US Crackdown on Sanctions Cheats Turning to Art Works

there to destroy everything everything. Toward the end of World War Two, an army unit nicknamed the monuments Men race to track down and recover priceless artwork stolen by the Nazis before it could be destroyed or moved. The movie aptlete titled The monuments Men, is based on their recovery

of more than five million works of art. It may not be as dramatic as going into a war zone, but today federal prosecutors in New York, known as the Klepto Captured Task Force, are working to track down and sees artworks boad or sold by Russian oligarchs as long as ten years ago, even targeting specific works of art like Mornes Lebasan on Nefia and serving subpoenas on high end auction houses. The goal is to get the assets before they can be moved to another jurisdiction. Joining me

is Bloomberg Legal reporter Eva Benny Morrison. Eva tell us how the US expanded sanctions targeting Russian businessmen since the invasion of Ukraine last year. Since the invasion of Ukraine, and the US government has expanded the number of individuals that are on the sanctions list, and this was to put a lot of pressure on Russia and in protests in opposition to what they were doing in Ukraine. The US was targeting businessmen and their companies who had ties trutin.

Number of these businessmen multi billionaires. They have an interest in the final things my real estate, artwork, yachts, cars, and all the rest of those things. And some of those assets have been contained and brought old traders in the US. So it's definitely impacted some of those items. So what are federal prosecutors looking into specifically with these

works of art and all the rest of it. The US has had sanctions with for a long time, but there seems to be a real laser focus at the moment on figuring out if any of those sanctions are being violated for federal prosecutors attached to this relatively new task force called Clepto Capture trying to track down assets like artwork and Middle States that was bought and sold by Russian oligarchs anywhere from five to ten years ago.

We've seen this focus in the art world. Recently, what's been happening is prosecutors are sending subpoenas to some of the major auction houses based in New York asking for any information to do with transactions with Russian oligarchs or with any shell companies that are known to be associated

with those individuals. And over the past twelve to eighteen months, those inquiries have narrowed, so rather than just seeing prosecutors are asking for information about particular individuals Oleg Dairy, Pasca, Roman and Bromovich and a few other very well known Russian oligarchs, they're also asking for specific pieces of artwork, So that suggests that they've got some sort of intel about particular works that were bought and sold by these

individuals or by companies linked to them. We've seen offshore as well. There's been a yacht owned by a Russian olgark that has been frozen off the coast of Spain, another one in the South Pacific, and there's also been real estate in d C and here in New York City that's been rated by the FBI is part of these investigations. Prosecutors alleged that these two properties in particular are linked to Russian billionaire by the name of ol

Dairy Pasca. So the Department of Justice has indicated recently that they're planning to commence civil forfeiture proceedings against those properties. So are they not only looking at sanctions violations? Are

they also looking at possible money laundering? Yes, the two sort of go hand in hand, I guess because some of the allegations in these types of cases usually are based around the fact that these assets like artwork, property, yachts, were obtained through ill gotten games, so that ties into the offense of money laundering. It can be very difficult to prosecute these sanctions cases, but that is definitely one line of inquiry that prosecutors are going down, and a

bit of an associators avenue. I guess that they're looking at is the facilitators who exist around these oligarchs. We saw recently in the past couple of weeks there were a couple of associates allegedly tied to that same oligarch I mentioned earlier Oleg dairy Pasca, who are accused of

money laundering and helping that oligarch of aide transaction. As you said that these sanctions cases are difficult to prosecute why a lot of these individuals are based offshore to start with, and secondly, it's not as easy as one of certain's best friends or his lawyer or his banker walking into an art gallery in Chelsea and buying a

magnificent piece of artwork. A lot of these transactions are done through shell companies, relatives, names have been used in the past to purchase these kinds of assets, so it takes a very long time to sort of pick apart the web of corporate structures and other obscurities to try and figure out who the ultimate beneficial owner is of a particular assets. And one of the defenses that has been thrown up before from some of these oligarchs is all that property, all that asset is owned by a

relative or a family member. It's not owned by may So that's why it can be particularly difficult to sort of way through all those complexities and jump over all those legal barricades. There are some very famous artworks involved here. When you mentioned your story, bought by fertilizer tycoon Andre Melnichenko was a mone that he paid apparently almost fifty million dollars for. So are they looking to prevent them from being moved? Are they looking to seize these so

that they can stop any movement. Yes, they're going back and looking at artwork that these oligarchs had bought or sold many years ago and trying to figure out where they are now. Prosecutors are going back through years and years of records figure out whether artworks previously bought and sold by Russian oligarchs who are now in the sanctions

list have been moved out of the country. If they have in the past twelve months from after the most recent round of sanctions, or even the individuals who Room of Sanctions listens to doesn't eighteen, that would be a violation of those sanctions. Who are trying to figure out where those work are, if they have been moved out of the country, how long ago they were moved out of the country, how they got out, whose names that

they were shipped out of as well. You know a number of these oliser, their taste for art and their interest in art has been very well documented. And we're talking pieces worth millions and millions and millions of dollars. So it's been very interesting, I guess the prosecutors to try and figure out where some of these artworks are.

And there's a recent case actually where one of the oliser had bought more than a dozen pieces of artwork in two thousand and eight and they just sat in a storage facility in New York until two thousand and eighteen nineteen, when someone who worked for him tried to have him set out of the country. Yeah, and that man has been indicted, Graham Bottom Carter, and he's fighting extradition,

that's right. He's based in the UK, Graham Bottom Carter, and he was working for over Dairy Pasca, and the prosecutors alleged that while he was based in the UK, he contacted an auction house in New York and tried to pass off Derry Pasker's artworks as his own. He tried to have them shipped from the auction house in New York to London, which would have been a clear violation of trade sanctions, but it was actually the auction

house that raised red flag in the first place. They went through their records and saw that the artworks had actually been purchased from under the name of a shell company which was linked to Derry Paska more than ten years ago. And they challenged Graham Bonham Carter around this, and he tried to push back. He said, just give me a little bit more time and I'll come up with some proof to show that it is mine. And he's my credit card statement showing that I'm paying for

the shipping. But it just wasn't enough to convince the auction house that the artworks were in fact his, and they ended up reporting it to OSPAK, which is a part of the Treasury Department in the US that looks after the sanctions. So have all the major auction houses

cooperated with subpoenas and quest for information. When I went to the auction houses last week as part of this reporting, most of them said that yes, we do corporate with law enforcement when they ask, and from what I heard from talking to different sources and the industry and legal sources as well, they do hand over the information when prosecutors are asking for it. It's not good for business

to be violating trade sanctions. It comes with massive fines, and it was already a lot of attention on the art world. In particular, there was a Senate report in two thousand and twenty that looked at money laundering in the art world, and it highlighted a very high profile example where two brothers from Russia, the Rottenberg's, very wealthy individuals, managed to evade trade sanctions and purchase some pieces of artwork from US based auction houses by using a shell company.

Ever since then that the industry has really made an effort to implement their own compliance programs, even though that it's not legislated by law, to try and make sure that won't happen again, and because it really gives some of parts of the industry and the auction houses a

bad name, and they definitely don't want that. So eva despite the major auction houses implementing voluntary anti money laundering programs and even some including in contracts that the buyer or seller not be sanctioned or engaged in criminal activity, it still may not be enough to prevent the true owners of artworks from shielding themselves behind these webs of corporate structures or relatives exactly, and there's not a huge legal requirements on auction houses to dig very deep to

try and figure out who the ultimate beneficial owner of an artwork is. One of the big debates that were sparked by report was whether the art industry should be subject to the same banking and financial regulation requirements as the rest of the financial industry. So that would be the same as some of the big banks and the

art industry. Different auction houses private sellers would have to create money laundering programs which are very time intensive, cost intensive, and it would impose a lot especially on some of those smaller sellers which don't have the same resources as

the big financial institutions. That hasn't happened yet, so you know, some of the big auction houses say that they make a concerted effort to try and figure out who the ultimate beneficial lineries of the piece of artwork, To go and figure out who owns the company that pursues in the artwork. They don't want to miss any red flags. But they're doing that voluntarily. It's not a legal requirement, so there are still some details that can fall through

the cracks. I spoke to one attorney who put it very accurately when he said, it's not like Putain's banker is going to walk into an art gallery on Madison Avenue and by a percsper Is there any estimate about how many millions or tens of millions or hundreds of

millions of dollars of art work are involved. That's a really good question, not that I've seen, to be honest, from the interviews that I did from this reporting, it seemed as if prosecutors were sort of just starting to figure out who owned what, and they were starting to name different pieces of artwork and different scupoenas they were setting to the auction houses so they might start to get a better picture, I guess of how much artwork is left in the US that is actually owned by

some of these sanctioned individuals. Just reminds me in some ways of the monuments men who tracked down Nazi stolen art in World War Two. And it's interesting this same U. S. Attorney's Office in the Southern District of New York has had a few successful investigations in seizing artwork that was stolen by the Nazis two and they've used the same proceedings and sort of the same approach I guess in these cases civil asset forfeiture. Sort of interesting to see

whether they have the same results. Here. There is one interesting example when you asked me about whether they're looking at money laundering. One of the individuals who was named in the subpoenas was Roman and Bromovich, who's one of the more well known Russian oligarchs who used to own

the football team in Chelsea. He's actually not sanctioned in the US, unlike the others who are named the subpoenas, and Bromovich is sanctioned in the UK, which I thought was interesting because it wouldn't be as simple as looking

at him the trade sanctions violations in the US. And when I asked a few different attorneys about these and who practiced in this space, they said that because he is sanctioned in the UK, prosecutors could be looking at whether he is trying to get around those sanctions and use the US financial system, which would be through a form of money laundering. So I think that's a pretty

key example as well. That's how prosecutors are looking at trade sanctions violations as a whole money laundering definitely comes under that. It's a great story. I know a lot of research went into it. Thanks so much, Ava. That's Bloomberg Legal reporter Ava Benny Morrison. Elon Musk is building on his teflon Elon Street cred winning a case in which it seemed like the odds were stacked against him.

Investors claimed that Musk defraunded them when he tweeted four and a half years ago that he was considering taking Tesla private and had funding secured to make the deal happen. It was a risky trial that many high profile executives would have avoided by reaching an out of court settlement, and Musk could have been on the hook for billions,

but he escaped unscathed. After a three week trial in which Musk was the star witness, the jury found after just two hours of deliberations that he was not liable for investors losses. My guest is business law expert Eric Tallely,

a professor at Columbia Law School. A jury in San Francisco took just two hours to clear Musk, despite the judge having decided that the funding secured tweet was false, despite testimony showing that Musk bankers had barely been consulted, and even a week after the treat they were still working out how the deal would be structured and who would pay for it. So Musk got away from a jury verdict against him. Again, maybe you got away with it, but I realized that there is definitely a set of

ground rules to bring one of these simple suits. You can't just rest on your laurels with a you know, definitely a beneficial for the plaintiffs finding that thes this was a false and inaccurate tweet that he said there are more ingredients, and that's what the plaintiffs we're going

to have to contend with here. There are probably two major issues that contributed to the outcome, and possibly some more, but you know, one of them I think was just that there really was a sense that the jury kind of had to, you know, figure out the compared to what story right, If Musk's tweet the funding was secured was incorrect, well, what would it have looked like had

it been absolutely correct? And there it seems to me his his legal team did a good job of saying, you know, at the time, everyone thought Elon Musk could move mountains. So even if he had tweeded out funding kind of close to secured, and I'm still working out some of the details, but I'm pretty sure this is

going to happen. Maybe at the time, that kind of is taken by just about everyone as being the rough equivalent of funding secured, and that mattered, and matters generally for defendants because if the nature of the misstatement, even if it was clearly a misstatement, if the nature of it isn't big enough to be really, really material or to have caused any any losses, the market reaction would have been exactly the same even if he had said

accurately where he was in this process. That is a definitely ironclad defense to a securities lawsuit, and that seems to be something that the defense did very effectively here. The second factor has to do a little bit with

um how you present facts to a jury. This was never going to be the easiest lift for the plaintiff class in this case, in large part because it not only involved getting to understand how these relatively complex securities markets work, but also different plaintiffs that were part of the plaintiff class. They had different positions in the stocks, some of them, you know, we're buying the underlying stock.

Some of them had options positions, those themselves can be horribly complex to try to work through, and the approach in this case was to handle both liability and remedy at the same time. So the sheet that the jury was given on remedy almost looked like a math like a high school math test, and they had to, you know, go through month by months to try to figure out how much that our day by day that the stock

of overpriced and so forth. And there's one quick way to not have to do any of that math, which is to say, I don't think the plaintiffs made their case on the basis of liability, and therefore filling out the rest of the math quiz is not necessary. That's always a challenge in these cases. It's probably you know, the big Roulette wheel spin of what's going to happen in a damages phase of the trial is something that

both sides find hard to predict. And so this was one of these cases where we just didn't see that many cases that go all the way to litigation. This jury, you know, felt evidently comfortable enough in their conclusion that there just hadn't been enough in there to show liability that they were able to conclude, much to their relief, no doubt that they didn't have to then start engaging

in computations related to damages. So the format of the jury said the case against Musk was disorganized, he wasn't sure what the plaintiffs were driving at, and the lawsuits seemed to be relying on just the tweets. He said that Musk's lawyers did a better job of showing that Musk was presenting what he believed to be true and was acting as a genuine bidder for the going private transaction.

Did Musk just mesmerize the jury? I think there's probably always a possibility that Musk has mesmerized someone in a jury pool or a general investing public. He still has some of that gravity defying power that Bloom is definitely at least partially off the rows. Over the last six months, and in fact, Musk's team themselves had moved to try to relocate the trial to Texas under the theory that he couldn't get a fair trial in the Bear That

never happened. Um, But you know, I think that was in part an acknowledgement of the fact that the number of folks out there that are willing to, you know, effectively take it on faith whenever Elon Musk utters something

has gone down. That having been said, I do think that the defense did a good job of, um, you know, trying to make sure the jury trans order themselves back to two thousand eighteen, where Elon must still had an almost an unalloyed mythical, you know, sort of aura around him, and that has more of the ability to move markets even if you're not, you know, saying things with great

certainty like funding secured. And I think that the defense did a good job of taking apart the different ingredients that have to go in to a civil claim for security spraud, finding a couple of those in which it's not really clear that he was acting, you know, from a desire to mislead people, and in fact, you could tell a story as Musk himself did understand, but you know, he was just trying to keep people informed of what was going on, and may have in artfully chosen a

few words, but the gist of his of his message, at least according to him, was truthful. And so you know, it's usually the case in a lot of these business litigation matters that there are multiple parts of a cause of act action that defendants, if they kind of make the world look complex, they have more of a chance of winning on one or two of those elements and all if all of them are required, that's gonna be bad news for the plaintiffs. And so the defense kind

of has that built in advantage here. That advantage was somewhat depleted because of the prior ruling on the falsity of the statement, but the defendant, you know, still kind of had a position of saying, look, all we have to do is win on one of these issues materiality, loss, causation, and the entire case of the plaintiffs is sunk. And they did a pretty effective job of doing that. The plaintifts, in contrast, their effort is really going to be this

is a really really simple case. This is easy to boil down. You know, this is not complicated. This doesn't require the jury members to do you know, double reverse, you know, flipping twists in the air to figure out what was going on. And there, you know, there's gonna be a huge premium on putting on a very linear,

easy to understand case and out of the box. The plaintiffs in this case the theory was a little bit more circuitous to try to get to what the wrong was, and and that can matter particularly, you know what, the jury of your first couple of witnesses kind of you know, send them on a wild goose chase. There's just not a second chance to make a first impression. His lawyer, Alex Spireau, also want a defamation lawsuit against Musk over

his tweet calling a cave explorer a pedo guy. Is this a case of a lawyer who gets elon Musk and knows how to present him to a jury so they get him. Yes, maybe, um, but remember Mr Spirow also was representing Mr Musk in the Twitter acquisition that ended up settling with essentially a complete capitulation from Mr Musk. So you know, in both of these cases, they've you know, they've sort of fought it out to a successful resolution.

But you know, I think it seems to most people that the fight against having to close the deal on Twitter was largely a white flag operation by Team Musk, or at least eventually became one. But you know, listen, the quality of lawyers that Mr Musk has is very high. Spireau as a well, regarded litigator at at Quinn Emmanuel and as a result, you know, it shouldn't be surprising that he's going to find someone that's good at what

they do. And Mr spirow is you know, I think that it also a sort of testament to when do you actually take the case into the courthouse and do the live hearing versus decide to save your powder for another day? And and you know, in the Twitter acquisition they decided to save their powder. They here they decided

to fight and ended up prevailing at the end. I wonder if the difference in the Twitter case and the other cases is a judge hearing the case versus a jury that can certainly matter, the judge is almost always going to be more inclined to stick to their jurisprudential knitting on you know, out of the key elements of the legal claim here and what is proven versus what is kind of you know, gesticulated as a type of an innuendo or hint uh, And so that there may

be something to that, you know, I think this case to the extent that this was at least in part a process of kind of you know, appealing to a lay jury that had hazards in both directions, right. You know, even in picking the jury, there were many prospective jurors that you know, described Mr Musk as being unlikable and detestable and so so I think that you are sort of, you know, playing a little bit more of a game of chance when you're bringing things in front of a

lay jury. But by the same token, you do have the opportunity to persuade them by your demeanored by your character. That probably gets a little bit more play when there's live testimony in front of a jury than in front of a judge. The plaintiffs lawyer in the closing argument said, this case ultimately is about whether rules that apply to everyone else should also apply to Elon Musk. So if another CEO had done this, would they have gotten off

or is it? Well, it's Elon Musk. He's tweeting all day. He's tweeting a lot of nonsense, So you can't take him that seriously. Well, one need not venture very far into history to find other examples of CEOs whose tweets have gotten them into trouble, and in some cases those CEOs have been sued for various manifestations of securities fraud and just about all those cases, the case is just sort of quietly settled. We don't you sometimes know if

there was a payment made, Sometimes we don't. And so one of the key differentiators here is that Mr Musk was willing to just take this into the you know, not only up to the courthouse steps, but over them and and to to litigate the case the one you know, it's kind of left wondering well does this leave what does this leave in its wake for those future CEOs

who may issue improvident tweets? Uh? Is this going to make them more likely or less likely to say we're going to fight this out in court and not capitulate to a settlement. And you know, my sense is that most people who watch these sorts of cases, that's going to be the more durable aspect of the securities fraud lawsuit on you know, the situations, the frequency and the contingencies under which parties will settle the case versus just

deciding they're going to duke it out in court. We've talked about this before, how it's unusual for a securities fraud case like this to actually get before a jury. Did you did others watching this learn anything from this case getting to the jury. I think one of the key lessons is, if you're going to put a securities fraud case in front of a jury, you better be very very conscientious of trying to simplify things as much as possible. That in some cases may mean that you

want to split the liability phase from the damages phase. Uh. It's not entirely beyond one's imagination to think that this jury was thinking, Okay, look, it's kind of a close column liability. You know, I guess I'd lean slightly against, but I lean even more against if I have to do the math quiz to fill out the damages portion

of the case. So there may be, you know, one of the lessons here is that, you know, while there can sometimes be some advantages to just having the same jury process both questions of liability and questions of quantifying damages together, that can be hazardous if essentially the verdict sheet, the verdict form uh starts to look like you're being asked to retake the ssay T or something like that.

And so there may be a couple of takeaways here for future cases that end up going before juries know how to articulate your case in a you know, with relatively few moving parts and possibly you know, try to concentrate people's attentions on the liability phase without you know, sort of clouding folks views on Okay, what were the damages associated with it? So a lawyer for the investors said, we're disappointed with the result and considering our next steps.

What are possible next steps and appeal. Any case like this can be appealed. The problem when you appeal a case that now has some factual findings and then has an award is that to overturn a defense side outcome below appellate level courts are going to be very, very

reluctant to revisit the jury's interpretation of the facts. Here it's given an enormous amount of weight, and only if there's just no reasonable way a juror could interpret facts in the way that they did, would and a palate court saying okay, we're gonna overturn that and maybe throw this back to being relitigated. So appeal is always a possibility. I tend to think in this case that the best that you're going to be able to do on appeal

is retry the case. And you know, and unless you've got a good theory about how you can make is less complicated, uh more approachable to the jury, it may not be worthwhile doing. After all, there is you know, this was a fairly volatile period of time in the

life cycle of Tesla stock. You know, during this period of time, it's definitely the case that Tesla stock was fluctuating wildly, probably not as much as it has fluctuated in the time since, but you know, there definitely was a lot of movement in the stock, largely due to speculation around this potential going private transaction. You know, at some point you're throwing good money after bad continuing to

try to press this particular legal claim. Um. You know, other options may simply be you know, restructuring and rethinking the way that one invest in some of these situations, and uh, you know, possibly placing greater pressure on companies to uh to either audit or in some ways sense or for certain types of tweets that might be sent

out that are informationally sensitive to appeal. Some of the judges rulings, I think most of the judge's rulings were favorable to the plaintiffs, weren't they certainly leading up to the to the actual trial. The plaintiffs were looking like they were playing a fairly strong hands, and some of the elements that they would have to demonstrate had already

been adjudicated in their favor. That having been said, there was a trial for a reason because not all of the elements of the securities proud claim have been adjudicated. And to win on liability, you gotta you gotta run the table as a plaintiff. You can't just went on one or two of these elements, their conjunctive elements, which you've got to win all of So, you know, the the odds had been evened up a little bit by

by some of those prior rulings by the judge. But then ultimately it was clear to everyone that the judge was going to hand over the rest of these determinations to a jury, and there was no guarantee that this jury was going to act in a way that was consistent with how the judge had acted previously. Thanks so much for being on the show. Eric. That's Eric Tallely, a business law professor at Columbia Law School, And that's

it for this edition of the Bloomberg Law Show. Remember you can always get the latest legal news on our Bloomberg Law Podcast. You can find them on Apple Podcasts, Spotify, and at www dot bloomberg dot com, slash podcast slash Law, and remember to tune in to The Bloomberg Law Show every week night at ten p m. Wall Street Time. I'm June Grosso and you're listening to Bloomberg