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Museum to Lose 212 "Gifts" of Esmerian Folk Art to Bankruptcy Pool

David Hewett | January 28th, 2013

by David Hewett

On December 26, 2012, bankruptcy liquidation trustee Jay Teitelbaum filed documents in the U.S. Bankruptcy Court, Southern District of New York, that, if approved by Judge Robert Drain, would quiet the multiple claims of ownership of approximately 363 pieces of folk art, most of which are now in the custody of Manhattan’s American Folk Art Museum.

At the root of the troubled affair is Ralph Esmerian, former president and trustee of the museum, jeweler, and acknowledged king of the colored gemstone business, whose career has been detailed in these pages before. Esmerian lives in a federal prison now.

Esmerian began collecting folk art in the 1960’s and amassed a huge collection by the time the century changed. He became involved with the American Folk Art Museum and eventually became its president and decided to give a large number of folk art objects to the museum.

The 2001 book memorializing his largess, American Radiance: The Ralph Esmerian Gift to the American Folk Art Museum, has color photos and background information on 341 of those treasures.

The star of the museum’s Esmerian-related collection was an Edward Hicks Peaceable Kingdompainting. It was removed and sold by Sotheby’s at auction in 2008 to satisfy some of Esmerian’s debts with the auction house. It brought $9,673,000, but the buyer reneged on the deal.

Eventually, Sotheby’s was able to find a buyer for the folk art icon—a dealer who represented a major collector, according to the trade. The word on the street was that the auction house sold it at a level deemed a “bargain.”

Ralph Esmerian was a big jeweler who wanted to be even bigger, and he borrowed money to achieve that end. He was willing to put up collateral for the loans; his problem was that he kept putting up the same collateral to different lenders. For example, Merrill Lynch noted in 2008 that the same material pledged to it to secure a loan of at least $185 million appeared to have been pledged to other lenders.

Unfortunately, the collateral for many of Esmerian’s loans consisted of some of the folk art promised to the American Folk Art Museum and already housed there. The wrangle over the collection would lead to the matters detailed in a Manhattan courtroom on the day after Christmas 2012.

In the March 2008 issue (p. 11-A) we reported that we had gone through the lists of security for several of Esmerian’s loans and found that at least 30 pieces shown and described in American Radiance were listed as collateral. Even the striking portrait of Anna Gilman Folsom by Henry Folsom, the very item used on the dust jacket of American Radiance, was listed as collateral for a loan made by Christie’s on May 26, 1998.

That report was, in the main part, dismissed by the museum officials. Some of them pointed out that many objects had been deeded to them and any suggestion that the pieces might be in danger was ridiculous. That claim was true only for some objects given before 2005.

The bankruptcy liquidation trustee’s report validated our assertions. He wrote: “As part of Esmerian’s scheme to defraud creditors, he pledged, hypothecated and otherwise encumbered or transferred the Artwork multiple times to multiple parties, including Sotheby’s and Christie’s.”

That practice eventually caught up with Esmerian, and on May 24, 2010, the jeweler extraordinaire and collector of superlative folk art, with his empire crumbling around him, filed for bankruptcy. Events unfolded swiftly after that.

Esmerian was charged in November 2010 with fraud. In April 2011 he pleaded guilty in federal court to three criminal counts: wire fraud, bankruptcy fraud, and concealment of assets. On July 22, 2011, he was sentenced to six years in prison and ordered to make restitution.

Esmerian’s creditors were owed over $140 million by the time he was sentenced. Bankruptcy court liquidation trustee Jay Teitelbaum was charged with sorting out who owned what and consolidating the assets to satisfy debtors. In the documents ­Teitelbaum filed on December 26, 2012, and the days afterward, the details of the proposed motion approving the agreement reached by the museum, Sotheby’s, Christie’s, and other interested parties were laid out.

The proposed plan has the museum giving up 212 of ­Esmerian’s “promised gifts,” with an estimated value of between $6.3 million and $9.5 million. The museum would retain 53 pieces, with an estimated value of between $7.8 million and $11.0 million. It will get a clear title to the 53, and all other claims and liens will be purged.

If a bankruptcy judge approves the agreement, the 212 pieces will probably be sold at auction to satisfy Esmerian’s creditors, although the option of a private sale is available. Those funds will go into an entity called the RE Liquidation Trust.

Sotheby’s and Christie’s have agreed to drop their liens on specific Esmerian pieces being held by the museum in order to facilitate the matter. If the auction houses had not dropped their liens on museum-housed material (Sotheby’s claim is approximately $1.6 million; Christie’s claim, approximately $1.5 million), and the museum had continued with its claim to everything in its possession (it entered a secured claim of $47 million), the result could be a free-for-all, Teitelbaum threatened.

A court battle pitting one auction house against another with the museum fighting both of them could end in a fight for “all or nothing,” Teitelbaum stated. “If secured creditors are left to their own devices, they will ‘cherry-pick’ the most valuable items of Trustee Art, leaving the Liquidation Trustee with left-overs to sell at a dramatically reduced rate.”

Teitelbaum noted that he objected to the dollar amounts claimed by all three parties. (There were also several lesser claims amounting to around $1 million.) The value set on the “Trustee Art,” $6.3/9.5 million, may be partly based upon an offer tendered to the trustee.

In the 30-page Notice of Motion filed on December 26, the following appears: “[I]n ascertaining the estimated value of the Artwork, the Liquidation Trustee has relied upon ongoing negotiations with a private party who has made a bona fideoffer to acquire the Trustee Art for at least $7 million.”

What does the museum keep, and what did it give up? This list is extremely abbreviated, but it is indicative of the quandary the museum faced: keep desired objects and own them clear of any liens, or take a chance on decisions reached at a trial, where others hold equally good chances of succeeding.

The museum gets object numbers 14a and b and 15a and b (the numbers correspond to the numbered illustrations and descriptions in American Radiance), husband and wife watercolor portraits by Jacob Maentel. It is giving up at least five other Maentels. It gets four watercolor portraits by the Shutes (22a and b, 23, and 24). It is giving up two other Shutes. It is keeping two Sheldon Peck portraits (46 and 47) but giving up the Henry Walton portrait of three children (44). It gets 48, a Rufus Hathaway house and harbor scene, and is giving up a fireboard with a view of Boston harbor (probably 51).

It keeps 50, a scenic overmantel by Winthrop Chandler, and 53, the iconic Situation of America, 1848. It is giving up a carved figure of Santa (320), the Robb-carved figure of Santa (321), the figure of a newsboy (323), and a Henkel-carved figure of Punch (324), a rarity. It took 156, a painted dower chest by Johannes Kniskern, and is giving up a paint-decorated ­Mahantongo desk (153) and a Mahantongo chest of drawers (154).

It will lose five Shaker items; over 40 pottery pieces including several Bell family pieces; over 30 Pennsylvania fraktur and birth record watercolor on paper paintings and drawings; about 23 other watercolor paintings; at least seven samplers; at least ten painted and/or carved boxes; a spoon rack, a cake board, and a yarn winder; a Schimmel-carved lion and rooster; and more.

Barbara Livenstein, the public relations manager at the museum, said that the selection of the objects to keep was made by the curator and the trustees. They picked the 53 that would have the greatest impact on the collection.

Until an auction catalog or inventory list is issued describing all the objects to be sold, the fate of some items will remain unclear. Exhibits A and B in the court documents list a total of 265 pieces of folk art kept and released. There are another 98 pieces without identifying numbers, for a total of 363 objects.

If this motion is approved and the folk art is sent to auction, it could be the sale of the decade. When Esmerian was flush with funds, he bought spectacular objects from the top rank of dealers. Many of those pieces came from pioneer folk art collections. If it were all to be offered in one sale, the quality-driven market of 2013 could respond with a fervor experienced only at a few truly memorable and legendary auctions of the past.

Trustee Jay Teitelbaum has a very optimistic idea of how quickly a sale of the Trustee Art can be arranged. A hearing was scheduled for January 29, at which Judge Robert Drain must approve the plan if the sale is to happen. (The January 29th hearing, seeking approval of the proposed agreement in the Esmerian bankruptcy proceedings, has been postponed to March 7.)

Teitelbaum stated “time is of the essence” and implores all concerned parties to move quickly to allow the “Trustee Art to be sold at public auction in and around January 2013.” The museum is allowed to enter bids on any items that eventually come up for auction, but it must do so with its own cash and will have no right to bid with credit from anticipated funds, according to the plan Teitelbaum has devised.

In the meantime, life goes on at the American Folk Art Museum. The account books have been balanced. It has hired a new director, Dr. Anne-Imelda Radice, and expanded the board of directors. New sources of funds have materialized, and planning is underway for new shows. The Ralph Esmerian episode with America’s only museum devoted to folk art may be moving one step nearer to ending.

Proposed Items for AFAM to Keep

(The numbers correspond to the object numbers in American Radiance.)

Proposed Items for AFAM to Relinquish

Originally published in the February 2013 issue of Maine Antique Digest. © 2013 Maine Antique Digest