There is something French about this and I can’t pin it down. One thing is explained clearly by American P. T. Barnum, “There’s one born every minute”. Hats off to this bird.
10
Great story about the usual suspects. Flashy sales, lots of spending, greed, people being fleeced while believing what they want to believe and a guy in the back of the room yelling "the king has no clothes".
13
Over 150 years ago, in the 1850’s, Charles MacKay wrote an amusing book entitled “Extraordinary Popular Delusions and the Madness of Crowds: The Classic Guide to Crowd Psychology, Financial Folly and Surprising Superstition.” If Mr. MacKay were alive today, I’m certain he would have included chapters covering the financial follies of Messrs. Madoff and Lhéritier.
13
Lhéritier was greed personified. Autographs are not art. Sure they have value, however, they are far more volatile than art and should never be purchased strictly as an investment. Collectors should buy first because they love the piece. Lhéritier convinced investors that they were a commodity. He then went into the market, far from an expert and paid fantastical prices at auction and from dealers well beyond their marketplace value. Then he put a profit on top and tried to sell the autographs which were already maxed out when he originally bought them. A recipe for disaster and it came. There is still a consortium operating in Europe today doing the same thing, only a little more quietly. That house of cards will crumble as well when the investor(s) start to get antsy and the time is coming as the autograph market is now saturated at the high level due to the sheer quantity in the former Aristophil holdings being sold at auction. Truly a sad state of affairs for a truly honorable hobby historically sold by real experts quietly.
14
This article itself is stunningly literary - may be a rare one in a newspaper - for a long time to come.
An extremely well written article with adjectives, synonyms and comparisons to make it a masterpiece of journalism.
I share a comment below.
Don't elevate Madoff to this man.
Madoff never ever even showed folks any receipts, or nothing of value such as these rare books and manuscripts.
He simply said "trust me."
I have been to France and am keen follower of France and especially its politics.
I think there is something to it when he says - it's a class resentment.
But really, who are these "peasants" who invested their life time savings in something that they probably would never hold in their hands and if given ancient prose - would not understand it.
Greed knows no class distinctions.
19
I'm curious what, if anything, French securities law has to say about Lhertier's sales to investors. In America the shares would be considered "securities" and thus unable to be (legally) sold in private sales to middle-class investors. Of course people still violate those laws and middle-class investors get fleeced. Perhaps it worked the same way in this situation in France.
4
Lhéritier was a clever man: he understood the human passion in our "civilized" societies to own things of "value" and keep them speculating on their increasing value over years. Most art things are displayed (pairings, sculptures etc.), but the rare books and autographs need protective "hiding". Understanding the principle of speculation, Lhéritier decided to break through the barrier of respectability and become a disruptor. But he needed lots of money to pay the inflated prices at auctions. He created a inflated bubble in that speculative domain, but had the ingenious idea to couple speculation with the fractioning ownership via his also inflated share business. So far so good. But his totally ambivalent buyback clauses in contracts show his fraudulent intent. And he got so many "experts" to abandon good judgment and prostitute themselves for money in helping to inflate the speculation which attracted more share buyers who were so greedy that they did not read/understand the contractual ambiguities regarding the buyback clauses.
Lhéritier did not engage a Ponzi scheme but operated in a different fraudulent manner exploiting brutally both speculation and deception. Quite a genius of betrayal in the world of bourgeois cultural valuation of esteemed "things".
10
There should be laws to prevent stupid people from doing stupid things! Or maybe not.
5
I couldn't help but read Trump into virtually every paragraph.
11
For years now we’ve seen the “value” of established artists works inflated by speculation and ego acquisitions by the world’s plutocracy. So Van Gogh’s and other desirable works go for multi millions and are stored in warehouses by Saudi royalty. How is this any different than the market manipulation by Christie’s or any other auction house or for that matter the many sellers of antiques who game a limited clientele for the highest price. The values are all speculative and subjective. He got “experts” to exaggerate the worth of the works he wanted people to invest in and this is different than financial types selling stocks and bonds or other forms of speculation? Greed makes people do stupid things, 10 cents on the dollar eh, quite the return on ones “investment”. Sad
12
Not the Republic of letters is this case, rather "La République des chiffres" ( Republic of Numbers).
1
Gérard Lhéritier found a way to finance his dream with the money from other people’s greed. The allure of ‘owning a piece of history’ has been romanticized and ‘sold’ to many well funded individuals throughout history. It goes hand-in-hand with the get-rich-quick-from-easy-paths-to-generous-returns-on-investments, mindset.
It seems that everyone involved in this affair should sound a “meaculpa.”
A good read. Can’t wait for the Netflix series.
5
Is there a French version of American Greed? Would make for an entertaining episode.
2
Sorry - I have no sympathy for retirees who invest all of their retirement savings in an investment scheme that promises extravagant investment returns.
The old adage still applies: if something is too good to be true, it probably is.
I do support the arrest and prosecution of perpetrators of these scams, but I feel little remorse for people who invest I get rich quick schemes.
13
The silver lining is perhaps these great artefacts of the height of Civilisation through the centuries are being written about and dispersed in a way that would not be possible if they were sold one by one under normal market circumstances.
7
In a world where a banana duct-taped to a wall can be valued to the tune of over a hundred thousand dollars, white paintings hang in museums and up is down, why is anyone complaining about Lheritier over-inflating the price of the items he owns? The items in his collection were authentic so I don't think price should be the main point of contention for the people pursuing him.
27
@acid2 The buyers were purchasing divided up shares of these documents, not the documents themselves. How much would you pay for a share of a Rolls Royce that you would never see or ride in?
12
@spb I would pay zero
4
A French take on a Ponzi scheme. Strange, I follow the news here, but don't remember hearing about this, hmmm. Madoff is alive and well in the Cotes d'Azur.
13
Echoes of the wine fraud. The credulous buyers, the complicit “experts”, the charismatic “self-made” charlatan at the helm. Same story, over and over.
34
Fascinating example that fact really is stranger than fiction and if it looks too good to be true... Well, you know the rest.
16
Interesting article. Though I disagree with the writers analogy. This is not a Madoff like case. Which part is a ponzi scheme? Madoff case was that he actually never bought the stocks and printed fictitious Statement! This man / entity has bought the items and they are authentic. He just did price fixing ! So so so many Collectors do over value their assets. That is not a Madoff scheme ! The Writer doesn’t understand how this market works
Totally disagree with the analogy!
As a Collector myself and a family that has had a Collection for a few generations, the price of any of these pieces only appreciates over time. That is why good Collectors don’t sell. It gets passed on for generations. But by doing a mass auction, flood in the market, the Government is devaluing these pieces. And of course the items sold are less valuable too because there is a flood !
It’s just the way the type of investment structure was wrong! It’s as though you think you are investing in an Equity Fund, the traders are doing Options.
Can someone post where I can find the items for auction? Is there a website?
19
@Stephanie
While you are correct to note that this was not a true Ponzi scheme -- I think you are overlooking the element of fraud here.
As the article points out, there were apparently explicit (albeit arguably ambiguous) contract terms to repurchase the items at some later date at a higher price imputing an impressive rate of return. A rate of return that could never be achieved over the stated investment time period of just several years.
But let's not shed too many tears for the supposed "victims" be they elderly or not, retirees on limited incomes or tycoons of industry. The promised rates of return were of such magnitude that they would set off alarm bells in any truly honest investor. Nine percent per year for an autographed manuscript?
These "victims" were motivated by greed and were burned for it. Too bad; so sad. But if something sounds "too good to be true" then it most assuredly is.
19
@Stephanie The values fluctuate precipitously depending upon whose interested and the flavor of the month. With the exception of a very few handful of names, it is a rotten investment. You collect because you love the piece. Iv'e seen values over the past 20 years drop precipitously due to the fact the younger generation is not a collecting one, the older generation dies off and eBay and websites have exposed more autographs than the marketplace can handle. Aristophil has further destroyed the market as this giant collection is being dumped in the marketplace and there is not enough money to swallow it for past prices.
5
People seem to have never lost their infatuation with Tulips.
39
My dad always told me, "You can't cheat an honest man." I got cheated a few times before I realized the truth in those words. Anyone who has ever bought steaks from the guy on the truck who told you he "had extra they put on by accident" or even bought a $100 box of rocks that was supposed to be a brand-new, unopened (hot!) 26" color television can tell you that.
11
That's why I stick to CDs...never made a fortune...but never lost one either.
8
I collect books by and about H.L. Mencken, including some that are autographed and first editions. I have never counted them up, but I would guess they altogether number around 200.
I also have a few of his letters.
I have no idea of what they are worth, but probably no more than
a few thousand dollars.
I have been doing this now for around 40 years, during which time
they have provided me with countless hours of glorious reading -- while simultaneous serving as a laugh-out-loud resource in my home that allows me to escape the everyday cares of the world whenever I choose to and as a hideaway to retreat to whenever I am in need of a wise and stimulating friend to exchange thoughts with.
https://www.theparisreview.org/blog/2016/04/20/the-h-l-mencken-show/
16
... while simultaneously serving ....
2
I literally have zero sympathy for daft retirees who invested entire lives worth of earnings on such a ridiculous investment vehicle as "historical manuscripts". Get a Vanguard fund like a normal person for Pete's sake.
38
Whatever happened with the Economists' dictum: caveat emptor? Certainly the French would be aware of the term dealing with any investment! Pity, not even mentioned in the otherwise inspiring story and article.
4
Why do old people on limited means fall prey to this kind of a scheme time and time again? Only invest what you can afford to lose.
13
Great weekend read...!
7
Rats, there goes my plan to corner the market for collectible beenie babies and Pokémon cards like the Hunt brothers did with silver and then monetize the collection by selling shares to naive investors with vague promises to buy them back.
14
@doug mclaren and those things will, ieventually increase in value, like old comic books. There is also a difference between "collectables" and unique objets d'arte. where the escalation in value is gradual, but often volatile, going up and down with fashion. It's the buyback promise that's the sting.
“falls somewhere between the Soviet Union and the Republic of North Korea.” - Mr Reille, please tell us how many bullet holes your client has.
It is easy to play the victim card when the real victims are the people who got taken in by this swindle.
19
The key is the question "who will buy these back?"
During the Beany Baby balloon, or the Pound Puppy balloon, the housing balloon or any of the many, many others, going all the way back to tulip bulbs in Holland, that is always the question nobody seems to ask.
Values can be listed at anything you care to list them at. Getting that price is another matter.
But because nobody asks the question, and everyone thinks there's some miracle scheme they just need to get in on to get rich, shysters like this guy will always find ripe pickings.
22
Another victim of the EuroMillions Lottery Curse.
7
This entertaining story reminds me of Balzac's Madame Descoings, in La Rabouilleuse (The Black Sheep), staking her money on the same numbers in the Paris lottery year after year and finally winning -- except, l'horreur! -- only to find out the money she entrusted to the soldier Philippe for him to purchase her usual ticket was stolen by him instead. Mr. Lhéritier's story much more diverting than Madoff's, by far.
16
"breathtaking collection" ? LOL.
1
I own shares in a semi-colon written by Roland Barthes. Now someone tells me he only used dashes. Where is my recourse?
41
I'm disagree with the comparison to Madoff. This scheme was so much more delicious. Crafted like a rare Bordeaux that had been aged in ancient cellars to a point of exquisite refinement.
It is a fraud so refined in its development and beautifully executed with such flair and joie de vivre that it can only be French!
28
“It’s hard to imagine another place on earth where a frenzy could be whipped up over the personal letters of Voltaire or autographed scores by Mozart.”
Words only an American could write and actually believe.
64
Even if they never got anything for it, it was cheap at that price. Without malice aforethought I had given them the best show that was ever staged in their territory since the landing of the Pilgrims! It was easily worth fifteen million bucks to watch me put the thing over.
Charles Ponzi
10
I had letters from Mick Jagger that were auctioned off at Sotheby’s on December 5th, 2013 that we’re purchased by Aristophil. I would love to find out where they are now. And since I’m in Paris I might even want them back.
9
Engaging, interesting and well written piece. The screen play is probably already being finalised, who will be cast in the leading role?
23
No expert, but is that a bulletproof vest under the suit? He may have had reason to fear already at the time of this photo.
The basic business model is sure interesting, though. No, not the Ponzi part.
9
Sometimes a vest is only a vest
1
@Is are you referring to the French expression: se prendre une veste?
means to fail miserably at something. I detect a play on words here, no?
1
Fascinating article. There is indeed something Madoff-like about this, but I think it is more of a CDO-type scandal. At its root, it was an acceptable (if overly aggressive) arrangement. Defenders can say that he only did what others were doing, only on a greater scale. However, clearly he crossed a line, and these cases are helpful because when punished (as they should be) they provide corrective nudges to a system with lines that are difficult to draw exactly. Legislation is another corrective measure that could be helpful.
So... when will there be justice for the CDO scandal? Why has no-one been jailed? The corrective measures have not been taken. We are setting ourselves up for the next one. (Do not fear, God will judge at the end)
4
Good story and well written. Excellent illustrations not to be forgotten.
9
Is this a Ponzi scheme in the usual sense? He was not passing-through cash invested by his most recent investors as returns to his earlier investors—which would have been a Ponzi scheme.
Rather, what I understand is that he has securitised the letters —by issuing securities ‘backed’ by the letters and distributing them to investors—, and found investors willing to pay a dear price for those securities, well above what a reasonable estimate of their value would be.
So it looks more like a bubble on securitised assets, fuelled by mania, financial innovation, marketing and all those usual ingredients that you find in bubbles and krachs, but not so much like a Ponzi scheme. No?
32
@Sarah I think it is a ponzi because he used proceeds from selling shares in documents to buy additional documents which would then be sold in shares and so on.
... It is also true that he grossly inflated the value of the documents underlying the securities and that would also be a fraud if he misrepresented the value of the documents he was selling e.g. Einstein documents acquired at auction for 560,000.00 sold for 13,000,000.00
16
@Gstall What else should he have done with the money? Would you be equally upset by a mutual fund used that money you paid it to purchase more stock. He was dealing in unique items, and was trying to if not corner the market, at least be its leading figure.
Even the overinflation of value is not totally unreasonable, only the time frame in which it was supposed to happen. I own things purchased at auction years ago that are now worth many times what I paid, and could no longer afford to buy at auction.
I am upset by the suggestion that he would buy back the shares at a guaranteed profit, an impossible promise. Also, what this kind of manipulation does to upset the rare book market, which is a tiny niche to begin with.
Not Madoff, but Barnum.
1
Eventually, these rarities would become valuable. Forcing sales now, flooding the market, makes the accusation of a Ponzi scheme a self-fulfilling prophesy. Many investments prohibit the time for getting out to at least 10 years. That is what should have been negotiated.
10
@Toms Quill
Eventually, we're all dead. "Eventually" is meaningless. And that's without mentioning global heating and the possible collapse of civilization.
17
@Toms Quill From Antiques Roadshow..."If its brown, its down." As tastes in furniture change, the value of specific pieces of furniture change. Why would these documents be any different? An old side table can go down in value, so can letters from old authors. There is absolutely no reason to assume they would "eventually" go up in value.
5
As long as modern humans attach success in life to the tail of the money "donkey," metaphorically speaking, schemes, cons and all manner of fraudulent offerings will appear in the financial wealth development market. And, it's hard to refrain from joining these efforts when they offer such bright promises of future returns. I ca't spend "promises."
I also try to remember Michael Lewis' book, "Liars' Poker, when I evaluate these matters. Lewis exposes the variety of seductions stock brokers offer to client large and small, sophisticated and novice alike to separate them from their money.
Be careful and extremely thoughtful before putting your hard earned money in any vehicle with any company. Money does not corrupt in and of itself, but people in quest of your money can behave in most corrupt ways!
28
If an investment seems to good to be true, it usually is. My investments promise no more tan a modest return, and that is the most I ever got.
29
The model of revamping the manuscript/rare documents market is fascinating, and clearly pulled up authentic materials that would not have seen daylight for decades to come, if ever. A shame that greed overtook a very creative idea. And yes, once prices were inflated and too many shares were sold, it did become criminal.
The premise of "The Producers" as well as Madoff.
19
If you're truly of "modest means", you should probably save your money. These items are precious artifacts that should be preserved for the public. Trying to make money off them seems disingenuous to a culture that ostensibly values them.
34
@Randeep Chauhan Far too many to be preserved for the public and not enough cash in institutions to buy them all. Additionally, when placed in institutions, they are boxed up and only shown to authors and researchers who have the educational bona-fides to see them. No one has the display room to show them all, even with rotating exhibitions. Unfortunately your statement is not workable. They have been sold by dealers and at auction for hundreds of years, a time honored tradition.
2
V.S. Prichard, in THE SPANISH TEMPER, observed that the French on average count their money thirty times per month. The fantastic Ponzi Scheme depicted in this article rings utterly true.
19
Hmmm. 136,000 notably precious documents/manuscripts/pieces authored by the luminaries of our time; underpinned by an investment of $1B? Sounds like a great investment to me, at an average of $7353 per piece. The noted auctioned 200 pieces selling for $4.2M brought back $21,000 each, nearly 3X the average. Auctioned off, my guess is that the return for all 136,000 pieces will bring in $$ far north of $1B. Not 10 cents on a dollar.
This comes across as a brazen theft of Mr. Lheritier’s and his investor’s precious property.
11
@Tom you are assuming the pieces at this auction represent a fair sampling of the whole collection. That is hardly a safe assumption.
In point, it is likely they are selling more valuable items first both to be able to pay people back sooner and before the market grows weary and prices deflate.
42
@Tom A flooded market (100 yrs worth of ephemera unearthed and sold to the Ponzi scheme over 15 yrs) devalues many items, if not most. The number of buyers will not expand to cover variable treasures that might only have been put to market by much later generations/descendents of the original owners.
15
@Charles Trentelman It is, in fact, these sales that weary the market and deflate prices. Any honest dealer will advise you to collect only what you love, for you'll probably be living with it for a long time.
1
Quite a story. There's apparently no limit to the creativity of man to rip off his fellow man.
But the people that invested... Unless they were suffering from diminished capacity or were otherwise coerced into investing, then wow, caveat emptor.
While I'm certainly not excusing Lhéritier here, and he should most definitely go to prison for his crimes, people really need to exercise some incredulity where promises of large gains are concerned.
I recall the time-share fad in the 80s and how people thought they were making wise investments. Even as someone in my relatively green early 20's back then, I thought people were nuts to buy time shares. Yet they did, by the hundreds of thousands.
66
To Robert in Florida, you need look no further than Beanie Babies to see that there are many gullible people out there. But in this case, I can see why someone might believe that a unique piece of history, a rare one-of-a-kind manuscript by a famous individual, might hold (and even grow in) value vs. mass produced Chinese stuffed animals.
3
Is nothing sacred? Now if he had a collection of Justin Bieber's letters, that would be an investment.
16
@Amos M well, he did grow up in Stratford, Ontario, home if the Stratford Shakespearean Festival, so he has interesting roots. Justin Beiber, the Bard of Stratford. Umm...no!
3
plus ça change, plus c'est la même chose.
remarkable how this type of thing can happen again and again.
36
To compare this to Madoff is catchy but wrong. Instead, try Goldman Sachs.
Vrain, who provided inflated appraisals of manuscripts, which he is now buying as they are auctioned off at bargain prices, repeats the killings some on Wall Street made on the way up using friendly bond ratings conjured up by pliant rating agencies to sell them and then snapping them up after reality trumped those fanciful ratings into financial rubble.
111
Beautifully written account of the penultimate debacle of a conman, a pathological liar, and the plethora of shadowy accomplishes, and at the base of it all— greed and money— nothing new here.
I’m just amazed at the inventiveness of fraudulent schemes, the larceny, the capitalistic greed, lack of any moral outrage or rather utter lack of conscious in pilfering hard earned money of an older generation.
No qualms how it may hurt, cause real damage mental and physical to so many people.
Humans!
There is no bigger parasite on this earth.
I feel such melancholy reading such accounts time and again. Perhaps evil is stronger than good, perhaps bigger yeast will always eat the smaller yeast— slapping few years of prison is no consolation for such crimes.
57
Maybe people shouldn't invest their money to partly own a rare book. That just sounds silly.
5
@Randeep Chauhan Rate books and art are often owned by syndicates, the difference being that the syndicate is jointly paying the buying price, not the hoped for appreciation. Caveat emptor indeed.
3