Behind the picture

What “Blonde Waiting” is waiting for today is to learn who will own her.

She has been making time most recently with art dealer Larry Gagosian, who keeps her in his uptown Manhattan gallery. But the federal government wants her too -- it’s trying to seize her as part of a civil suit seeking $26.5 million from Gagosian and three others, alleging they owe that much because of taxes they never paid on profits from art sales using a corporate alter ego.

That’s how “Blonde Waiting” -- a Pop art fantasy woman painted four decades ago by Roy Lichtenstein -- became caught up in the latest scandal to taint top-dollar art dealing, a trade that has always combined a genteel image with a dash of roguery: tuxedoed auctioneers and sales toasted with chardonnay on one hand, and the occasional forgery, insurance scam or price-fixing at Christie’s and Sotheby’s on the other.

The newest scandals have left a particularly bitter aftertaste, linking the business side of beautiful objects with the sort of practices that have demonized leading names on Wall Street. Parallel art-and-finance scandals have even enmeshed some of the same highfliers. Tyco’s L. Dennis Kozlowski and ImClone’s Samuel Waksal can count among their alleged financial shenanigans -- or in Waksal’s case, admitted crimes -- crude schemes to avoid sales taxes while accumulating showpiece art collections.

“The whole thing is pretty outrageous,” said James M. Kindler, the chief assistant in the Manhattan District Attorney’s Office, which is not done examining the sales records of a string of prominent galleries. “You just get the impression people think they don’t have to pay tax in this particular area.”

THE $32-MILLION DEAL

If love of the deal seems to have overwhelmed the love of art in such episodes, that wasn’t the case back when “Blonde Waiting” found its first home, according to its initial owner, Richard L. Weisman. “It definitely was not the art of the deal,” he says.

Weisman was 22 when he visited Los Angeles’ Ferus Gallery in 1964 and was smitten by Lichtenstein’s painting of a Hollywood-image beauty reclining by a bedpost, peering past a windup alarm clock.

Although he had bought only one painting before, Weisman was not a naive art consumer. His uncle was Norton Simon and his parents -- Marcia and Frederick Weisman -- were on their way to becoming noted collectors as well, so he understood how ego and greed often came into play as much as admiration of the object itself.

But his experience with “Blonde Waiting” accelerated his education in that side of art. The first time he saw it, the price was $1,500. When he returned to the gallery the next day, eager to buy, the dealer had upped the price to $1,750.

“I never expected it to be worth a lot,” Weisman recalled recently. “It was considered by a lot of people to be a large cartoon.”

Yet during the quarter century he owned the “cartoon,” its value kept rising. Someone would tell him it was worth $45,000, then $100,000 until “Blonde Waiting” was “an asset” among others he collected -- by Rothko and Warhol and De Kooning -- and the insurance premiums alone made it expensive to hang in the apartment he kept by the United Nations after he became a money manager in New York.

“Blonde Waiting” was valued at $3.8 million by September 1989, when Weisman went to dinner in Manhattan with Gagosian, the Los Angeles-born dealer who got his start in Westwood in the early ‘70s by buying schlock posters and prints for $2 and $3, putting them in aluminum frames and selling them to UCLA students for $15. Gagosian later earned the nickname “Go-Go” and a reputation for being able to talk collectors into parting with works they hadn’t realized they wanted to sell. “I’m aggressive,” he once told The Times. “It’s just my nature.”

Weisman can imagine how Gagosian might have viewed him. “Listen,” he says, “stockbrokers try to sell you stocks. People who own music stores try to sell you guitars. Maybe all along he was thinking that with me: ‘I had Richard in my sights, and I was working on him.’ Maybe he thought I might buy or sell one painting.”

Weisman had something bigger in mind, actually: selling almost his entire collection. With art prices peaking, he wanted to eliminate the cost of maintaining them and guarantee himself a nest egg for life. Although he might earn more by putting his works up for auction, his lesser pieces might not sell that way. A dealer such as Gagosian would take them all, if that was the only way to get the business. “I knew I wasn’t going to get the best deal from Larry,” Weisman said. “But he does what he’s supposed to.” Weisman said that when he announced his plan at a Japanese restaurant, Gagosian “almost fell out of the chair.”

Years later, federal authorities would scrutinize the way Gagosian and three partners handled their side of the $32-million deal for 62 of Weisman’s works. But back in 1989, an accountant grew suspicious of Weisman’s conduct, because the collector was about to move to Seattle.

“I said to my accountant, ‘By the way, what’s the tax deal in the state of Washington?’ ” Weisman recalls.

“He said, ‘Very funny ... you know there’s no [state income] tax there.’ ”

Weisman swears he didn’t know, and replied, “You’re kidding?”

But he also says, “I guess I moved a little more quickly when I learned about it.”

DUCKING TAXES

The game of trying to minimize taxes is hardly new. A move such as Weisman’s, which reduces the income tax bite, is perfectly legal. That’s not always so, however, when the game is played with sales tax, which is common in a place such as New York City, where the rate is 8.25%. A professor living in Connecticut confides he let friends use his address when they asked a city store to ship them silver goods. An editor from New Jersey tells how his city-dwelling mother used his address when buying expensive coats. And New York tax officials rant about the residents who buy $10,000 watches overseas, then ignore what they owe under a first cousin of the sales tax, the local “use tax,” also 8.25%.

In the rare cases when such crimes are detected, it’s likely by chance -- or because the customers are of a class who draw attention, and headlines, for other reasons.

A juicy scandal of the ‘80s centered on jewelry sales, culminating in a $5-million fine against Fifth Avenue’s Van Cleef & Arpels, whose president and controller pleaded guilty to failing to collect sales taxes from patrons such as former Philippine first lady Imelda Marcos and hotel owner Leona Helmsley, who counted a $375,000 bracelet among her purchases. The store sent empty boxes or next-to-worthless trinkets to out-of-state addresses to create the appearance that that’s where the real jewelry was going.

The temptation is hardly less in the art world, where “on a $10-million painting, an 8% sales tax is a lot of money,” said Eugene Thaw, a veteran dealer, collector and museum benefactor who divides his time between New York and New Mexico.

Thaw recalls how Weisman’s uncle, Norton Simon, found a legal way -- still available today -- to avoid the similarly high tax in California. Simon would have his new acquisitions shipped to out-of-state museums for three months, after which they could be brought into California without paying its sales or use tax. A Phoenix museum was such a favored stopping-off point, it displayed 42 pieces on loan from Simon in 1969.

But industry cognoscenti such as Thaw find it astonishing that other wealthy collectors simply hang such works in their homes, thus playing a risky game of hide-and-seek to avoid taxes they can easily afford.

“Everyone was put on notice,” said New York-based Old Masters dealer Richard Feigen, referring to the arrests of the jewelers in the ‘80s. “Everybody who has been in the business more than a few years has been very careful about this. But maybe some newcomer comes along, frankly very naive, brand-new to the business, and they weren’t around the last time.”

Authorities seem to have stumbled onto the first of the recent tax cases as an offshoot of the federal investigation of Kozlowski, the Tyco chairman who has become a symbol of corporate profligacy. Court and Securities and Exchange Commission filings allege that even though he had a pay package worth $125 million in 2001, he counted as a business expense everything from a $15,000 “dog umbrella stand” to a $1-million-plus, Roman-themed birthday party for his wife.

But before Kozlowski was accused of looting the company, an indictment was brought last June by Manhattan Dist. Atty. Robert Morgenthau, alleging that he had evaded more than $1 million in sales taxes. Kozlowski had decorated his Fifth Avenue apartment with a $3.95-million Monet, a $5.5-million Renoir and other such pieces. The paperwork prepared by his New York dealer listed the works as having been trucked to Tyco’s offices in New Hampshire, and crates actually made that journey -- empty crates, the indictment alleged.

Kozlowski pleaded not guilty (“lacking in substance,” his lawyer said of the indictment) and none of his art dealers has been charged to date. “Not yet,” the chief prosecutor in the case said recently, indicating that the investigation is continuing.

Next in the spotlight was Waksal, the founder of ImClone Systems, who pleaded guilty last October to six federal counts for tipping family members to an impending decline in the biotech company’s stock. In the wake of his plea, the 55-year-old physician apparently resisted pressure from federal authorities to implicate his good friend Martha Stewart. But Waksal did fess up to something else, offering a second guilty plea March 3 -- to evading $1.2 million in taxes on his art.

Waksal told a federal judge that he arranged with a gallery owner to have invoices written as if the works -- including a $4-million Rothko -- were being sent to an ImClone facility in New Jersey, when they actually were destined for his Manhattan home. He did not name the dealer, but it was an open secret that it was Gagosian.

Though Gagosian was not charged in that criminal case -- again the investigation is continuing -- he was hit with another legal headache the same month when federal prosecutors brought their suit March 19, stemming from his deal with Weisman years earlier.

According to the lengthy civil complaint, a complex series of transactions conducted in one day -- Feb. 15, 1990 -- earned Gagosian and three partners a profit on which no income taxes had ever been paid. As the government spelled it out, Gagosian and the others bought Weisman’s 62 artworks through an “alter-ego” company, the Contemporary Art Holding Corp., then immediately sold 58 of them, registering an $18-million gain.

Their company kept the four best works from Weisman’s collection, including one of his dining-room Rothkos, the Lichtenstein “Blonde Waiting” and a 1947 painting by Clyfford Still, “Untitled R#2.” The last two were then leased to Gagosian, who had an option to buy them.

The government filing suggests that the deal had been structured by the partners to spread out their tax obligations, and that for several years their corporation dutifully filed returns listing the amounts due. The problem was, it “did not pay any” and the IRS began filing notices of taxes owed -- then liens against the four works supposedly still owned by the corporation.

The government says it later was informed that the company was insolvent and that two of the paintings had been sold off, including the Still that went to Gagosian. He got $2.25 million for it in 1996, the document states.

Alleging “fraudulent conveyance” of the paintings, the government now is seeking their return to help pay the taxes owed -- originally $6.7 million, but up to $26.5 million with interest and penalties, as of Jan. 31, 2003. The suit also seeks to collect the money from the art dealer and his former partners, one of whom is a Park Avenue tax lawyer.

The others have profiles equal to Gagosian’s: Geoffrey J.W. Kent is a British socialite and owner of the luxury travel company Abercrombie & Kent; and Peter M. Brant, the polo-playing magazine publisher who lives in Greenwich, Conn., is married to Victoria’s Secret model Stephanie Seymour and is a trustee of the Guggenheim Museum.

Gagosian has declined to comment on either case. The silver-haired dealer was reported at first to be staying at his Hamptons house, away from the media. But he was back in the city for the opening of a show of Picasso sculptures at his gallery on Madison Avenue on April 3. He has another gallery in Chelsea, and galleries in London and Beverly Hills. “He’s back to normal business,” said his attorney, Steve Storch.

According to Storch, Gagosian has tried to settle the tax dispute over the Weisman collection. “There were talks that went on for 10 years,” he said. “As recently as January and February, talks were going on. Then the Waksal story hit and it quickly became apparent it wasn’t going to be resolved.”

As for the sales tax matter, Gagosian has cooperated with the government, he said, by “making employees of the gallery freely available,” though not “squealing on different customers.” Gagosian’s lawyers suspect that Waksal may be trying to help himself with prosecutors -- and gain some leniency -- by implicating the dealer in his tax evasion. But “this wasn’t anything the gallery wanted to fool around with -- whatever Waksal may say,” Storch said. “Gagosian knows he’s under a microscope.”

Nevertheless, enforcing sales tax laws can be difficult, the lawyer acknowledged, for a gallery dealing with clients who have houses all over -- one in Aspen, say, and another in Florida or California. “If someone says they want [the art] out of state, they were shipping out of state,” Storch said. But if the customer then quickly moves the works back to their New York home, “how are you going to police that? [Gagosian’s] not here to be the art police or the sales tax police.”

That may foreshadow the defense Gagosian will offer if he’s charged in the Waksal matter, that his gallery simply believed what it was told. Although that might have been business as usual, Gagosian’s lawyer added, “in the past months there’s been a change of climate.”

A LOT OF ‘WINKING’

From the vantage point of the Manhattan District Attorney’s Office, heating things up when it comes to luxury taxes isn’t just right, it’s fiscally smart.

“Over the years there has been too much winking at this kind of activity,” Morgenthau said when the charges were filed against Kozlowski last June.

Amid the stories of empty crates sent out of state, Morgenthau’s office assigned four staffers to look into the city galleries’ practices, subpoenaing records to look for other customers who may have illegally avoided the 8.25% sales tax.

By the time of Waksal’s plea this March -- nine months later -- the prosecutors announced that they had collected “close to $7 million” from nearly 50 art buyers. “And we’re only in the middle of it,” said Kindler, the chief deputy.

A few of the tax avoiders apparently had come forward on their own, a trend state and federal authorities encouraged. “Come and see us before we see you,” U.S. Atty. James Comey declared at a news conference. “If the FBI comes knocking at your door, it will not be to admire your art.”

But some of the insiders don’t sound worried, sloughing off the scandals as the missteps of dabblers and Wall Street types, the sort who make a habit of “taking risks and cutting corners,” as Thaw put it, “and they paid the price.”

Weisman sees it similarly. He never made his peace with people who always asked him, “What’s it worth?” His reply: “When did you become an art dealer? I thought you were a dentist.”

To these people, “it’s in the blood; they can’t help it,” he says. “Everything they do is, ‘What is it worth?’ ”

So Weisman sees a silver lining in the scandals: “The art market is an unregulated market that is becoming slightly regulated. If you did in the securities market what you do in the art market, you’d be in jail in a minute.”

For the more optimistic insiders, recent events could be seen as a chance to start over -- or at least as a purging of sins.

At Sotheby’s in May, Waksal unloaded one of the paintings that had gotten him in trouble -- a 1978 De Kooning, “Untitled V,” which sold for $1.9 million. Gagosian was at the same auction, buying. Suave as usual in a dark gray suit, white shirt and tie, the dealer sat dead center of the front row and bid by nodding his head until he came away with the evening’s cover piece, a 1949 drip painting by Jackson Pollock, for $5.2 million.

Gagosian still has “Blonde Waiting” too, as the government’s civil suit sits in its “hurry up and wait” stage, as his lawyer put it.

But if the feds eventually succeed in getting that painting for back taxes, one interested party has an idea about what they might do with it.

Weisman is 62 now and still has that home in Seattle. He also has never really “cut loose” from collecting. He has even repurchased some of those pieces he sold 13 years ago, and he wouldn’t mind getting another back, of a woman and an alarm clock.

“If they don’t know where to put it,” Weisman said of the government, “they can give it to me.”