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Wow - Herbert Axelrod is a fugitive in Cuba.

Is anyone following the story about federal investigators looking into a donation of a matching quartet of inlaid Stradivari instruments to the Smithsonian? It looks like Herbert Axelrod donated the quartet and took a $50 million write-off (Dietmar Machold's appraisal)... But some (Robert Bein) claim the quartet is worth far less - $12 million. Was it tax fraud? There also seems to be controversy over the real value of his famous sale to the New Jersey Symphony.

I know quite a few people who have benefited enormously from Axelrod's philanthropy over the years, so I'm inclined to give him the benefit of the doubt, although he certainly is not shy about taking monetary advantage of his own generosity. And the whole fleeing-the-country thing doesn't look too good. Any opinions?

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Well, I think the biggest question is, how much is a violin worth? The whole system of doing appraisals is a little bit messed up in my opinion.

Let's take a hypothetical scenario. Say a dealer, John Doe, purchases a violin at auction, how 'bout a brothers Antoniazzi, for US$25k. The dealer then sells this violin to a customer for US$45k. Then the dealer proceeds to write an appraisal, for insurance purposes, that the value of the item is US$50k. How much is this violin really worth? There are three figures involved here.

Another situation: Say a consignee brings a violin by the Antoniazzi brothers to a dealer to sell. The dealer agrees to sell the violin for US$50k, and charge 15% commission. So the owner of the violin ends up with US$42,5k and the dealer makes 7500. The dealer then writes an appraisal for the instrument for US$55k. How much is the instrument worth? Is it worth how much the buyer paid for it or is it worth how much the previous owner received for selling it or is it worth the insurance appraisal write-up value?

The whole system of appraising art is flawed. Dealers who are criticising Axelrod are selling items at the prices that he gave himself write-offs for and/or appraising them at that value. If B&F are selling Strads and del Gesus at US$3-4mil a pop, then US$18k sounds like a great deal for a collection of many instruments including some Strads and del Gesus, right?

Honestly, I feel like the auction figures are most accurate in reflecting a violin's value. IMO, if a violin languishes on a dealer's shelf for four years before a foolish player falls in love with it, then it's not really worth the asking price. I think the instrument is worth whatever one can get for it if it is liquidated to cash immedietely, ie an auction price. In my second scenario, how can it be justified to include a dealer's commission as well as add a little more for good measure in appraising an instrument? Obviously, no buyer would want to pay US$50k for a violin and have it appraised for $43k.

If you own a certain amount of a Fidelity mutual fund, you can press a few buttons and have that money at your disposal. If you own a house that a broker values at 300k, you can sell it within a few weeks provided that the appraisal is accurate. But violins don't seem to work the same way as other investments and the value can be debated.

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The IRS rules are quite clear regarding valuations for donations. They require a "fair market" valuation. This is one notch lower than "replacement value" which is what is used for insurance appraisals. One notch below that is a "cash value" which is what could typically be obtained (net of commissions) in an auction sale.

The Axelrod valuations on the New Jersey collection and the Smithsonian quartet are not defensible by any measure, in my opinion. As well, there are questions of authenticity on a number of the items which has a great impact on their values, obviously.

Christopher Reuning

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Quote:


The Axelrod valuations on the New Jersey collection and the Smithsonian quartet are not defensible by any measure, in my opinion. As well, there are questions of authenticity on a number of the items which has a great impact on their values, obviously.

Christopher Reuning


Agreed....

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Much more information is available if you do a google news search for "Axelrod"... One article in the Philadelphia Inquirer (requires free registration) refers to a Curtis representative as saying that Axelrod never asked for documentation of his gifts to Curtis, because he "was never interested in that" (tax write-offs) Strange.

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I have heard speculation that the "viola" of the decorated quartet is very possibly a cut down viol top, with the rest being relatively modern. The Hill cert (reprinted in Axelrod's book about the quartet) even comments on an inexplicable unlikliness in the color of the wood of the pieces other than the top.

If this is true, then what we have in the quartet is two unrelated, decorated violins, a mostly fake viola conversion which probably wasn't even originally decorated as it is now (that would be a trick, given the difference in outlines between viols and violas), and a non-decorated cello which is from what I hear, has been very heavily restored, which would normally preclude it from bringing a top price.

I also heard a rumor that AFTER the donation of the quartet the Hellier was supposedly sold for $3.5 million. Basically, this rumored scenario means the quartet contains two $3.5 million violins, a questionable viola (or less), and a renovated wreck of a cello.

Getting from seven million (3.5 X 2--the only actual sale of a decorated instrument to go on in the whole mess, it would seem) to fifty with those last two seems a certain impossibility, and with the cello being something which was decorated just recently to fill the quartet (this is mentioned in Axelrod's own book about the quartet), it seems that the synergistic dollar value of a "decorated quartet" is essentially and obviously a bogus claim, since at its very best, if you accept the viola, it's a decorated, unrelated trio.

Would Chris or Jeffrey care to comment on these aspects, which are at this point simply rumors (and I want to stress that) I've heard? (I'm not well enough informed to present any of it as fact beyond the undisputed issue that there's no authentic "decorated quartet" there, given the cello.) If this stuff is true, it seems like the IRS would be (well, _should_ be, at least) very interested.

Chris? Jeffrey?

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Thanks Mr. Reuning. I did not know there were issues regarding authenticity of the N Jersey instruments. I also was not aware of the IRS rules regarding valuations/tax deductions either.

I also had no idea that the 4tet had a cut down viola and a heavily restored cello.

I read your remarks in an article regarding this situation, but a lot of other dealers have been shy about talking about this.

Axelrod's side also made claims that the Berlin Phil, Vienna Phil, and NY Phil pursued his collection. I don't know this for sure, but if that was the case, why didn't he sell to one of those orchestras instead for more money?

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Michael,

I think the respected experts would basically agree with your assessment of the quartet. I have heard one person say (tongue in cheek) that the soundholes of the viola are real....the inside part of them.

As for the NJ Symphony instruments, several are outright fakes and a number are "upgraded" from their true makers.

Under IRS rules,institutions which receive donated items are not involved in their valuations. That should be done by an independent third party (Not the seller). The other method for valuation would be if there was a bonafide offer from a third party. There is some talk that there were offers for both the NJ Symphony collection and the quartet. However, those didn't seem to hold up under scrutiny according to the NY Times.

Christopher Reuning

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Perhaps there should be some sort of insurance industry registry of precious instruments. Each one would have, not so much an attribution, as a composite numerical score of professional appraisers' opinions. It would be far more useful than scattered auction records and outdated certificates. Major instruments coming to market in private sales would bear some risk of fraud or error if they were completed without reference to the index, and would naturally get a lower valuation.

The whole NJSO business tells me that they can't be so very impoverished if their advertising budget is $18M. And that's what this purchase was--advertising. The audience will not hear anything different. Here in NJ we're sandwiched between the bookends of NY and Philadelphia and nothing is going to change that. If I were a prominent musician I would not choose to perform in an orchestra just because it possessed these instruments. We have some great musicians here. They don't need this edge, believe me.

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My understanding is that NJ raised the money in a separate campaign. It's much easier to get donors excited about something like this than it is to raise money for something hum-ho like the endowment. I'm disappointed to hear about the authenticity issues. However, from NJ's perspective, it seems to have been a good deal. They've raised their profile within the orchestral community and recently appointed Neeme Jaarvi as music director, which is something of a surprise. They're in a position to build something, more so than before. And I do think the lure of a fine instrument is an attraction to musicians. Someone is not likely to turn down a job in Chicago to go to NJ, but among orchestras within the same echelon it gives them an edge. I could tell stories about the lengths musicians go to in order to get good instruments.

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I speak mostly as an audience member, interested though I am in classical instruments. I live close to the venue where the NJSO is most frequently heard, and its possession of these instruments has no bearing whatever on my attendance.

String players will kill for certain instruments, I agree, but this isn't necessarily for their playing qualities. Chris's comment above confirms what should already be apparent about collections of famous instruments. Some may have truly superior response. Others are merely famous. Does the NJSO take Axelrod's opinion over its own? If not, perhaps they should have been more selective.

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Quote:

As I understand it, the orchestra took on a tremendous amount of debt to acquire the collection. With the fiscal situation facing most American orchestras, was that a responsible decision?


They've launched a fundraising campaign to pay off the instruments and provide for upkeep, so I suppose at this point it's a matter of wait-and-see. And they do have the instruments as assets.

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If indeed there are several outright fakes and others wrongly attributed, the fundraising campaign amounts to contributors' making good on an infamously bad decision by the orchestra.

I understand that Axelrod is subject to arrest and extradition if he shows up in Europe, so perhaps Cuba is the place for him. He says the fishing is very good.

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I don't know. NJ bought the collection for $18 million, and Axelrod forgave another $1 million in debt, so that gives NJ an end price tag of $17 million. If Axelrod stays in Cuba, they'll probably have an end price tag of $14 million, since I doubt Axelrod will come back to collect the other $3 million he financed. (I've also read that he forgave the full $4 million; I'm not sure what's accurate there.) As long as the collection is valued at $14-17 million, I think the orchestra itself made out ok. My experience with orchestra boards is that they are quite cautious when it comes to expendatures.

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I wonder how (if?) the orchestra has actually put their new instruments into service. Players are very particular about their instruments. Not every instrument--even a great one--would work for every player. And now we know some of these Axelrod instruments aren't even great. Can the director of the orchestra just walk in one day and say "hey you, start playing this violin!" What if the player doesn't like it. What if several players all want the same instrument? The gift of all new instruments sounds like it could be a curse, not a blessing -- tax scams aside.

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As I understand it, Axelrod gave the remaining NJ Symphony debt (several million $) to several institutions, but the Symphony still owes that money.

Could they have directed the money earned from their fundraising campaign to more responsible uses?

However you look at it, the NJ Symphony deal was a masterful sales job and the real losers are the taxpayers of the US.

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Machold and Morel defended Axelrod's sale and suggested that the price was a bargain.

I don't think the instruments make NJ a more attractive job. There aren't enough great ones to go around and if you join as a new violinist it's not as if there will be a golden period Strad waiting for you there. What makes an orchestra position attractive is the salary and prestige of the orchestra. NJ is a good job, but it won't ever have the aura of it's neighbors, NY and Philly.

I also think that the quote from that board member saying that, when he hears the string sound of the orchestra he feels in his heart that it was worth it, is a little ridiculous.

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