When you buy a painting, you are not just buying the object. You are trusting the person on the other side of the table to tell you the truth about the price, the title, and the authenticity, and to actually have the money or the artwork when the deal settles. That trust is counterparty risk, and in the art market it is larger than most investors assume. The structures that protect you in a stock trade, a clearing house, a regulator, a fiduciary standard with teeth, are mostly absent here. A single art adviser, Lisa Schiff, pleaded guilty in October 2024 to schemes that cost her clients roughly $6.5 million across about 55 artworks, and she agreed to forfeit about $6.4 million(1). She is one adviser. The pattern she represents is the real risk.
We think the root of most art-market disputes is the same thing: fiduciary practices in this market are murky, and the people on the other side of a transaction are not always required to tell you what they are making. For an investor, that translates into four concrete exposures. Undisclosed markups. Title and authenticity warranties that may not hold. Dealer or adviser insolvency. And the conflicts buried inside auction-house guarantees. We will take them one at a time, with the cases that show how each one fails.
What is counterparty risk in an art transaction?
Counterparty risk is the risk that the party on the other side of your deal does not perform as promised, whether through fraud, conflict of interest, or simple inability to pay. In public markets this risk is heavily engineered away. Trades clear through intermediaries that guarantee settlement, brokers owe defined duties, and disclosure is mandated by law. Art has almost none of that infrastructure. The American art market is roughly $28.3 billion in annual value and remains the largest substantially unregulated market in the country(2).
Here is the part most investors miss. In an art deal, a single intermediary often controls both the asset and the money, with no third party watching. The dealer holds the painting, takes your funds, and tells you what the other side is asking. If that person decides to keep the proceeds, sell the same work twice, or pocket a spread you never knew about, the first you hear of it is usually in a lawsuit. The US Treasury, in its study of the high-value art market, flagged exactly these features: a culture of privacy, heavy use of intermediaries and shell companies, and proceeds held on consignment without segregation(3). Those are the conditions counterparty risk grows in.
Why are undisclosed markups the most common fiduciary failure?
This is the one I think about most, because it is so easy to do and so hard to catch. Imagine you hire an adviser to buy a painting for you. You believe they are working for you, negotiating on your behalf, charging you a commission you both agreed to. What you may not know is that they also bought the work cheaply themselves and are reselling it to you at a markup. If I sell you a $30 million painting that I quietly acquired for $15 million, and I am making $15 million on the side without telling you, that is a secret profit. In New York and under English agency law, an agent who does that has usually breached a fiduciary duty, and the buyer who finds out usually wins.
The trouble is that the line between an agent (who owes you full disclosure) and a dealer (who can buy low, sell high, and keep the spread) is blurry, and the cases turn on exactly which one you were dealing with. The defining example is Rybolovlev v. Bouvier. The collector Dmitry Rybolovlev bought around 38 works through Yves Bouvier, including the Leonardo Salvator Mundi, and later alleged that Bouvier had secretly marked the works up by roughly $1 billion in total while presenting himself as a trusted agent(4). Bouvier argued he was an independent dealer free to set his own resale price. The litigation ran for years across Monaco, Switzerland, and Singapore, and in 2023 the two reached a confidential settlement with no final judgment that Bouvier breached a fiduciary duty(4). The lesson is sobering. Even a billionaire with a $1 billion grievance could not get a clean win, because the legal question of whether the intermediary was an agent or a principal was genuinely hard to prove.
English courts have drawn the same distinction. In Accidia Foundation v. Simon C. Dickinson Ltd, the dispute turned on whether an Old Master dealer who intermediated a sale was acting as an agent owing disclosure of the full resale price, or as a principal entitled to a margin(5). The takeaway from that line of cases is blunt: a dealer is not automatically your fiduciary. Unless your contract says so, the markup may be entirely legal and entirely invisible. We think this is precisely why complicated, opaque transaction fees inhibit new people from entering the market. If you cannot see what the intermediary is making, you cannot price the deal.
How does dealer and adviser insolvency wipe out buyers?
The second exposure is structural. Because a dealer often holds your money and the artwork at the same time, with no escrow and no segregation, their financial failure becomes your loss. The Schiff case is the clean illustration. According to the federal information, she ran two schemes: she sold works belonging to clients, did not tell them, and kept the proceeds, and she took money to buy works and never bought them, using the funds to pay her own debts(1). By the time it surfaced, the money was gone. Clients became unsecured creditors, the worst seat in the room.
The Inigo Philbrick case showed the same failure at a larger scale. Philbrick pleaded guilty to an $86 million fraud built on selling the same fractional interests in artworks to multiple investors, selling works without the owners' consent, and forging consignment agreements and valuations to support it(1). It functioned like a Ponzi scheme with paintings as the chips. When it collapsed, the various "owners" of the same work were left to fight over assets that could not possibly satisfy all of them.
To be clear, these are criminal cases, not everyday dealing. But the mechanism that let them happen is everyday. The asset and the cash sat in one private party's hands, and there was no neutral agent and no audit. That is true of a great many ordinary transactions. The way investors close this gap is to refuse to let any single counterparty control both the money and the work: use an escrow account or a reputable settlement agent so funds are released only when title and condition are verified(6).
Can you actually rely on title and authenticity warranties?
A title warranty says the seller owns the work free and clear and can pass good ownership to you. An authenticity warranty says the work is what the seller claims it is. Both sound like solid protection. The problem is that a warranty is only as good as the entity standing behind it. A warranty from a thinly capitalized dealer who is bankrupt by the time the dispute surfaces is a piece of paper.
Authenticity risk is the one with the famous body count. The Knoedler Gallery, one of the oldest and most respected names in New York, sold more than 40 forged Abstract Expressionist works attributed to artists like Rothko and Pollock, with the disputed value around $60 million(7). The works came from a single supplier with fabricated provenance. Buyers had relied on the gallery's 165-year reputation, and a federal judge ruled in 2015 that whether the gallery acted with fraudulent intent was a question for a jury(7). Knoedler settled most claims confidentially and closed. Reputation, it turned out, was not a warranty.
Title risk is quieter but just as real. When Philbrick sold the same work to several buyers, each holding an apparently valid invoice, all of them believed they had good title, and a court had to sort out who actually did(1). The defenses against this are documentary and independent. Trace the chain of ownership through prior bills of sale, exhibition history, and the catalogue raisonné rather than a one-page dealer invoice. Check stolen-art and lien registries. Where the value justifies it, buy art title insurance, which pays out if your ownership is later challenged, and insist that a financially substantial party stand behind the authenticity warranty(6). The point is to make the warranty collectible, not just present.
What conflicts hide inside auction-house guarantees?
Auction houses present a different version of the problem, because the house often plays several roles at once. It is the agent for the seller, it may be the party guaranteeing a minimum price, and it may be arranging a third-party guarantee. Those roles can pull against each other, and against you.
A guarantee is a promise that a work will sell for at least a set minimum, made either by the house itself or by an outside party called an irrevocable bidder. The irrevocable bidder commits in advance to buy at the guaranteed level and, in exchange, usually earns a fee or a share of the upside if the work sells higher. This de-risks the sale for the consignor, which is the legitimate purpose. But it changes the bidding for everyone else. A guaranteed lot has a built-in floor and, often, a buyer who is financially motivated to see it sell rather than to compete it up. Price discovery, the thing an auction is supposed to provide, gets muted.
For an investor, the practical risk is paying a price that looks like an open-market result but is partly a financed arrangement. The protections here are about reading the room correctly. Auction houses now disclose guarantees and third-party interests through catalogue symbols, so check whether a lot is guaranteed and whether an outside party holds the irrevocable bid before you treat the hammer price as a clean comparable(6). Read the conditions of business to see where the house is acting as principal versus agent, and how it handles buyer default. None of this is hidden if you look. The risk is in not looking.
The Bottom Line
Counterparty risk in art is mostly a disclosure problem wearing different costumes. The undisclosed markup, the insolvent adviser, the uncollectible warranty, the conflicted guarantee, all of them come back to the same structural fact: the art market never built the fiduciary plumbing that other markets take for granted. The largest grievances in the market, including a roughly $1 billion dispute, have turned not on whether a markup happened but on whether anyone was obligated to disclose it.
We do not think this makes art uninvestable. We think it makes the structure of the transaction as important as the work itself. The investor who insists on written disclosure of every commission, who uses escrow so no single party holds both the asset and the cash, who documents the chain of title independently, and who reads what an auction guarantee actually is, has neutralized most of the risk that has produced the famous cases. The discipline that protects you here is not connoisseurship. It is the same diligence you would bring to any private deal where the counterparty controls the paperwork.
Get the structure right, and the painting can be a good investment. Get it wrong, and you may own a lawsuit.
Sources
- Arnold & Porter, "Trust but Verify? Some Lessons From Recent Art Prosecutions," 2024. https://www.arnoldporter.com/en/perspectives/blogs/enforcement-edge/2024/10/lessons-from-recent-art-prosecutions
- Financial Crimes Task Force, "Reframing U.S. Policy on the Art Market," 2025. https://acthinktank.scholasticahq.com/article/130888-reframing-u-s-policy-on-the-art-market-recommendations-for-combatting-financial-crimes-a-comprehensive-report-by-the-financial-crimes-task-force
- U.S. Department of the Treasury, "Study of the Facilitation of Money Laundering and Terror Finance Through the Trade in Works of Art," 2022. https://home.treasury.gov/news/press-releases/jy0588
- Artsy, "Five Legal Cases Changing the Art Market as We Know It"; reporting on Rybolovlev v. Bouvier and the 2023 settlement. https://www.artsy.net/article/artsy-editorial-five-legal-cases-changing-the-art-market-as-we-know-it
- Pryor Cashman, "The Art Law Review," on Accidia Foundation v. Simon C. Dickinson Ltd and dealer-versus-agent fiduciary status. https://pryorcashman.gjassets.com/content/uploads/2021/01/Art-Authentication-1.pdf
- IRM India, "Managing the Unseen Risks of the Art World," 2025. https://www.theirmindia.org/blog/managing-the-unseen-risks-of-the-art-world/
- Artsy, "Five Legal Cases Changing the Art Market as We Know It"; reporting on the Knoedler Gallery forgery litigation. https://www.artsy.net/article/artsy-editorial-five-legal-cases-changing-the-art-market-as-we-know-it