![]() Management, according to sources formerly on the sales team, directed brokers to prioritize high-net-worth clients from the rest. One ex-employee described what he observed as the firm’s “incompetence” for lacking the know-how to mitigate common risks that brokers face when peddling securities to small investors.ĭespite Masterworks’ advertising, which has spanned mainstream outlets like NPR and the New York Times, the company doesn’t always go after the everyman consumer investor. Masterworks, however, has taken few measures to ensure compliance, despite its scale and significant funding, former employees told ARTnews. These ensure brokers do not run afoul of FINRA regulations and incur major fines. In this way, Masterworks’ sales team functions as something like a separate entity, even while taking orders from Lynn and his associates.Ī broker-dealer model is a complicated arrangement and large investment firms have extensive compliance structures. Those brokers are regulated separately from the companies that host them as securities sellers. They’re incentivized with the promise of substantial commissions for the highest performers. In the model, licensed brokers are brought in to sell securities to investors over calls. But reaching that figure has required a series of tactics that some account executives viewed as out of step with norms that dictate legitimacy in the financial world.įor years, Masterworks operated under a broker-dealer model, a setup widely used by major investment banks like JP Morgan and Morgan Stanley. In February 2022, the core sales team was generating an estimated $1 million per day on shares. (Masterworks has denied that any sale has ever been “stuck in limbo,” arguing that it “can use its own funds to finance the purchase via an interest-free loan until fractional investing is complete.”) Managers used that timeline, reps said, to pressure their teams to sell out certain works. ![]() That’s why, at times, Masterworks has secured payment times as long as six months. If a painting’s shares don’t sell out, the sale gets stuck in limbo. Before the money can go from the company’s escrow account to the seller of the artwork, all the painting’s fractional shares must be sold. Once an artwork is purchased, the Masterworks team is put on a ticking clock. ![]() At times, the company has served as a financial backer for the major auction houses, which means taking on financial risk in deals for auctioned work that fail to attract bidders. Masterworks’ acquisitions team works with auction houses and private dealers to select “investment quality” works from the thousands offered up, the company’s head of art acquisitions, Masha Golvina, a former Christie’s exec, told ARTnews earlier this year. Selling Shares of Paintings in the ‘Wild West’.Underpinning those conflicts were employee incentive structures and selling tactics that some former staffers viewed as ethically questionable and that experts say may have put them and the company at risk of violating Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) rules and regulations. Throughout 2022, and at times before, the company has weathered conflicting business strategies, rifts between management and key teams and nonexistent human resources practices, sources said. The backing valued the company at more than $1 billion. By February 2022, the company had bought more than 100 paintings to the tune of $450 million (according to internal documents, that figure rose to $475 million by May).īehind the scenes, however, things have been rocky, according to interviews with more than 20 current and former employees, almost all of whom asked for anonymity due to fear of legal retaliation. In 2021 Masterworks raised $110 million in Series A funding, led by Left Lane Capital and including funding from Tru Arrow Partners, cofounded by MoMA board member Glenn Fuhrman. In short, selling fractional shares of securitized artworks by blue-chip artists to everyman investors, effectively treating artworks like a publicly traded company. Over the past few years, Masterworks, founded in 2017 by serial tech entrepreneur Scott Lynn, has been amassing artworks to feed its unique business model. ![]() Among the art world’s heavy hitters was a relatively new entrant: a five-year-old art-finance start-up called Masterworks, two executives from which were vying for an abstract painting by Gerhard Richter. Allen, a masterpiece-packed event that would end up bringing in a record $1.5 billion. Last month, a crowd gathered at Christie’s Rockefeller Center headquarters to bid on the collection of late tech billionaire Paul G. ![]()
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