To Detect Fakes, Art Meets Science

Steve Remich/Wall Street Journal

As the recently settled Knoedler & Co. art-forgery lawsuit made clear, even the trained eyes of art connoisseurs can have their blind spots.

So some in the art market are turning to science for added reassurance, subjecting objects to tests more commonly associated with crime procedurals.

Still largely the province of laboratories at large museums and universities, and of a handful of consultants trained in that world, such reviews aren’t a magic bullet for authentication, experts say. But they can flag inconsistencies that signal a forgery.

And as collectors plunk down record sums for art, some newer players are entering the field.

Last fall a fledgling art-forensics laboratory at State University of New York’s Purchase College began testing works for the art trade.

There are also networks of individuals such as Kenneth Smith, an analytical chemist based in Illinois, who specialize in slices of the work. “My focus is entirely materials-oriented,” said Dr. Smith, who enlists other consultants for tasks such as carbon-dating or provenance research.

“There is clearly a need as artwork becomes more and more of a commodity that is bought and sold,” said Pamela Hatchfield, president of the American Institute for Conservation of Historic and Artistic Works and the head of objects conservation at the Museum of Fine Arts in Boston.

Still, she said, “It’s not a matter of just having one or two pieces of equipment or a black light.”

The work is complex. It requires expertise in both chemistry and art history, along with an understanding of how art and artifacts are made. Some in the art world worry that newcomers or those who lack training in art conservation could misinterpret results, missing clues that indicate a forgery or incorrectly identifying other works as fake.

With the counterfeits sold by the Knoedler gallery, tests of two supposed Robert Motherwell paintings dated 1953 and 1955 showed indications that an electric sander had been used on both surfaces—a technique the artist wasn’t known to have employed. The analysis, conducted in 2008 by Massachusetts-based Orion Analytical LLC, one of the most prominent firms involved in such work, also detected pigments that weren’t developed until the 1960s.

The paintings turned out to be among more than 30 counterfeit works Knoedler sold that were created by a man living in Queens, supplied by a Long Island art dealer who has since pleaded guilty to criminal charges. The gallery has settled a handful of lawsuits over the sales.

“When science began to show that the experts were often wrong, that was really terrifying,” said Jeff Taylor, an assistant professor of arts management at Purchase College who co-founded the lab there.

The facility, launched in 2014, grew out of a popular Chemistry in the Arts course taught jointly by Stephen Cooke, an associate professor of chemistry, and Dr. Taylor, an art appraiser and historian who studies the art market and has an art-advisory business.

Dr. Taylor said he has supervised conservators as an art adviser, and when he worked in the art-shipping business in Hungary. He also consulted for an art-forensics lab in Budapest, he said.

Last summer Drs. Taylor and Cooke brought in a forensic scientist, Thiago Piwowarczyk, who has his own consulting firm.

The lab, which Dr. Taylor said is “still really nascent,” now has about $400,000 worth of testing equipment at its disposal. It offers pro bono services to public art collections such as the Hispanic Society of America, helping conservators document the materials of objects in their collection.

Museum conservators and those in private practice have long used ultraviolet light, microscopes and X-radiography to examine objects and guide restoration efforts. Newer tools include hand-held X-ray fluorescence analyzers, infrared spectroscopy and techniques that can identify materials down to the molecular level.

By themselves, experts say, such tests are rarely enough to establish authenticity. That typically also requires a detailed stylistic analysis, as well as documents establishing a work’s ownership history.

“The tests are almost never going to prove a positive [attribution],” said Sharon Flescher, an art historian and executive director of the International Foundation for Art Research, a nonprofit that conducts authentication research, among other activities. While forensic tools have improved dramatically over the decades, Dr. Flescher said, “It’s not as cut and dried as people think.”

For example, the presence of titanium in a painting attributed to a 19th-century artist could indicate the use of titanium white, a pigment developed in the early 20th century. But titanium also naturally occurs in clay used since antiquity to create yellow ochres and red umbers, said Jennifer Mass, an adjunct associate professor of art conservation at the University of Delaware.

“There are people who have knowledge of chemistry, but that doesn’t give them the necessary context to interpret this type of data,” said Dr. Mass, who has worked in the field since 1995 and also has a consulting firm, Scientific Analysis of Fine Art LLC.

Work relating to art authentication can be contentious. Experts sometimes come to different conclusions, and may be drawn into litigation as witnesses.

For Orion founder James Martin, his involvement as an expert in the Knoedler case resulted in “a lot of subpoenas…and a lot of sleepless nights,” he said in court earlier this month.

To insulate Purchase College from liability, Dr. Taylor said the lab’s work for commercial clients gets billed either to his firm or to that of Mr. Piwowarczyk.

Asked whether the work presents any conflicts of interest, given his work as an appraiser, Dr. Taylor said the intent was to provide an affordable service that also has an educational mission. “I am trying to help create good knowledge,” he said.

Written by Jennifer Smith of The Wall Street Journal

(Source: The Wall Street Journal)


These Millionaires Get Obamacare Subsidies

Adam Berry/Getty Images

This one weird trick can help even rich people buy Obamacare at sharply reduced prices. Really.

A number of wealthy individuals, some of whom were “disgusted” with Obamacare when it first went into effect, nonetheless are now taking advantage of federal financial aid available under that health-care law to help significantly reduce their monthly insurance premiums.

Carolyn McClanahan, a Jacksonville, Fla., financial advisor and medical doctor, told CNBC that she’s steered at least five such clients, whose individual net worths range between $1 million and $3 million, toward buying Obamacare health plans because of the federal subsidies available due to their taxable income levels.

Those clients are saving between $4,600 and $8,800 in annual premium payments as a result of subsidies. On top of that, McClanahan said, those customers are getting extra financial help to pay their out-of-pocket health expenses — the copayments, coinsurance and deductibles that aren’t covered by their insurance plan.

The idea of giving rich people discounted Obamacare plans raises the eyebrows of even McClanahan’s clients, who were initially skeptical when she described the option.

“Everybody was like, ‘Are you sure this is going to work?'” McClanahan said of her clients’ reaction.

“And I’m like, ‘Yes, I’m sure it’s going to work.'”

And it’s legal as well, because of the way the Affordable Care Act focuses on income rather than net worth to establish eligibility for Obamacare aid.

“The law was set up that way, so I’m going to help them take advantage of it.”

The ACA was enacted primarily to help uninsured people get health coverage at a price they could afford. To help do that, the ACA authorized the federal government to issue tax credits, or subsidies, to people with low or moderate incomes who buy health plans sold on government-run Obamacare exchanges.

For 2016, individuals with annual taxable income between $11,770 and $47,070 qualify for such aid.

McClanahan’s Obamacare customer clients were all retirees who stopped working before they were 65 years old. They no longer had the option of getting health insurance through their jobs, and were too young to qualify for Medicare, the federal health insurance program for senior citizens.

Those people, while having relatively high net worths due to investments and real estate, also were in a position to have taxable income that was low enough to qualify for Obamacare subsidies.

But that income could still be high enough to keep them above 100 percent of the poverty level. If their incomes fell below that, they would not qualify for the subsidies to help buy private plans, and also would not qualify for government-run Medicaid because Florida rejected expanding that program to cover more low-income people.

McClanahan said she helped the clients structure their income stream — and the taxable component of it — “just right.”

“The first thing you’ve got to figure out is how much money do they need to live on,” she said.

The clients, all of whom had paid off their homes, needed “anywhere between $5,000 and $7,000 a month” to live on, she said.

Helping that strategy was the clients’ use of bond ladders, which gave them steady income as the bonds matured over time, and also spun off interest payments from the bonds’ coupons. While the interest payment is taxable, the initial investment in the bonds is not, McClanahan noted.

“For most people, we’re aiming for like $18,000, $19,000 in income” that is taxable, she said.

That level of income also was low enough that all of the clients qualified for the added Obamacare aid of “cost-sharing reductions,” which are available to people with taxable incomes below about $29,000 who enroll in so-called silver plans. Without cost-sharing reductions, silver plans cover about 70 percent of customers’ medical expenses, with the balance owed out-of-pocket by the customer.

Angie Koury Lieb, a Jacksonville insurance broker, helped McClanahan’s clients get into those plans, which in Florida are sold on the federally run Obamacare exchange

Lieb said that some clients initially “were pretty disgusted about the subsidies and how it all works” when Obamacare first began taking effect.

“I think a lot of it was very politically motivated, that they didn’t necessarily agree with the Affordable Care Act itself,” she said.

“Then they said, ‘Well, shoot, I’m going to try to qualify myself,'” Lieb said. “I think they were more, ‘If I can’t beat them, join them.'”

Lieb said that when she helped McClanahan’s clients sign up on and pick their plans, “they were usually pretty pleased and excited” when they saw how much subsidies they would be getting to lower their premiums.

On the lower end of the prices, one client qualified for a $423-per-month subsidy, which reduced the price of their plan from $663 per month down to $240 per month, she said. On the high end, another client qualified for a $737 subsidy, reducing their premium from $1,172 per month to $435.

And “with the cost-sharing reduction, I think people were extremely happy,” Lieb said. “It reminds people of what health insurance looked like 25 years ago, when they had a $10 copay and no deductible.”

Lieb and McClanahan both noted the fact that their clients, due to their financial position, came under scrutiny from the government when they applied for their subsidies. To obtain those subsidies, customers have to indicate how much income they expect to earn in the coming year.

Every client, McClanahan said, was flagged for review of their subsidy eligibility when they applied because tax forms revealed they previously had high incomes.

“We had to provide a lot of supporting documentation,” McClanahan said.

Clients also must be conscientious about reporting income changes during the course of the year. If people end up earning more than they had estimated when they applied for their subsidies, they could end up owing some or all of the subsidy back when they file their tax returns the following year.

Written by Dan Mangan of CNBC

(Source: CNBC)

This Region is the Fraud Capital of America

Photograph by Sylvain Sonnet — Getty Images
Photograph by Sylvain Sonnet — Getty Images

Shady dealings run amok in sunny South Florida, where creative crooks are coming up with scams of every sort, from fake Jamaican lotteries to basic identity theft.

The three-most populous counties in southern Florida, Miami-Dade, Broward and Palm Beach, are rife with underhanded deals that steal millions from governments, banks and individuals, reports the Associated Press.

Florida ranks No. 1 in identity theft complaints, which were at about 193 per 100,000 residents in 2013, according to the Federal Trade Commission. Bring that down to the local Miami level and it’s even worse: 340 complaints per 100,000 residents over the same time period.

South Florida also logs more than 46 times the national average for false federal income tax returns, according to the Treasury Department.

The reason for the local spike isn’t totally clear, though some conjecture that elements like South Florida’s melting pot culture or the anonymity that comes from so many relocated Americans could support the ongoing fraudulent schemes.

Written by Laura Lorenzetti of Fortune

(Source: Fortune)

Many US Retailers Not Ready for Fraud-Proof Cards

© Provided by CNBC
© Provided by CNBC

By the fall, millions of Americans will have gotten new high-tech credit and debit cards, part of a broad effort across the financial industry to reduce fraud.

But many U.S. small businesses are unprepared for the changeover, which could leave them on the hook for any fraudulent transactions that occur after the shift happens.

The new credit cards are called EMV (Europay, Mastercard and Visa), and include a microchip intended to lower fraud.

While the new credit cards will still contain the current standard magnetic strip to allow for backward compatibility, they are designed to be read through their more secure microprocessor chip that creates unique data with every transaction.

This dynamic element makes EMV cards almost impossible to counterfeit; The United Kingdom saw a 32.5 percent reduction from 2004 to 2011 after the introduction of chip-based cards.

Credit card companies in the United States are pushing businesses to follow suit, and start accepting the microchips through a liability shift on Oct. 1, when American Express  (AXP), Discover  (DFS), Maestro, Mastercard  (MA) and Visa (V) will relinquish their liability for EMV card-present fraud to any businesses not accepting EMV.

While bigger retailers like Target  (TGT) and Wal-Mart  (WMT) have already made the adjustment, and are now accepting microchip cards, the transition has been more difficult for many small businesses. According to a recent Intuit study, only 42 percent of small businesses in the United States have committed to accepting EMV credit cards. Those that don’t will soon take over financial and legal liability for fraudulent activity in their transactions.

The liability change was designed to give businesses time to conduct research and make smart decisions about upgrading their technology.

“Liability shifts have been used very effectively around the world and what they do is instead of a hard mandate that would require all businesses—both issuing banks and merchants—to transition quickly at the same time, it allows each business to make their own decision about the investment to migrate as well as any resulting costs and liabilities,” said Carolyn Balfany, senior vice president of product delivery–EMV, MasterCard.

More than half of the small businesses who do not intend to switch cited the cost of a new point-of-sale terminal as their primary barrier, while around a quarter said that the time necessary to research the tech and educate their employees was stopping them from moving forward.

However, according to Intuit, 85 percent of those small businesses said that they didn’t know about the liabilities they’ll be taking on, and 86 percent said that they might not be able to handle them.

Sally Cook, owner of Heirloom Bakery in South Pasadena, California, said she hadn’t known about the liabilities her business will be taking on in October. Cook switched her business over to a new EMV-capable system called Clover a few months ago because it saved money on credit card processing, and learned about chip cards in the process.

“When they came and pitched the product, they informed me that there were some changes that needed to take place and they were already in place on the Clover system,” Cook said. “I do know that there was a shift in terms of how certain things would be processed that we would need to comply with, I think, by the end of this year. At that point we would have to have everything in place, and that was another reason we were happy to switch over.”

However, even with smart-chip capabilities, Heirloom has been processing EMV cards using their magnetic stripe.

“We just slide all of them the same way,” Cook said. “We haven’t been given any other information from Clover in terms of how to process them.”

The new processing system made accepting credit cards cheaper for Cook, and for businesses already using mobile readers, the switch requires ordering an updated version from their provider at a cost of around $30. More traditional small point-of-sale systems can be found online for between $150 and $450, but those with more complicated systems could have higher research and technology costs.

However, the cost of a new point-of-sale system is far from the biggest expense a business could face if it does not have an EMV terminal and accepts a fraudulent credit card. Sixty-three percent of all the small businesses surveyed claimed some level of credit card fraud on an annual basis, with an average of 7 percent of transactions being fraudulent.

Those transactions add up; in 2012, the United States saw $5.2 billion in credit fraud loss, 47.3 percent of the world’s total. For smaller companies, the losses incurred could be enough to push them out of business.

A recent survey from MasterCard says that American consumers are ready for the shift to EMV. In fact, 77 percent of them are concerned about their financial information being stolen or compromised. Balfany stated that accepting EMV cards might help businesses reassure their customers.

“Consumers actually expect merchants to upgrade and what consumers tell us is that they see a merchant that upgrades more positively because they see them as being willing to invest in their security,” Balfany said.

Written by Sofia Goode of CNBC

(Source: CNBC)

Wealthy Couple Sentenced To Jail For Obstructing IRS At Audit

© Getty Images
© Getty Images

“You’re two people who have great talent, who’ve been very successful in life, who I am going to send to prison,” Manhattan Federal Court Judge Denise Cote advised Dr. Jeffrey Stein and his wife, Marla Stein, shortly before handing down their sentence.

Both will spend time in federal prison for their respective roles in cheating the Internal Revenue Service (IRS). Dr. Jeffrey Stein, a vascular surgeon, was sentenced to 18 months while Marla Stein, a personal injury lawyer, was sentenced to a year plus one day (by way of explanation, crimes deemed a felony, by sentencing guidelines, are generally punishable by more than one year in prison and may then be eligible for early release). Both had hoped to avoid jail time with Marla Stein asking to serve her sentence at home in order to take care of her minor son.

Instead, the judge opted to have the couple stagger their jail terms, Giudice-style.

The Steins were also ordered to pay restitution to the IRS in the aggregate amount of $344,989.

The sentencing followed charges and a guilty plea filed earlier this year. The couple pleaded guilty to a scheme to lower their tax burden by providing “false and fictitious information” to their accountant. That information involved generating fake deductions to offset actual business income from their respective practices. When their returns were flagged by IRS for audit, the two became even more creative: they made up documentation to support their lies.

The documentation that the Steins created didn’t simply rely on fake names and identities. Rather, Jeffrey Stein used the names of four disabled military veterans including two former patients whose identities Stein obtained through his work for the V.A. Hospital. Stein created bogus invoices to make it appear that those patients had worked for him in such positions as “ultrasound technologist” and “vascular technologist.” Not only was all of it a lie, one of the vets whose name appeared on the invoice was not even alive in the year Stein submitted the invoice.

Not to be outdone, Marla Stein also used names and tax ID numbers of other people to substantiate fake deductions. Stein created fake invoices to prove that a household employee and a family doctor had actually performed work for her law firm when they did not. Additionally, she altered invoices for photos and videos of family religious celebrations to look like they were attributable to her law practice.

Noting that the couple had doubled down on their fraud after they had been caught, IRS Special Agent-in-Charge Shantelle P. Kitchen said earlier this year that the investigation against the couple, “also reinforces the message that falsifying books and records ‘after the fact,’ in preparation for a tax audit, is also a criminal offense and will be dealt with accordingly.”

In addition to jail time and fines, pursuant to New York Law, Marla Stein will likely lose her license to practice law. Stein had already lost her job as a result of the scheme. Similarly, Jeffrey Stein could face suspension of his medical license; in the meantime, Stein, who was previously identified on the Mt. Sinai Hospital website as an Assistant Clinical Professor of Vascular Surgery is no longer listed as active.

Written by Kelly Phillips Erb of Forbes

(Source: Forbes)

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