Sotheby's settles New York tax fraud case, pays damages

By Jonathan Stempel

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

Thursday's settlement resolves claims that Sotheby's let at least eight clients cheat New York state from 2010 to 2020 by using "resale certificates" that falsely portrayed them as art dealers entitled to tax exemptions, instead of art collectors.

James said Sotheby's accepted certificates from one client, a contemporary art enthusiast, who spent more than $27 million on works by artists like painter Jean-Michel Basquiat and sculptor Anish Kapoor, despite knowing he was a collector.

She said some employees even helped the unnamed client display the works at his home, or admired them on the walls. The $6.25 million includes damages, penalties and legal costs.

"Sotheby's intentionally broke the law," James said in a statement. "Every person and company in New York knows they are required to pay taxes, and when people break the rules, we all lose out."

The New York-based auction house did not admit or deny wrongdoing and settled to avoid the time, expense and distraction of litigation, according to the settlement agreement.

Sotheby's reforms include a new policy on resale certificates and improved employee training to determine whether art purchasers are planning resales.

James had sued Sotheby's in November 2020, seeking damages and civil penalties for violations of the state's False Claims Act.

In 2018, the unnamed client's company, Porsal Equities, agreed to pay $10.75 million to resolve related New York claims over its use of resale certificates.

(Reporting by Jonathan Stempel in New York; Editing by Lisa Shumaker)

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