $8,300,000 paid by Domenico and Eleanore De Sole by wire transfer

12/2004

33

Mark Rothko Untitled (Orange, Red and Blue), 1959

Consigned 02/2008

Clyfford Still 03/1998 Untitled, 1947 (53 x 27 in.) Clyfford Still 11/1998 Untitled, 1947 (44 x 28 in.) Clyfford Still 12/2000 Untitled, 1947 (42 x 32 in.)

Net to owner $4,600,000 $9,000,000 cash; $100,000 check; $4,441,000 wire transfers $250,000

04/2008

$7,200,000

03/1998

$600,000

$250,000

06/2000

$850,000

* Clyfford Still Untitled, 1949

01/2005

Andy Warhol Untitled, 1964 130.

11/1998

$300,000 $9,000 cash; $10,000 check; $281,000 wire transfer $600,000 $9,000 cash; $11,000 check; $580,000 wire transfer Consigned for $20,000

12/2000

$500,000

11/2005

$5,000,000 paid by Nicholas and Jenny Taubman by wire transfer $30,000

1999

The chart demonstrates that the defendants made or caused to be made (by

victimized purchasers) no less than 19 payments by wire transfer. 6 In these sales alone, Knoedler reaped more than $61 million on an investment of just over $20 million. In addition, six works with an asking price totaling over $67 million were being peddled when the defendants were forced to discontinue selling Rosales Collection works in 2009.

Ann Freedman, who purchased two of the Rosales Collection works on the list, is not a victim. For example, she purchased a Spanish Elegy by Motherwell in 2000 for $15,000 (fifteen thousand dollars). Knoedler purchased three works from the same series for $90,000, $475,000 and $850,000, and resold the first two for $350,000 and $2.2 million, respectively. The last of the three was not sold, but was being peddled for $3.5 million to Howard. Freedmans acquisition of Rosales Collection works for a pittance was part and parcel of the fraudulent scheme. It enabled her to tell customers like Howard that they could have faith in their purchases, just as she had. Of course, she did not tell prospective purchasers like Howard that she had paid 0.05% percent of the asking price for a similar work.
34

131.

The works that have an asterisk are the ones purchased by plaintiffs in the related

cases pending before this Court. 7 In chronological order of the date the actions were commenced, they are: 132. The Pollock at issue in the Lagrange action (No. 11-CV-8757 (PGG) settled in 2012). Knoedler purchased this work from Rosales and Bergantinos Diaz in September 2002 for $950,000, and sold it to the purchasers for $17 million ($15.3 million excluding commissions) in November 2007. a. The Rothko at issue in the DeSole action (No. 12-CV-2313 (PGG)). Knoedler purchased this work from Rosales and Bergantinos Diaz in December 2002 for $950,000, and sold it to the purchasers for $8.3 million in December 2004. b. The de Kooning sold to Howard in this action. Knoedler purchased this work from Rosales and Bergantinos Diaz in June 2007 for $750,000, and sold it to Howard for $4 million ($3.5 million excluding commissions) in June 2007. c. The Rothko at issue in the Hilti action (No. 13-CV-0657 (PGG)). Knoedler purchased this work from Rosales and Bergantinos Diaz in January 2002 for $750,000, and sold it to the purchasers for $5.5 million in December 2002. d. The Pollock at issue in the White action (No. 13-CV-1193 (PGG)). Knoedler paid Rosales and Bergantinos Diaz in $670,000 upon its sale to the purchasers for $3.1 million in April 2000.
7

The identities of the purchasers other than the plaintiffs, while not confidential per se, are omitted simply to avoid those persons unnecessary additional embarrassment.
35

e.

The Still at issue in the Taubman action (No. 13-CV-3011 (PGG)). Knoedler purchased this work from Rosales and Bergantinos Diaz in October 2004 for $600,000, and sold it to the purchasers for $5 million in November 2004.

133.

For these six works alone, Rosales and Bergantinos Diaz received $4,670,000.

While that is a significant sum, it pales in comparison to the $42.9 million the plaintiffs paid to purchase them. That is a mark-up of almost ten times what Knoedler paid for them. 134. In a consignment or a sale of a work closely following the gallerys purchase of

that work, a gallery would reasonably expect to earn receive a price 10% to 20% above the amount payable to the owner. Four of the listed works (Howard, Hilti, White and Taubman) are in this category. Knoedlers mark-ups for these works was 533%, 733%, 462% and 833%, respectively. 135. A gallery that purchases a work as an investment and holds it for several years

can expect a higher return, but at the outside no more than three to four times the amount it paid. Knoedler sold the Lagrange Pollock for more than 17 times the amount it had paid, and sold the DeSole Rothko for almost nine times the amount it had paid. 136. In fact, even Howard Shaw, the president of Hammer Galleries (which, like

Knoedler, was owned by Hammer through 8-31 Holdings), found it surprising and troubling that Knoedler could earn such large profits from the sale of paintings that were new to the market. He further testified that Hammer was contemporaneously aware of the mark-ups. 137. The conduct of the defendants with respect to each of the six works fits a

remarkably consistent pattern, which is summarized following the allegations concerning the sale of the de Kooning to Howard.

36

i.

The Sale of the Work to Howard The Armory Show 138. Knoedler participated in an art fair held at the New York Armory on Park Avenue

in February 2007 (the Armory Show). 139. Among the works of art that Knoedler displayed and offered for sale was the

Work, which it attributed to de Kooning. Howards Interest in the Work at the Armory Show 140. 141. 142. 143. Show. 144. 145. 146. 147. 148. At some point in time, Frankfurt introduced Howard to Knoedler and Freedman. Howard discussed the Work with Freedman. Frankfurt discussed the Work with Freedman. Freedman and Howard also met at Knoedlers gallery to discuss the Work. Freedman and Howard also communicated about the Work through Frankfurt. Howard visited the Armory Show in February 2007. Frankfurt visited the Armory Show in February 2007. Howard viewed the Work in a space occupied by Knoedler at the Armory Show. Frankfurt also viewed the Work in a space occupied by Knoedler at the Armory

Freedman and Knoedlers Representations and Omissions 149. Freedman told Howard directly that: a. the Work has singular value because it is a distinctive and rare de Kooning landscape; b. c. the Work was a de Kooning of impeccable quality and provenance; the Work was owned by a man whom she knew directly;

37

d.

the Work was owned by a man who had acquired the Work through an inheritance from his father;

e.

the owner of the Work and his family were very private and would not permit her to identify him (or them) under any circumstances;

f. g.

the owner of the Work and his family lived in Switzerland; and the provenance of the work was above reproach as demonstrated by the fact that she had personally purchased a Motherwell directly from the same owner.

150.

In substance, Freedman and Knoedler provided the same information to Frankfurt

as that set forth in the preceding paragraph. 151. Freedman and Knoedler did not tell Howard anything negative about the Work or

its provenance, including that: a. b. the Work had been delivered to her by Rosales; Knoedler had purchased the work at a price far below what a genuine de Kooning of similar size and style would be worth, and marked up that price by more than 500%; c. Rosales had delivered approximately 40 works, also purportedly owned by Mr. X, none of which could be confirmed as having existed before their delivery to Knoedler; d. the existence of the works prior to their delivery by Rosales had not been and could not be confirmed; e. neither Freedman nor anyone at Knoedler had ever met the purported owner of the Work;

38

f.

neither Freedman nor anyone at Knoedler knew the name of the owner or his father;

g.

neither Freedman nor anyone at Knoedler, like most art dealers, knew much about Rosales;

h.

Freedman and Knoedler had been introduced to Rosales by Andrade, who had been Herberts long-time companion and a relatively low-level employee of Knoedler;

i.

Ossorio was initially identified as having facilitated the sale of works to the owners father, but there was no record of Ossorio having any connection with works of art delivered to Knoedler by Rosales;

j.

subsequent assertions that Herbert had facilitated the sale of works to the owners father were also undocumented (e.g., in Herberts papers, Motherwells papers, de Koonings papers, Pollocks papers, etc.);

k.

the sale of a work purchased from Rosales and sold to Levy had been cancelled;

l.

members of the Taubman family had declined to purchase a work delivered by Rosales because Knoedler, via Freedman, had adamantly refused to give specific guarantees about its authenticity;

m. the vast preponderance of sale proceeds paid by Knoedler to Rosales for the Work and other Rosales Collection Works would be wired to the Spanish brother of Bergantinos Diaz;

39

n.

Bergantinos Diaz had been associated with disreputable art world activities, including the peddling of forgeries and not paying for works purchased at auction; and

o.

questions and doubts had been raised about other works delivered to her by Rosales, including questions and doubts raised by the heirs of Richard Diebenkorn, IFAR, the Motherwell Catalogue Raisonn Committee, and Eugene Thaw.

152.

Freedman and Knoedler failed to provide Frankfurt with the same information in

substance set forth in the preceding paragraph. 153. Knoedlers sale invoice described the Work as follows:

Willem de Kooning (1904-1997) Untitled Oil on paper mounted on masonite 20 x 29 inches Signed at upper right corner: de Kooning A 12537 CA 26933 Provenance The artist (via David Herbert*) Private collection By descent to present owner *David Herbert often acted both as agent for the artist and as advisor to the collector. 154. These descriptions constitute express warranties that the Work was by Willem de

Kooning and that the provenance was as stated. 155. Freedman made the same representations to Howard orally and directly prior to

his purchase of the Work.

40

156.

In substance, Freedman made the same representations to Frankfurt that she had

made to Howard. Howards Purchase of the Work 157. Knoedler delivered the Work to one of Howards residences so that he could live

with it before deciding whether to purchase it. 158. 159. 160. $4,000,000. 161. 162. Howard requested Frankfurts assistance in completing the purchase of the Work. To reward Frankfurt for introducing Howard to Knoedler and the Work, Howard decided to purchase the Work in or about June 2007. Howard negotiated the purchase price for the Work directly with Freedman. Howard and Freedman agreed that the purchase price for the Work would be

Knoedler, without prior communication with Frankfurt or Howard about any sum to be retained by Frankfurt, sent Frankfurt an invoice for the Work, dated June 13, 2007, in the amount of $3,500,000 so that Frankfurt could retain $500,000 in connection with the sale of the Work. 163. Knoedler sent the invoice to Frankfurt to avoid disclosing to Howard how much

Frankfurt would receive for facilitating the sale. 164. 165. Knoedler did not sell the Work to Frankfurt. Frankfurt denies having done anything wrong with respect to the sale of the Work

but has unconditionally paid Howard $500,000 because, as he has represented, he believes that it is right to have done so. 166. Frankfurt has also assigned to Howard any and all of his claims arising out of the

sale of the Work, including but not limited to, all of his claims against all of the current defendants.

41

167. 168.

Knoedler and Freedman never believed that it was selling the Work to Frankfurt. Knoedler and Freedman knew that Frankfurt would not pay for the Work until

Howard had provided funds and that Frankfurt was not using funds other than Howards to pay for the Work. 169. Knoedler did not receive payment for the Work from Frankfurt until after Howard

had transferred funds to Frankfurt. 170. Knoedlers permitting Frankfurt to keep $500,000 in connection with the sale

(12.5% of the purchase price) is generous when measured by the customs and standards in the art trade, where commissions of five percent or less are not uncommon. 171. Knoedler sent the invoice to Frankfurt to induce and to encourage Frankfurt to

introduce other potential purchasers of the Enterprise Works. Knoedlers Purchase of the Work from Rosales 172. Notwithstanding the $500,000 it allowed Frankfurt (operating through Jaime

Frankfurt, LLC) to keep, Knoedler made an enormous profit on the sale of the Work to Howard, far and above the norm in the art trade. 173. On information and belief, there is no agreement documenting the consignment of

the Work to Rosales. 174. 175. On information and belief, the Work was not consigned to Rosales. There is no agreement documenting the consignment of the Work by Rosales or

anyone else to Knoedler. 176. 177. The Work was not consigned to Knoedler. On June 11, 2007, two days before Knoedler sold the Work to Howard, it

purchased the Work from Rosales herself, as well as Bergantinos Diaz, for $750,000.

42

178. the Work. 179. 180.

Put another way, Knoedler paid Rosales less than 20% of what Howard paid for

Knoedlers payment documents show that that Rosales was paid $9,000 in cash. Knoedler made the $9,000 cash payment, for the purpose of helping Rosales

avoid a requirement (set forth 31 U.S.C. 5234) that cash transactions in excess of $10,000 be reported. 181. for $31,000. 182. 183. The remaining $711,000 was sent by wire to Jesus A. Bergantinos in Spain. Jesus A. Bergantinos and defendant Bergantinos Diaz are brothers. Knoedlers payment documents also provided that Rosales would receive a check

Issues Raised by Knoedlers Purchase and Sale of the Work 184. Knoedlers own papers demonstrate that it purchased the Work from Rosales in

the first instance and sold it to Howard based on a false provenance. 185. false. 186. The false provenance provided by Knoedler, Freedman and Rosales for the Work The provenance provided by Knoedler, Freedman and Rosales for the Work is

was provided knowingly. 187. The representations and warranties provided by Knoedler concerning the

authenticity of the Work were false. 188. The representations and warranties provided by Knoedler concerning the

authenticity of the Work were provided knowingly or with conscious or reckless disregard for their truth.

43

189.

The defendants simply lied to Howard, Frankfurt and others about what they

knew about the Work, the Enterprise Works, and their provenance. 190. What the provenance of works of fine art such as the Work was represented to be

substantially affects its market value. 191. Knoedler could not have sold the Work to Howard for $4 million (or any sum in

the millions of dollars) if it accurately represented its provenance and disclosed the information it had concerning works supplied by Rosales. 192. Because, inter alia, the Work had virtually no provenance, Knoedler paid only

$750,000 in connection with its acquisition by Knoedler. 193. No genuine work of art by de Kooning with a $4 million retail sale value could be

purchased in good faith for $750,000. 194. The price paid by Knoedler for the Work, by itself, raises, and, on information

and belief, did raise for Knoedler and Freedman, issues about the authenticity of the Work. 195. Knoedler acquired the Work with actual knowledge that the Work was a forgery

or consciously disregarded facts, such as the inexplicably low purchase price, that raised issues about the authenticity of the Work. 196. On information and belief, Knoedler and Freedman knew that (a) the Work and

other Rosales Collection works had been purchased at prices far below their market values, (b) the Work and other Rosales Collection works were acquired through payments made in part [i] in cash to Rosales and [ii] by wire to Spain, (c) there was no reasonable basis to believe that any funds had ultimately been paid to the male heir of a Swiss collector, and (d) purchasers such as Howard had paid multiples of what Knoedler had paid to acquire Rosales Collection works.

44

197.

Howard relied on the representations from Freedman and Knoedler set forth

above (e.g., in 149). 198. Howard understood, and relied upon, Knoedlers and Freedmans explicit and

implicit representations that its word was a legal guarantee that if the Work purchased proved of doubtful authenticity, Knoedler would refund the money that he had paid for the Work. 199. Howard relied on the representations of Freedman and Knoedler set forth above

(e.g., in 149) in agreeing to purchase the Work. 200. Howard continued to rely on the representations of Freedman and Knoedler, inter

alia, by insuring the Work at amounts consistent with the high value placed on the Work by Knoedler and Freedman. 201. Frankfurt relied on the representations of Freedman and Knoedler set forth above

(e.g., in 149). 202. Howards reliance on the representations of Freedman and Knoedler set forth

above (e.g., in 149) was reasonable because of Knoedlers and Freedmans reputations and their representation that the owner of the Work had insisted on remaining anonymous. 203. Frankfurts reliance on the representations of Freedman and Knoedler set forth

above (e.g., in 149) was reasonable because of Knoedlers and Freedmans reputations and their representation that the owner of the Work had insisted on remaining anonymous. 204. The representations of Freedman and Knoedler were material as they affected the

Works value and Howards willingness to purchase the Work.

45

205.

Howard would not have purchased the Work if he had known that the

representations of Freedman and Knoedler set forth above (e.g., in 149) were false in material respects. 206. Howard would not have purchased the Work if he had known about the material

omissions of Freedman and Knoedler set forth above (e.g., in 151). 207. Frankfurt would not have facilitated Howards purchase of the Work if he had

known that the representations of Freedman and Knoedler set forth above (e.g., in 149) were false in material respects. 208. Frankfurt would not have facilitated Howards purchase of the Work if he had

known about the material omissions of Freedman and Knoedler set forth above (e.g., in 151). 209. When the fraud concerning other Rosales Collection works came to light in the

media, Howard made inquiries concerning the Work (including an analysis into the materials used to create the Work). 210. The Work is worthless it because its provenance is not as Freedman and Knoedler

represented it to be. 211. in the 2000s. Knoedler and Freedman Pitch the Bespoke Motherwell to Howard 212. At about the time Howard purchased the Work, he also expressed an interest in The Work is worthless because it is a forgery created by Pei-Shen Qian in Queens

the Motherwell owned by Freedman, which was also on display at Knoedler. 213. Motherwell. Freedman informed Howard that she was not interested in selling the

46

214.

Subsequently, Freedman contacted Howard and informed him that the Swiss

collector (Mr. X, Jr.) was newly interested in selling a Motherwell very much like the one owned by Freedman. An internal Knoedler e-mail dated November 13, 2007 from Jan Riley to Christina Viera, Melissa De Medeiros and Edye Weissler confirmed that a new Motherwell from Mrs. Rosales was on reserve for Howard at Freedmans request. As noted in 76, supra, De Medeiros recorded that there was one Motherwell from Mr. X. This new Motherwell in the Rosales Collection was Knoedlers fourth, all of which were created (or, in Freedmans words, discovered) after 1998. Little wonder, therefore, that Knoedler referred to the Rosales Collection as Secret Santa and the goose that laid the golden egg. 215. On information and belief, the creation of this new bespoke Motherwell (i.e., a

Motherwell made to order) was commissioned by Freedman from Pei-Shen Qian, through Rosales and Bergantinos Diaz, for the purpose of inducing Howard to purchase it. Freedman Attempts to Sell Her Own Motherwell to Howard 216. At some point, Freedmanpersonally and not through the Gallerypurchased a

Motherwell directly from Rosales for $15,000. 217. purchase. 218. Upon information and belief, the Motherwell was delivered to Freedman in Upon information and belief, Freedman has no documents reflecting this

New York and she paid no sales tax in connection with the purchase. 219. Upon information and belief, other works from the Rosales Collection in which

Freedman claims an ownership interest were acquired by Freedman without documentation.

47

220.

Upon information and belief, other works from the Rosales Collection in which

Freedman claims an ownership interest were acquired by Freedman without Freedmans paying any sales or other tax. 221. In August 2009, Knoedler shipped the Motherwell Freedman purchased directly

from Rosales for $15,000 to Frankfurt by common interstate carrier to be delivered to Howard. 222. In August and September 2009, Freedman and Knoedler represented to Frankfurt

and Howard that the Freedman Motherwell had the same provenance as the de Kooning he had previously purchased and the bespoke Motherwell and, like the de Kooning sold to Howard in 2007 was an authentic work of art from a private collection known to Knoedler. 223. In November 2009, after Knoedler had received the grand jury subpoena and

removed Freedman, Freedman requested the return of her Motherwell if Howard was not going to purchase it. 224. it at the time. 225. At no time did Freedman or Knoedler inform Howard that they had received a Howard returned Freedmans Motherwell as he was not interested in purchasing

grand jury subpoena that concerned both Howards de Kooning and Freedmans Motherwell or that serious doubts had been raised by the Dedalus Foundation, Orion Analytical and others about the authenticity of the de Kooning Howard had purchased and other works in the Rosales Collection. 226. The sale was not consummated and the work was returned to Freedman. Neither

Freedman nor Knoedler revealed the alarming developments that had occurred in the interim, including the FBI investigation, the real reason for Freedmans termination, and the not for sale status of Rosales Collection works at Knoedler.

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ii. 227.

The Schemes Consistent Pattern Just as with Howard, Freedman and Knoedler falsely represented to the plaintiffs

in the Lagrange, DeSole, Hilti, White and Taubman actions that: a. Knoedler was selling the work on behalf of a private Swiss collector who had inherited it from his father; b. c. Freedman either knew the collector personally or knew his identity; the father had acquired the work with the help of a middleman (Ossorio in Hilti and White; Herbert in the other cases); and d. 228. the authenticity and provenance of the work were beyond question.

Likewise, Freedman and Knoedler concealed from all of the plaintiffs the same

material facts identified in 151 that were concealed from Howard. 229. iii. 230. All of the works are forgeries. Hammer and 8-31 Holdings Are Integral Parts of the Fraudulent Enterprise In 2003, Hammer learned that Knoedler had sold a Pollock to Jack Levy that

IFAR had correctly determined was not attributable to Pollock. He affirmatively agreed that Knoedler should continue to attempt to sell the work, likening the Rosales Collection to the goose that laid the golden egg. Hammers involvement with the fallout from the IFAR Report is detailed at 88-91, supra. 231. This was not an isolated instance. Hammer, as the President and sole owner of 8-

31 Holdings, Chairman of Knoedler, and the primary beneficiary of Knoedlers Rosales Collection profits, was provided detailed information about Knoedlers financial condition, sales, and profits, and knew or should have known about the massive fraud being perpetrated by Knoedler, Freedman, and Rosales (among others). Freedman has admitted that she personally

49

informed Hammer about every single Rosales Collection transaction. Hammer attended regular 8-31 board meetings at which Knoedlers sales and profitswhich were wholly dominated by the Rosales Collectionwere reviewed. Hammer also received a $400,000 salary from 8-31 Holdings and was reimbursed for tens of thousands of dollarsand, in some years, hundreds of thousands of dollarsin travel and entertainment expenses that, according to Hammer, were incurred in connection with his work on behalf of Knoedler and Hammer Galleries, including attendance at board meetings and meetings with actual or potential clients. On information and belief, Hammer also received its quarterly and annual financial statements, including summaries of significant transactions quarterly. Hammer also periodically requested and received information about the amount of cash Knoedler had on hand and about items in Knoedlers inventory. Finally, Hammer had very carefully reviewed the IFAR Report, which raised serious concerns about the authenticity and provenance of the Levy Pollock andby extensionthe Rosales Collection as a whole, and was awarefrom, among other things, the multi-million-dollar profits that appeared on Knoedlers balance sheet and sales records and ended up in 8-31 Holdings and his pocketsthat Knoedler and Freedman continued to sell such works, while telling no one (other than their partner, David Mirvish) about IFARs troubling conclusions. 232. Freedman testified that she discussed with Hammer the circumstances of every

sale of a Rosales Collection work at the time the sale occurred. Thus, Hammer, like Freedman, personally knew that the works had been acquired from Rosales and Bergantinos Diaz, and were being sold with a phony provenance and for extraordinary profits. Howard Shaw, the president of Hammer Galleries, confirmed that Hammer was kept up to date about the sale of Rosales Collection works and their lucrative nature.

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233.

Thus, when a Knoedler executive named Frank Del Deo sent Hammer a

memorandum by email on September 3, 2009 referring to the David Herbert pictures, it was understood that Hammer would know he was using a shorthand for the Rosales Collection. 234. Hammer, of course, knew about and readily accepted the $6.5 million in profits he

reaped directly from the sale of Rosales Collection works. He also knew that financially, Knoedler existed for the purpose of selling Rosales Collection works. As noted, from 1994 to 2011, Knoedler earned net income of $29 million from the sale of those works. Its net income from the sale of other works was negative $3.2 million. 235. Hammer devoted considerable time to Knoedlers business on an ongoing basis.

This is reflected in the $1.46 million (one million, four hundred sixty thousand dollars) in business-related expenses on an American Express card that Hammer charged to Knoedler. 236. Hammer fought tenaciously to keep the golden goose alive. When Jack Flams

investigation of the phony Motherwells threatened the scheme, one of Freedmans responses was that she did not know if she could control Hammer, who was, in her words, litigious when threatened. This demonstrates both Hammers knowledge of the scheme business owners are not litigious about matters of which they are ignorant and his willingness to fight for it. 237. Finally, however, Hammer understood by August-September 2009 in the wake of

the FBI investigation that the continued sale of Rosales Collection works was infeasible. In quick succession he retained Herrick Feinstein to conduct an investigation, fired Freedman and directed her replacement, Del Deo, to have Knoedler stop selling Rosales Collection Works. In a letter sent to Hammer by FedEx on October 20, 2009, he confirmed that with respect to the Rosales and Masaccio pictures, we have changed their designation, for the time being, to NFS (not for sale).

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238.

An e-mail chain between Hammer and Knoedler vice president Per Jensen dated

September 3, 2009 is also telling. The first e-mail, from Jensen stated [a]s discussed, here is a copy of the Anfam e-mail, and attached the Anfam-Flam e-mail referenced in 116. Hammer responded,[t]hanks Per: You are free to talk amongst yourselves about all this just not with outside people (emphasis added). 239. Hammer also directed that the Herrick Feinstein report and the reasons for

Freedmans termination remain secret, and that purchasers of Rosales Collection works be stonewalled. Thus, when Pierre Lagrange expressed concerns about the Pollock he had purchased from Knoedler, Del Deo responded by a faxed letter dated February 11, 2011 that he had discussed the matter with Hammer, and then simply restated the misrepresentations Freedman had made to Lagrange in 2007, including that the painting was shown to leading scholars and experts on Pollock, all of whom have expressed positive opinions of this work. 240. In sum, Hammer was aware contemporaneously of all of the material

circumstances of the Rosales Collection transactions, and worked affirmatively to continue their sale. When that was no longer feasible, he turned his attention fully to keeping all of his illgotten proceeds, totaling $6.5 million, by actively suppressing any information. 241. Hammer, 8-31 and its principal subsidiaries, Knoedler and Hammer Galleries,

ignored the formal corporate distinctions among them. Although 8-31, Knoedler, and Hammer Galleries purported to operate as separate corporate entities, Hammer and 8-31 treated Knoedler as a mere instrumentality. 242. 8-31 employees were housed in the building that bore only Knoedlers name on

the awning and housed the Knoedler Gallery, and did not have offices separate from Knoedlers space.

52

243. building. 244. Knoedler. 245.

8-31 did not pay any rent to Knoedler for use of any of the space in Knoedlers

8-31 employees used Knoedler email addresses and shared a phone system with

8-31 CFO Ruth Blankshein (and before her, Peter Sansone) also served as the

CFO for Knoedler and its affiliate Hammer Galleries (also wholly owned by 8-31). Although each of the three entities was responsible for 33% of her salary, she did not track her time to determine whether that allocation was accurate, fair, or appropriate. 246. Hammer served as an 8-31 officer (President) and as Chairman of Knoedler. (He

is now also the Sole Manager of Knoedler.) Ann Freedman was President of Knoedler and a Director of 8-31. 8-31 had no employees who did not also serve positions for Knoedler or Hammer Galleries, or both. 247. While nominally maintaining separate bank accounts, Knoedler and Hammer

Galleries indiscriminately shared funds, at 8-31s sole direction. Knoedler transferred funds directly to Hammer Galleries when the latter needed cash to support its operation. The transfers occurred without any loan agreement between the two entities, without a charge of interest, and have apparently never been repaid. 248. Similarly, Knoedler (as well as Hammer Galleries) transferred funds to a single 8-

31 account (in which such funds were comingled), at 8-31s direction, whenever 8-31 needed money. These transfers were used, among other things to fund the payment of 8-31s own expenses, including Michael Hammers annual salary (of approximately $400,000) and his time and entertainment expense reimbursements. These transfers also occurred with no loan documentation and no interest charge, and likewise have apparently never been repaid.

53

249.

Funds transferred to 8-31 by one LLC (such as Knoedler) were also used,

indiscriminately, to pay for expenses incurred by other LLCs (such as Hammer Galleries), without any final accounting or allocation made to ensure that the appropriate LLC was charged for its own expenses. Such expenses included federal and state taxes, business expenses, attorney and accountant fees, charitable contributions, consulting fees, and bank fees. 8-31 has admitted that it paid such expenses directly from its account (which funds were, in turn, indiscriminately taken from the various LLCs), without making any effort to properly charge those expenses back to the LLC that incurred them. 250. In fact, when 8-31 needed funds, 8-31 directed that either Knoedler and/or

Hammer Galleries transfer the necessary funds, looking to whichever gallery had immediately available funds, and without regard to the basis for 8-31s use of the funds or the galleries receipt of consideration. 251. 8-31 dubbed these types of transfers interdivisional receivablesthat is, money

that 8-31 technically owed back to Knoedlerbut, without loan agreements or interest accruing, they are not loans. In this way, year after year, from at least 2001 to 2012, 8-31 and Hammer built up indebtedness to Knoedler in a total amount of $23 million, reflecting the unreturned interest freetransfers Knoedler made over this decade. 252. Insofar as Knoedlers own profitability was dependent on the Rosales Collection

sales, it follows that these transfers were principally funded by the proceeds of unlawful sales of forged artworks obtained from defendant Glafira Rosales. 253. 8-31 and Knoedler have now admitted that, in 2010, 8-31 unilaterally

reclassified the interdivisional receivable that 8-31 owed to Knoedlerat that time the largest asset on Knoedlers own booksas a dividend to 8-31 which, according to 8-31 and

54

Knoedler, mean[t] that no repayment [was] necessary. Put simply, 8-31 decreed that Knoedler would forgive tens of millions of dollars in loans that Knoedler had extended to 8-31 over the last decade, without any consideration or recompense. Knoedler, of course, had no say in the matter. 254. Notably, this reclassificationwhich took Knoedlers largest asset off of its

booksoccurred in 2010, just after the government began its investigation into the fraud at issue. 8-31 and Knoedler were well aware at this time that Knoedler was exposed to serious potential liability as a result of the Rosales Collection sales. The conclusion is inescapable that this reclassification was done with the purpose of shielding Knoedlers ill-gotten gains from the victims of the fraud, such as the De Soles and Howard. 8-31 and Knoedler have consistently disregarded corporate formalities since their incorporation in 2001. In 2001, 8-31 prepared a Management Agreement with Knoedler, which both parties signed. Pursuant to that Agreement, 8-31 was appointed to render certain services (and hire employees to provide those services) for Knoedler, and, in return, 8-31 would bill Knoedler no less than annually and charge a fee in the amount of 101% of the cost of the services provided for Knoedlers benefit. But while 8-31 employees and contractors did, in fact, render many of the services called for by the agreement including accounting services and IT servicesit never provided Knoedler the agreed bill, and never charged the 101% fee. In fact, the current CFO for both 8-31 and Knoedler admitted that she did not consider, reference, or enforce the Management Agreement in the performance of her duties between 2007 and 2012. 255. 8-31 and Knoedler similarly disregarded corporate and contractual formalities in

connection with Knoedlers closing in November 2011. In connection with the closing, Knoedler adopted a liquidation plan (signed by Hammer as both President of 8-31 Holdings

55

and Manager of Knoedler). The plan, among other things, required that Knoedler reserve funds for potential liabilities arising from legal actions against Knoedler. (At the time, the scheme alleged herein and the potential liability arising therefrom was well known to Knoedler, Hammer, and 8-31they were aware of the governments investigation and had already directed their accountants to include a note in 8-31s financial statements regarding liability for potential claims.) Again, 8-31 and Knoedler ignored the directive. Knoedler did not maintain and has not maintained a reserve for potential liabilities. In fact, the 8-31/Knoedler CFO was not informed or aware of the liquidation plan and did not know that such a reserve was required. Instead, between 2011 and 2012, 8-31 and/or Hammer Galleries took from Knoedler an additional $1 million in interdivisional transfers, without consideration. 256. Knoedler itself maintained no board of directors, did not maintain financial

records separate and apart from 8-31s records, did not pay its own taxes, did not file its own tax returns, and did not pay its own employees directly. 257. 8-31 thus exercised complete domination and control over Knoedler, and used

Knoedler to participate in the RICO scheme as alleged herein. 258. In disregarding the corporate formalities and taking more than $23 million from

Knoedler as described above, 8-31 and Hammer used their domination of Knoedler to deplete Knoedlers assets (which, largely were obtained by dint of the sales of the RICO scheme alleged here) and protect themselves from the consequences of their own wrongdoing. FIRST CLAIM FOR RELIEF (Violation of 18 U.S.C. 1962(c) Against All Defendants) 259. Plaintiff repeats and realleges the allegations set forth in Paragraphs 1 through

258 of this Amended Complaint as if fully set forth herein.

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260.

The association-in-fact of the defendants constitutes an enterprise engaged in and

affecting interstate and foreign commerce within the meaning of 18 U.S.C. 1961(4) and 1962(c). 261. Each of the defendants is a person within the meaning of 18 U.S.C. 1961(3),

and is separate from the enterprise. 262. The principal purpose of the enterprise was the marketing and sale of the Rosales

Collection (i.e., artworks that were attributed to famous 20th century American artists such as Willem de Kooning, Jackson Pollock, Mark Rothko, Robert Motherwell and Richard Diebenkorn that were forged to appear as though they were created by the artists to whom they were attributed). Its purpose was thus to effect the defendants fraudulent scheme. 263. Operating through the enterprise, the defendants and others, including Weissman,

engaged in a pattern of racketeering activity beginning no later than 1994. 264. The activity consisted of a series of acts with a common purpose (the marketing

and sale of the Rosales Collection works) that lasted over a period of about 15 years, and that posed a continued threat of criminal activity. 265. Freedman, a Director and the President of Knoedler, was a critical and willing

participant in the racketeering scheme at issue. By lending her name and reputation, as well as Knoedlers, to fraudulent sales of forged artworks, she enabled the enterprise to thrive. 266. Knoedler used its name, reputation, and access to collectors to sell forged

artworks into the marketplace. 267. Hammer, the beneficial owner of Knoedler, was a critical and willing participant

in the racketeering scheme. By knowingly permitting Knoedler and Freedman fraudulently to sell forged artworks, by rewarding Freedman for her unlawful conduct and incentivizing her to

57

continue it, and by taking the ill-gotten gains from those sales for his own benefit, Hammer encouraged and enabled the enterprise. 268. 8-31 profited from the racketeering scheme as the sole owner of Knoedler. 8-31

also participated directly in the racketeering scheme through the knowing participation of its President, Hammer, in his capacity as President of 8-31, as alleged herein, and as the employer of Freedman and Andrade who, in their employment with 8-31 participated in the racketeering scheme as alleged herein, and as the alter ego of Knoedler. 269. Andrade was an integral member of the enterprise. He is responsible for having

introduced Rosales to Knoedler and Freedman and for encouraging Rosales to bring her forged works to Knoedler, and he was recognized as the gateway to the Rosales Collection. He also lent the name and reputation of his now-deceased longtime companion (for whose estate he had served as executor) to enable this fraudulent scheme. 270. Rosales and Bergantinos Diaz, along with Jesus Bergantinos Diaz all knowingly

brought these forged artworks into the market through Knoedler and Freedman and received compensation for having done so. 271. Defendants scienter is established by the pattern of intentional and knowing

fraudulent, material misrepresentations and omissions described above. 272. The defendants and others committed numerous predicate acts of racketeering

activity in connection with the enterprise within the meaning of 18 U.S.C. 1961(1). Such activity includes, but is not necessarily limited to, numerous and repeated violations of 18 U.S.C. 1341 (relating to mail fraud), 18 U.S.C. 1343 (relating to wire fraud) and 18 U.S.C. 2318 (relating to trafficking in counterfeit labels with respect to works of visual art).

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18 U.S.C. 2318 273. Section 2318 provides in relevant part that

Whoever, in any of the circumstances described in subsection (c), knowingly traffics in (A) a counterfeit label or illicit label affixed to, enclosing, or accompanying, or designed to be affixed to, enclose, or accompany * * *

(vi) a work of visual art; shall be fined under this title or imprisoned for not more than 5 years, or both. 274. Subsection (c) requires that the offense be committed in the United States, that it

use the mail or a facility of interstate or foreign commerce, and that the counterfeit label or illicit label is affixed to, encloses, or accompanies, or is designed to be affixed to, enclose, or accompany . . . a work of visual art. 275. Although forgeries, the Rosales Collection consists of works of visual art within

the meaning of the statute. 276. The defendants affixed or caused to be affixed false labels in the form of forged

signatures or other identifying details to fool potential customers into believing that the works were by famous artists de Kooning, Jackson Pollock, Robert Motherwell, Mark Rothko, Richard Diebenkorn, Clyfford Still, Franz Kline, Barnett Newman and Lee Krasner rather than by Pei-Shen Qian. 277. In this case, the counterfeit label de Koonings forged signature was affixed

directly to the Work.

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278.

All of the Rosales Collection works identified in this Amended Complaint

likewise had a forged signature affixed directly to the work in question and/or were accompanied by a label falsely attributing authorship of the work. 279. Each, including the Work here, was trafficked in the United States and shipped

via mail or other interstate common carrier. 280. Moreover, payments for each work were transmitted via mail, wire, or another

similar facility of interstate or foreign commerce, as detailed below. 18 U.S.C. 1341 and 1343 281. Section 1341 outlaws the use of a facility of the United States Postal Service or

any commercial or private interstate carrier in connection with a fraudulent scheme or artifice. Section 1343 outlaws the use of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice. 282. Defendants and other members of the enterprise, having devised the scheme or

artifice to defraud, and/or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmitted or caused to be transmitted by means of mail, wire, radio, or television communication in interstate or foreign commerce writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice (namely, to sell forged paintings). Specifically: a. In late November 2004, by use of interstate telephone wires, Knoedler and Freedman negotiated the sales price of the Work with Kelly, who was acting on behalf of the De Soles.

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b. On or about November 30, 2004, Knoedler and Freedman in New York, by the use of interstate mails, sent the Knoedler Invoice to Kelly in New Mexico; c. On or about December 7, 2004, the De Soles, by the use of interstate wires, wired $8.4 million from their Morgan Stanley account in New York to Kelly in New Mexico for Kelly to use to pay Knoedler for the Work; d. On or about December 11, 2004, Knoedler and Freedman in New York, by the use of interstate telephone wires, sent the Knoedler Letter by facsimile to Kelly in New Mexico; e. On or about December 17, 2004, Kelly, by the use of interstate wires, wired from his account at First National Bank in New Mexico to Knoedlers HSBC Bank in New York, the purchase price of $8.3 millionconsummating the De Sole sale. f. On or about June 13, 2007, Knoedler and Freedman in New York, by the use of interstate wires, sent the Howard Invoice by email to Frankfurt in Los Angeles, California. g. On or about June 13, 2007, by the use of interstate wires, Howard wired $4 million to Frankfurt at his Citibank account located in Los Angeles, California, and Frankfurt then wired $3.5 million from his Los Angeles account to Knoedler at its HSBC Bank account in New Yorkconsummating the Howard sale. h. On or about September 18 - 21, 2007, Knoedler and Freedman in New York, by the use of interstate wires, sent multiple emails to Frankfurt in Los Angeles regarding the Howard purchase.

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i. On or about November 7, 2007, by the use of international wires, Pierre Lagrange wired $17 million to Frankfurt at his Citibank account located in Los Angeles, California, and Frankfurt, using domestic wires, Frankfurt wired $15.3 million from his Los Angeles account to Knoedler at its HSBC Bank account in New Yorkconsummating the Lagrange sale. j. On or around February 1, 1994, Knoedler sold a forged Richard Diebenkorn work from the Rosales Vijande Collection for $95,000. k. On or around November 9, 1994, Knoedler sold a forged Richard Diebenkorn work from the Rosales Vijande Collection for $82,000. l. On or around June 2, 1997, Knoedler sold a forged Franz Kline work from the Rosales Collection for $535,000. m. On or around July 3, 1997, Knoedler sold a forged Richard Diebenkorn work from the Rosales Vijande Collection for $110,000. n. On or about October 16, 1997, Knoedler sold a forged Mark Rothko work from the Rosales Collection for $360,000. o. On or about December 6, 1997, Knoedler sold a forged Richard Diebenkorn work from the Rosales Vijande Collection for $94,000. p. On or about February 17, 1998, Knoedler sold a forged Richard Dienbenkorn work from the Rosales Vijande Collection for $148,000. q. On or about March 13, 1998, Knoedler sold a forged Clyfford Still work from the Rosales Collection for $600,000. r. On or about June 23, 1998, Knoedler sold a forged Mark Rothko work from the Rosales Collection for $320,000.

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s. On or about July 1, 1998, Knoedler sold a forged Mark Rothko work from the Rosales Collection for $325,000. Knoedler paid a total of $155,000 for the work, including $141,000 by wire transfer. t. On or about January 18, 1999, Knoedler sold a forged Franz Kline work from the Rosales Collection for $560,000. Knoedler paid a total of $315,000 for the work, including $300,000 by wire transfer. u. On or about February 24, 1999, Knoedler sold a forged Andy Warhol work from the Rosales Vijande Collection for $27,000. Knoedler paid a total of $18,000 for the work, including $14,000 by wire transfer. v. On or about August 11, 1999, Knoedler sold a forged Sam Francis work from the Rosales Vijande Collection for $150,000. w. On or about August 24, 1999, Knoedler sold a forged Franz Kline work from the Rosales Collection for $475,000. Knoedler paid a combined total of $500,000 for this work and the forged Clyfford Still work sold on March 13, 1998, including $495,000 by wire transfer. x. On or about August 30, 1999, Knoedler sold a forged Sam Francis work from the Rosales Collection for $35,000. Knoedler paid a combined total of $155,000 for this work and the forged Sam Francis work sold on August 11, 1999, including $146,000 by wire transfer. y. On or about October 19, 1999, Knoedler sold a forged Mark Rothko work from the Rosales Collection for $615,000. z. On or about March 3, 2000, Knoedler sold a forged Franz Kline work from the Rosales Collection for $900,000. Knoedler paid a total of $375,000 for the

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work, including $350,000 by wire transfer. aa. On or about March 18, 2000, Knoedler sold a forged Robert Motherwell work from the Rosales Collection for $350,000. Knoedler paid a total of $90,000 for the work, including $64,000 by wire transfer. bb. On or about April 8, 2000, Knoedler sold a forged Jackson Pollock work from the Rosales Collection for $3,100,000 to Harvey and Frances White. The purchase price was paid by a check mailed to Knoedler. cc. On or about June 20, 2000, Knoedler sold a forged Clyfford Still work from the Rosales Collection for $850,000. dd. On or about August 1, 2000, Ann and Robert Freedman purchased a forged Robert Motherwell work from the Rosales Collection for $15,000. The purchase price was paid by wire transfer. ee. On or about December 19, 2000, Knoedler sold a forged Clyfford Still work from the Rosales Collection for $500,000. Knoedler paid a total of $300,000 for the work, including $281,000 by wire transfer. ff. On or about November 6, 2002, Knoedler sold a forged Mark Rothko work from the Rosales Collection for $5,500,000 to the Hilti Family Trust. Knoedler paid a total of $750,000 for the work, including $711,000 by wire transfer. The Hilti Family Trust paid the purchase price by wire transfer. gg. On or about January 23, 2004, Knoedler sold a forged Sam Francis work from the Rosales Collection for $148,500. Knoedler paid a total of $55,000 for this work, including $50,000 by wire transfer.

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hh. On or about November 7, 2005, Knoedler sold a forged Clyfford Still work from the Rosales Collection for $4,300,000 to Nicholas and Jenny Taubman. Knoedler paid a total of $600,000 for the work, including $580,000 by wire transfer. The Taubmans paid the purchase price by wire transfer. ii. On or about March 11, 2006 Knoedler sold a forged Robert Motherwell work from the Rosales Collection for $2,200,000. Knoedler paid a total of $475,000 for the work, including $450,000 by wire transfer. jj. On or about February 27, 2007, Knoedler sold a forged Lee Krasner work from the Rosales Collection for $1,000,000. Knoedler paid a total of $80,000 for the work, including $72,000 by wire transfer. kk. On or about April 30, 2008, Knoedler sold a forged Mark Rothko work from the Rosales Collection for $7,200,000. Knoedler paid a total of $4,600,000 for the work, including $4,441,000 by wire transfer. ll. On or about July 10, 2008, Knoedler sold a forged Franz Kline work from the Rosales Collection for $3,375,000. Knoedler paid a total of $1,250,000 for the work, including $1,220,000 by wire transfer. 283. Additional mail and wire communications are detailed (including date, sender,

recipient(s) and subject matter) in 18, 24, 90, 92, 98, 115, 116, 127, 214, 221, 233, 237, 238 and 239, and are incorporated herein by reference. 284. Each participant knew, expected, reasonably foresaw, and intended that these

transmissions by means of mail, wire, radio, or television communication in interstate or foreign commerce would be used in furtherance of the racketeering scheme, and that such use was an essential part of the scheme.

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285.

Defendants willfully and with intent to defraud sold forged artworks to Howard,

the De Soles, Lagrange, Hilti, White, Taubman and other victims and also misrepresented and/or concealed the material facts from them, as discussed above. 286. Howard and the other victims relied upon defendants misrepresentations, and

such reliance was reasonable, as discussed above. 287. Howard and the other victims were injured by defendants fraudulent conduct, as

discussed above. Pattern of Racketeering Activity 288. The aforesaid acts had the same or similar purposes, results, participants, victims,

and/or methods of commission, and were otherwise interrelated by distinguishing characteristics and were not isolated events. The pattern of racketeering activity defendants engaged in consisted of a scheme executed by the aforementioned conspirators from at least 1994 and continuing at least through October 2009, if not longer, to obtain from Rosales, and Bergantinos Diaz and to distribute, market, and sell numerous counterfeit paintings purportedly by multiple abstract expressionist artists. That pattern included multiple predicate acts of mail and wire fraud. 289. The racketeering acts identified hereinabove were related to one another and

formed a pattern of racketeering activity in that they: (a) were in furtherance of a common goal, including the goal of profiting illegally by fraudulently inducing individuals to buy counterfeit works of art; (b) used similar methods to perpetrate the frauds, including the use of similar misrepresentations regarding the provenance of the counterfeit works; (c) had similar participants; and (d) had similar victims.

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290.

The acts of racketeering activity, discussed above, extended over a substantial

period of time from 1994, and continued until at least October 2009. Additionally, the racketeering acts were a regular way of conducting defendants ongoing business and of conducting or participating in the ongoing RICO enterprise. Indeed, the racketeering acts were a critical means of supporting defendants business. They were sufficiently continuous to form a pattern of racketeering activity. 291. Defendants participated in the scheme through themselves and, in the case of

Knoedler, its representatives, employees, agents, officers, and others whose identities are known only to defendants at this time. Defendants benefitted enormously from the profits they made from the scheme, and the various amounts collected unlawfully. 292. Each defendants participation was critical to the racketeering scheme. They

enabled, conducted, maintained, aided, abetted, and profited from the racketeering scheme: a. Rosales and Bergantinos Diaz by bringing to market counterfeit paintings that they fraudulently misrepresented as works of master abstract expressionist artists; b. Andrade by introducing Rosales to Knoedler and Freedman, encouraging Rosales to sell her counterfeit works through Knoedler, and attempting to imbue authenticity into the tale of the Rosales Collection by lending the name of his deceased, esteemed companion to the provenance of the Collection; c. Knoedler and Freedman by drafting and preparing letters, fraudulent background materials, fraudulent invoices, and other documents, and making oral misrepresentations;

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d.

Knoedler, Freedman, Hammer, and 8-31 by funding, supervising, conducting, and monitoring the conduct of the fraudulent scheme;

e.

All defendants by concealing the scheme or, alternatively, consciously avoiding discovery of the scheme;

f.

All defendants by willfully violating, or being recklessly indifferent to, mandatory requirements of federal law and procedure concerning racketeering;

g.

All defendants by willfully misrepresenting, or being recklessly indifferent to, the material facts surrounding the provenance and authenticity of the counterfeit works that they passed off or schemed to pass off as genuine; and

h.

All defendants by directly and/or indirectly sharing the proceeds of their unlawful scheme.

293. superior. 294.

8-31 is liable as Knoedlers alter ego and under the doctrine of respondeat

Howard has been injured in his business or property by reason of defendants

violations of 18 U.S.C. 1962(c). As a direct and proximate result of these violations, he has lost millions of dollars that he invested in a purportedly authentic work of art that turns out to be worthless 295. By reason of this violation of 18 U.S.C. 1962(c), Howard is entitled to recover

from defendants treble damages plus pre- and post-judgment interest, costs, and attorneys fees.

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SECOND CLAIM FOR RELIEF (Violation of 18 U.S.C. 1962(d) Against All Defendants) 296. Plaintiff repeats and realleges the allegations set forth in Paragraphs 1 through

295 of this Amended Complaint as if fully set forth herein. 297. In violation of 18 U.S.C. 1962(d), defendants and others, including Weissman,

conspired to violate the provisions of 18 U.S.C. 1962(c) in that, beginning no later than 1994 and continuing through at least October 2009, they knowingly agreed and conspired together and with others to conduct or participate, directly or indirectly, in the affairs of an enterprise through the pattern of racketeering activity described above. The sophisticated frauds that were perpetrated, and the continuance of the scheme at issue for at least fifteen years, could not have occurred without the consent and knowing connivance of the defendants together and other conspirators. 298. As part of and in furtherance of their conspiracy, each defendant agreed to and

conspired in the commission of the many predicate acts described above, with the knowledge that they were in furtherance of that pattern of racketeering activity. As part of and in furtherance of their conspiracy, each defendant agreed to and did commit at least two predicate acts of racketeering. Further, each defendants actions are attributable to the other defendants. 299. The defendants actions demonstrate that each agreed to participate in the

conspiracy, and committed overt acts in furtherance thereof. Each was aware of the participation of the other defendants, or, at the very least, knew the general nature of the conspiracy and that it extended beyond his or her direct participation. 300. The conspiracy, in essence, consisted of an agreement to conduct the affairs of the

enterprise i.e., first to establish it and then to maintain its operation and reap its benefits. The purpose of the enterprise and thus, the conspiracy, was, as noted, the marketing and sale of the
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forged Rosales Collection works, including the Work in this case. Thus, the defendants knew that the enterprise would be operated through a pattern of racketeering activity. 301. 8-31 is liable for Hammers violations of 18 U.S.C. 1962(c) because Hammer

participated in the racketeering scheme in his capacity as the President of 8-31. 302. Knoedler. 303. None of the defendants have withdrawn, or otherwise dissociated themselves, 8-31 is liable for Knoedlers violations of 18 U.S.C. 1962(c) as the alter ego of

from the conspiracy at issue or the other conspirators. 304. As a direct and proximate result of each defendants violations, Howard has been

injured as aforesaid in business or property by reason of defendants violations of 18 U.S.C. 1962(d). 305. Because the payment was a direct result of the operation of the conspiracy, it

constitutes an actionable injury pursuant to 18 U.S.C. 1964(c). 306. By reason of defendants violations of 18 U.S.C. 1962(d), Howard is entitled to

treble damages plus interest, costs, and attorneys fees. THIRD CLAIM FOR RELIEF (Fraud Against Freedman and Knoedler) 307. Plaintiff repeats and realleges the allegations set forth in Paragraphs 1 through

306 of this Amended Complaint as if fully set forth herein. 308. Defendants Freedman and Knoedler fraudulently induced Howard to purchase the

Work by knowingly misrepresenting that the Work was authentic when, in truth, the Work is a forgery. 309. Defendants Freedman and Knoedler fraudulently induced Howard to purchase the

Work by knowingly misrepresenting that the Work came directly to Knoedler from an
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individual, whom Knoedler and Freedman knew personally (and from whom Freedman had purchased a work), who inherited it from his father (a wealthy Swiss collector), who obtained it directly from the artist (with the assistance of Herbert). 310. In truth, Freedman and Knoedler did not know the son of a collector who had

originally obtained the Work purportedly from the artist, and had in fact purchased the Work themselves directly from Rosales through cash payments and wire transfers to her live-in companions brother in Spain purportedly without even a cursory look into any of their backgrounds. 311. Defendants Freedman and Knoedler fraudulently induced Howard to purchase the

Work by knowingly misrepresenting that the Work has singular value because it is a distinctive and rare de Kooning landscape and of impeccable quality and provenance, when in reality Freedman and Knoedler knew that the Work was a forgery. 312. Freedmans and Knoedlers misrepresentations were material because Howard

would not have purchased the Work had he known them to be false. 313. Howards reliance on these misrepresentations was reasonable given, among other

things, Freedmans and Knoedlers superior knowledge, Knoedlers 165-year-old reputation as one of the worlds finest art galleries, and explicit and implicit assurances that its invoices were a legal guarantee that works of doubtful authenticity could be returned for a refund of the purchase price. 314. Howard was unable to obtain additional information about the Work because

Knoedler and Freedman refused to disclose the identity of the purported Swiss collector or his son, the purported heir and current owner by descent of the Work.

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315.

Howard could not have discovered the truth concerning defendants material

misrepresentations because it was either kept confidential or known only by the defendants. 316. At no time since Howard purchased the Work has the de Kooning Foundation

authenticated works of de Kooning. 317. In reliance on Freedmans and Knoedlers material misrepresentations and

omissions, Howard was damaged in the amount of at least $3.5 million and additional related expenses, including insurance costs. 318. Because Freedman and Knoedler engaged in the fraudulent conduct stated in this

Amended Complaint willfully and maliciously, and with the intent to damage Howard, Howard is entitled to an award of punitive damages. FOURTH CLAIM FOR RELIEF (Fraudulent Concealment Against Freedman and Knoedler, 8-31 Holdings and Hammer) 319. Plaintiff repeats and realleges the allegations set forth in Paragraphs 1 through

318 of this Amended Complaint as if fully set forth herein. 320. Defendants Freedman, Knoedler and Hammer fraudulently concealed from

Howard facts about which the defendants had superior knowledge, which information was not readily available to Howard, and the defendants intended and understood that Howard would purchase the Work on the basis of the incomplete and incorrect information the defendants provided to Howard. 321. If Howard had known the facts that Freedman, Knoedler and Hammer had

concealed from him, he would not have purchased the Work. 322. Among other things, Freedman, Knoedler and Hammer did not tell Howard that: a. the Work had been delivered to Knoedler by Rosales;

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b.

Knoedler had purchased the work at a price far below what a genuine de

Kooning of similar size and style would be worth, and marked up that price by more than 500%; c. Rosales had delivered approximately 40 works, also purportedly owned by

Mr. X, none of which could be confirmed as having existed before their delivery to Knoedler; d. the existence of the works prior to their delivery by Rosales had not been

and could not be confirmed; e. neither Freedman nor anyone at Knoedler had ever met the purported

owner of the Work; f. neither Freedman nor anyone at Knoedler knew the name of the owner or

his father; g. neither Freedman nor anyone at Knoedler, like most art dealers, knew

much about Rosales; h. Freedman and Knoedler had been introduced to Rosales by Andrade, who

had been Herberts long-time companion and a relatively low-level employee of Knoedler; i. Ossorio was initially identified as having facilitated the sale of works to

the owners father, but there was no record of Ossorio having any connection with works of art delivered to Knoedler by Rosales; j. subsequent assertions that Herbert had facilitated the sale of works to the

owners father were also undocumented (e.g., in Herberts papers, Motherwells papers, de Koonings papers, Pollocks papers, etc.);

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k.

the sale of a work purchased from Rosales and sold to Levy had been

cancelled; l. members of the Taubman family had declined to purchase a work

delivered by Rosales because Knoedler, via Freedman, had adamantly refused to give specific guarantees about its authenticity; m. the vast preponderance of sale proceeds paid by Knoedler to Rosales for

the Work and other Rosales Collection Works would be wired to the Spanish brother of Bergantinos Diaz; n. Bergantinos Diaz had been associated with disreputable art world

activities, including the peddling of forgeries and not paying for works purchased at auction; and o. questions and doubts had been raised about other works delivered to

Knoedler by Rosales, including questions and doubts raised by the heirs of Richard Diebenkorn, IFAR, the Motherwell Catalogue Raisonn Committee, and Eugene Thaw. 323. Freedman, personally, is liable for fraudulent concealment because she

perpetrated the fraudulent concealment and thus participated in the alleged fraud or had actual knowledge of it. 324. Knoedler is liable for fraudulent concealment because Freedman perpetrated the

fraudulent concealment in her capacity as President of Knoedler. 325. Hammer, personally, is liable for fraudulent concealment because he was,

operating through 8-31 Holdings (of which he is the sole owner), effectively the beneficial owner

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and controlling member of Knoedler, directed many of the fraudulent activities and concealment, and had actual knowledge of the alleged fraud. 326. 8-31 is liable for fraudulent concealment because it was effectively the beneficial

owner and controlling member of Knoedler, was Knoedlers alter ego, directed many of the fraudulent activities and concealment, and had actual knowledge of the alleged fraud. 327. Freedman, Knoedler and Hammers failure to disclose the truth and facts about

the Work and the Enterprise Works has damaged Howard because he would not have purchased the Work had he known these facts. 328. Many of the defendants disclosures were either false or misleading partial

disclosures designed to induce Howard to purchase the Work. 329. The true provenance of the Work, which at all times was known to Freedman,

Knoedler and Hammer and hidden from Howard that it was from Rosales and Bergantinos Diaz, and has no known source other than them renders the Work effectively valueless. 330. Kooning. 331. As a result of the defendants failure to provide Howard with the full information The Work is valueless for the additional reason that it is not a genuine de

at only the defendants disposal, Howard as the defendants intended purchased the Work and suffered damages as a result of paying $4 million for a work that is a forgery. 332. Howard could not have discovered the undisclosed information because it was

either kept confidential or known only by the defendants. 333. Because the defendants engaged in the fraudulent conduct stated in this Amended

Complaint willfully and maliciously, and with the intent to damage Howard, Howard is entitled to an award of punitive damages.

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FIFTH CLAIM FOR RELIEF Aiding and Abetting Fraud (Against Andrade, Bergantinos Diaz, Hammer, 8-31, and Rosales) 334. Plaintiff repeats and realleges the allegations contained in Paragraphs 1 through

333 of this Amended Complaint as if fully set forth herein. 335. Defendants Knoedler and Freedman perpetrated a fraud on Howard as set forth in

this Amended Complaint. 336. Rosales, Hammer, Bergantinos Diaz and Andrade had actual knowledge of the

fraud, or at a minimum, consciously avoided knowledge of the fraud. 337. Rosales and Bergantinos Diaz had knowledge of the fraud by virtue of the fact

that they provided the forged works to Freedman, receiving compensation for the same. 338. Andrade had knowledge of the fraud by virtue of the fact that he introduced

Rosales to Freedman and others at Knoedler in the mid-1990s and participated in meetings relating to the fraud thereafter. 339. Hammer had knowledge of the fraud by virtue of, inter alia, (a) the IFAR report,

(b) his contemporaneous awareness of the details of each transaction, (c) the documents demonstrating Knoedlers failed efforts to verify the Rosales Collection, and (d) the outsized profits Knoedler made on the sales of works from the Rosales Collection, which for years accounted for all of Knoedlers profits. 340. Rosales and Bergantinos Diaz provided substantial assistance by providing the

forged works to Freedman and introducing them into the market. 341. Andrade provided substantial assistance by introducing Freedman to Rosales and

by providing Freedman with the name of his personal friend David Herbert, lending credence to the scheme.

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342.

Rosales, Hammer, Bergantinos Diaz and Andrades actions in assisting and

concealing the fraud are the proximate cause of the damages Howard has suffered. 343. million. 344. 8-31 is liable for Hammers conduct in aiding and abetting the fraud because By virtue of the fraud, Howard suffered damages in an amount no less than $4

Hammer participated in the racketeering scheme in his capacity as the President of 8-31. 345. 8-31 is liable for Andrades conduct in aiding and abetting the fraud under the

doctrine of respondeat superior. SIXTH CLAIM FOR RELIEF Conspiracy to Commit Fraud (Against all Defendants) 346. Plaintiff repeats and realleges the allegations set forth in paragraphs 1 through 345

of this Amended Complaint as if fully set forth herein. 347. Defendants Freedman and Knoedler perpetrated a fraud on Howard as set forth in

this Amended Complaint. 348. Along with Freedman and Knoedler, defendants Rosales, Hammer, Bergantinos

Diaz and Andrade maintained a corrupt agreement and enterprise in which they knowingly misrepresented the provenance of paintings provided by Rosales for the purpose of selling the forged works as authentic. 349. Rosales, Bergantinos Diaz, Andrade, and Freedman participated in multiple

meetings to discuss and alter the story regarding the provenance of the Rosales Collection works, giving rise to the inference of a conscious, corrupt agreement. 350. Hammer had knowledge of the fraud by virtue of, inter alia, (a) the IFAR report,

(b) his contemporaneous awareness of the details of each transaction, (c) the documents

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demonstrating Knoedlers failed efforts to verify the Rosales Collection, and (d) the outsized profits Knoedler made on the sales of works from the Rosales Collection, which for years accounted for all of Knoedlers profits. 351. Rosales, Bergantinos Diaz, Andrade, Freedman and Knoedler each committed an

overt act in furtherance of the conspiracy by falsely stating the provenance of the works, both orally and in writing. 352. 353. Howard was damaged by defendants fraudulent conspiracy Because the defendants engaged in the conspiracy to commit fraud stated in this

Amended Complaint willfully and maliciously, and with the intent to damage Howard, Howard is entitled to an award of punitive damages. SEVENTH CLAIM FOR RELIEF (Breach of Warranty Against Knoedler) 354. Plaintiff repeats and realleges the allegations set forth in Paragraphs 1 through

353 of this Amended Complaint as if fully set forth herein. 355. Prior to and at the time of the sale, for the purposes of inducing Howard to

consummate the transaction and as part of the basis of the bargain, Knoedler, acting through Freedman, represented to Howard expressly and unequivocally that: (1) the Work was created by Willem de Kooning in 1956-57; (2) the Work was owned by the son of a Swiss private collector who obtained the Work from de Kooning via David Herbert; (3) the Work came directly to Knoedler from an individual, whom Knoedler and Freedman knew personally; and (4) the Work was a rare and distinctive example of a de Kooning landscape and that it was of impeccable quality and provenance. 356. 357. These representations were communicated directly to Howard by Freedman. These representations were also communicated by Freedman to Frankfurt.
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358. 359.

These representations constitute express warranties under N.Y.U.C.C. 2-313(1). In addition, the representations concerning authenticity and provenance in the

invoice by defendants (who are art merchants) to Howard (who is not) constitute express warranties under 13.01 of the New York Arts and Cultural Affairs Law. 360. Howard, in agreeing to consummate the transaction, relied on Defendants

express warranties concerning the Works authenticity, provenance and rarity. Howard would not have purchased the Work at any price had he been aware that defendants warranties were false. 361. The doctrine of equitable tolling applies to defendants breach of warranty as

Freedman and Knoedler concealed this information from Howard such that Howard was unable, despite due diligence, to bring his claims in a timely manner. 362. The nature of the wrong was self-concealing. There was no way for Howard or

any other victim to ascertain the accuracy of Knoedlers warranties, and Knoedler intentionally concealed all information that would place a purchaser on notice that there were serious concerns with the Rosales Collection works, including the FBI investigation and the Herrick Feinstein report that caused Knoedler to discontinue sales of Rosales Collection works. 363. In addition, Knoedler took several affirmative steps to prevent Howards

discovery of his claim. The February 11, 2011 letter from Frank Del Deo to Pierre Lagrange (referenced at 239 above), which was sent at the direction of Hammer, was intended to keep Lagrange and his adviser, Jamie Frankfurt, from learning of Knoedlers misconduct. Because Frankfurt advised Howard as well, the letter effectively restated the misrepresentations about the Rosales Collection to Howard as well.

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364.

Additional affirmative steps by Freedman, Hammer and Knoedler include (a) the

continued marketing of Rosales Collection Motherwells through 2009, (b) Hammers suppression of the Herrick Feinstein report, (c) his edict that Knoedler employees not divulge any information that would lead purchasers to believe there were problems with the works they had purchased, and (d) his October 27, 2009 letter to all Knoedler clients whitewashing the reasons for Freedmans termination. The cover-up ordered by Hammer lasted until November 2011, when news that the Lagrange Pollock was a forgery became public. 365. Once Howard learned of the issues with the Work, he pursued his claim

diligently, and filed it within seven months. EIGHTH CLAIM FOR RELIEF (Unilateral Mistake Plaintiff Directly Against Knoedler) 366. Plaintiff repeats and realleges the allegations set forth in Paragraphs 1 through

365 of this Amended Complaint as if fully set forth herein. 367. A unilateral mistake existed by virtue of Howards mistaken belief that: (1) the

Work was owned by a Swiss private collector who obtained the Work through David Herbert and passed title by descent to his son; (2) there were no questions about the Works authenticity; and (3) the Work was fully marketable. 368. 369. Howard purchased the Work without any knowledge of these mistakes. Howard would not have been able to ascertain the truth concerning his mistaken

belief at the time of the sale of the Work because such information was exclusively in the defendants possession. 370. purchase. 371. Howard fully performed all of his obligations under the purchase agreement.
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Howard exercised reasonable diligence in investigating the Work prior to its

372. the purchase.

Howard has no adequate remedy at law. As a result, Howard is entitled to rescind

NINTH CLAIM FOR RELIEF (Unilateral Mistake Plaintiff as Assignee Against Knoedler) (In the Alternative) 373. Plaintiff repeats and realleges the allegations set forth in Paragraphs 1 through

372 of this Amended Complaint as if fully set forth herein. 374. A unilateral mistake existed by virtue of Frankfurts mistaken belief that: (1) the

Work was owned by a Swiss private collector who obtained the Work through David Herbert and passed title by descent to his son; (2) there were no questions about the Works authenticity; and (3) the Work was fully marketable. 375. 376. Frankfurt purchased the Work without any knowledge of these mistakes. Frankfurt would not have been able to ascertain the truth concerning his mistaken

belief at the time of the sale of the Work because such information was exclusively in the defendants possession. 377. purchase. 378. 379. Frankfurt fully performed all of his obligations under the purchase agreement. Frankfurt has no adequate remedy at law. As a result, Frankfurt is entitled to Frankfurt exercised reasonable diligence in investigating the Work prior to its

rescind the purchase. 380. Howard, as Frankfurts assignee, is entitled to assert this claim against Knoedler.

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TENTH CLAIM FOR RELIEF (Mutual Mistake Plaintiff Directly Against Knoedler) (In the Alternative) 381. Plaintiff repeats and realleges the allegations set forth in Paragraphs 1 through

380 of this Amended Complaint as if fully set forth herein, except that he pleads this claim in the alternative to his allegation that Knoedler knowingly defrauded him. 382. A mutual mistake existed by virtue of both Howards and Knoedlers mutual

mistake that the Work was an authentic de Kooning. Howard never would have paid Knoedler $3.5 millionand Knoedler, in good conscience, never would or could have accepted $3.5 millionfor a painting that the parties did not believe to be an authentic de Kooning. 383. mistakes. 384. 385. the purchase. ELEVENTH CLAIM FOR RELIEF (Mutual Mistake Plaintiff as Assignee Against Knoedler) (In the Alternative) 386. Plaintiff repeats and realleges the allegations set forth in Paragraphs 1 through Howard fully performed all of his obligations under the purchase agreement. Howard has no adequate remedy at law. As a result, Howard is entitled to rescind Howard agreed to and did purchase the Work without any knowledge of these

385 of this Amended Complaint as if fully set forth herein, except that he pleads this claim in the alternative to his allegation that Knoedler knowingly defrauded him. 387. A mutual mistake existed by virtue of both Frankfurts and Knoedlers mutual

mistake that the Work was an authentic de Kooning. Frankfurt never would have paid Knoedler $3.5 millionand Knoedler, in good conscience, never would or could have accepted $3.5 millionfor a painting that the parties did not believe to be an authentic de Kooning.

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388. mistakes. 389. 390.

Frankfurt agreed to and did purchase the Work without any knowledge of these

Frankfurt fully performed all of his obligations under the purchase agreement. Frankfurt has no adequate remedy at law. As a result, Frankfurt is entitled to

rescind the purchase. 391. Howard, as Frankfurts assignee, is entitled to assert this claim against Knoedler.

WHEREFORE, plaintiff demands judgment as follows: a. Awarding Plaintiff compensatory damages in an amount to be determined at trial, but no less than $3.5 million, plus interest; b. Awarding Plaintiff treble damages under 18 U.S.C. 1962(c) and (d), on Plaintiffs RICO claims; c. Awarding Plaintiff reasonable attorneys fees under 18 U.S.C. 1962(c) and (d), on Plaintiffs RICO claims; d. Awarding Plaintiff punitive damages in an amount to be determined at trial, but no less than $1 million by virtue of defendants willful and intentional tortious misconduct; e. f. Awarding Plaintiff the costs and disbursements of this action; and Such other or further relief as the Court deems just and proper.

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JURY TRIAL DEMANDED Pursuant to Fed. R. Civ. P. 38(b), Howard demands a trial by jury. Dated: New York, New York October 21, 2013 CAHILL PARTNERS LLP ___s/ Ronald W. Adelman_____ John R. Cahill Ronald W. Adelman 70 West 40th Street New York, New York 10018 (212) 719-4400 Attorneys for Plaintiff John D. Howard

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