Dietmar Machold, jet-setting violin dealer, accused in a case of fakes and fraud
By David Schoenbaum,
An Anglican cleric with a popular following and an affluent North London parish, the Rev. H.R. Haweis adored old Italian violins and the shops that bought and sold them. But his adoration had limits.
“The extreme ignorance of many persons who have violins to sell offers singular temptations to dealers, who are a class of people constitutionally on the make,” he warned in an essay collection published on both sides of the Atlantic in 1898. “In everything connected with a fiddle and bow, I say Beware! Beware!” he added, in case there were readers who still had not gotten the message.
Plenty has changed since Haweis died three years later. Stradivaris that sold for three figures in pounds sterling and four in gold-based dollars now sell for eight figures in pounds, dollars and euros. Washington, a Nowheresville in Haweis’s day, has long since become a dealer’s delight of public collections and private collectors. Demand has reached Kuala Lumpur and Qatar.
Archival research and forensic science are now at least supplements to authentication by faith, educated guess and “What can we sell it as?” Yet due diligence is no less due than it was in Haweis’s time, and the question that matters is essentially unchanged: Would you buy a used violin from this man?
The question needs asking anytime in any place, including Washington. But it will be front and center beginning Wednesday when Dietmar Machold, 63, comes up for trial in Vienna, Austria. It is the largest fraud case in the history of a trade that goes back to at least the middle of the 18th century: Apart from criminal charges, Machold faces civil claims estimated at $200 million.
The prosecution will argue that Machold sold things that weren’t what he said they were, claimed things that belonged to other people and hid things where neither their owners nor his creditors could find them. But they could state their case to equal effect in wine-label format: a blend of Greece and Bear Stearns, with hints of Jay Gatsby and Harold Hill, and a Bernie Madoff aftertaste.
According to the police, Machold has confessed in part. Judge Claudia Moravec-Loidolt and two jurors will decide the case by majority vote. If convicted, he faces a sentence of one to 10 years.
The indictment covers 19 single-spaced pages. Among his creditors are at least eight banks, including two of Europe’s biggest, and the Austrian National Bank, Vienna’s version of the Fed. According to Renate Graber, a prize-winning Austrian business reporter who virtually owns the story, Munich-based UniCredit has sued the Austrian National Bank over ownership of an instrument that Machold apparently sold twice.
For Carla Shapreau, a co-author of the standard work on violin fraud and a professor of cultural property law at the University of California at Berkeley, the case is a textbook-quality introduction to the practice of due diligence.
Like most rise-and-fall sagas, the story starts small. In 1951, Heinz-Joachim Machold opened a violin shop in the north German port of Bremen. In 1980, fresh from law school and barely 30, his son Dietmar took over the business. Neither a player nor a maker like his father, he was a novelty in the trade. There were at least a dozen shops in the world at the time that regularly bought and sold upper-end violins. Machold’s was not among them.
But this soon changed. Roger Hargrave, a young English maker who had worked as a restorer at Hill’s, the legendary London shop, moved to Bremen to manage Machold’s workshop, and introduced Machold to the London auctions and a new world of instruments that could be bought there.
A generation later, as upper-end violin prices — like those of art, houses, credit default swaps and medical care — had crept inexorably upward, a dozen or so global dealers had dwindled to three or four, and Machold was one of them. The Bremen shop was still operating, and Machold now had shops and affiliates in Zurich, Vienna, New York, Chicago, Seoul and Tokyo.
The trade had never known a multinational on this scale. Instruments below $90,000 were “Mickey Mouse violins,” Machold told interviewers. Anything below $1.25 million was not worth his time.
His customer list included Poland, Hungary and Czechoslovakia, while it existed. It even included North Korea, which refused to sell its Strad in the 1990s, though its people were starving.
The Austrian National Bank was a customer, too. In 1989, it introduced a gold coin to compete with South Africa’s Krugerrand, then invested the proceeds in a collection of upper-end instruments for loan to the country’s upper-end players. Of the first 27, 20 were from Machold.
Violins appeal to the investor mentality because they never lose value, he informed an interviewer from American Banker magazine on arrival in New York in 1997. Old Italian violins are a can’t-miss opportunity for both private and corporate investors, he advised a Singapore audience in 2000.
A New Money kid with world-class collections of coins and antique cameras, and a frequent-flier account to rival Henry Kissinger’s, Machold bought a 14th-century castle near Vienna and filled the courtyard with 44 cars, including 14 Bentleys, 10 Rolls-Royces and six Aston Martins, many of them leased for clients.
At the 2005 annual meeting of the American College of Trust and Estate Counsel in Orlando, members were invited to bid on a weekend at Machold’s castle. The ACTEC Foundation looked forward to the auction proceeds. The winning bidder looked forward to “a personal concert played on a Stradivarius violin.”
The state of Lower Austria awarded Machold its highest decoration for the restoration of his castle and the donation of significant collections of historical and literary papers. An Austrian republic without knighthoods to confer did the next best thing and declared him an honorary professor.
But the sun had already passed high noon. Marjorie Kransberg-Talvi, a Seattle area concertmaster, remembered how Machold had shown up as early as 2000 with a Strad so thick in varnish, thin in tone and wildly overpriced that nobody wanted it. His inflated appraisals in 2003 and 2004 of a quartet of Strads that the millionaire Herbert Axelrod donated to the Smithsonian, as well as a collection Axelrod sold the New Jersey Symphony, not only cost him credibility, but his part in Axelrod’s tax write-off attracted the interest of the Senate Finance Committee.
According to the prosecutors, Machold’s cash-flow problems went back at least to 2002. A few years later, the capital tank, too, was running dry. In 2006 the New York shop shut down. Chicago soon followed. All that was left of the Zurich shop, it appeared, was the bookkeeper’s apartment in a building otherwise occupied by an upscale bordello. In 2007, the German news magazine Der Spiegel reported that delayed payment had nearly ruined a Munich colleague.
Disastrous 2008 hit the violin trade as it hit every other. Machold borrowed against the next big deal wherever he could find a sympathetic lender. According to the indictment, “a considerable number of the promised deals were purely virtual, and had little to do with reality.” When police searched the Vienna shop, the cupboard was bare.
With “too big to fail” beyond the reach of violin dealers, the alternative was a kind of Whac-a-Mole, the indictment says. As bills came due, it charges, Machold wrote doctored certificates for a cheap Bohemian cello that a co-defendant sold as an Italian old master.
An 18th-century Milanese viola owned by a Dutch lawyer and independent film producer showed up as collateral on concurrent loans from banks in Germany and in Austria. An 18th-century Venetian violin, consigned by another Dutch client, went as repayment on loans from a Dutch creditor.
A Strad consigned by a widow of the onetime whiz-kid virtuoso Eugene Fodor was repayment to another Dutch creditor, but not before Machold obscured its identity, prosecutors say. He reportedly conceded under police interrogation that he was painfully aware of damaging a third party, but he assumed that a turn for the better would make it possible to repay the owner.
At least the ex-Fodor was real, unlike the Strads he offered as collateral on $7.5 million in loans from his home-town Bremen Sparkasse savings bank. Not only were they copies, Hargrave reported when called in to examine them, they were hardly worth the cases they came in.
In late 2010, Machold filed for bankruptcy in Vienna. A few months later, he took off for Switzerland, where he was arrested at the request of Austrian authorities. Extradited to Vienna in December, he petitioned for release on bail. The court said no.
Joining him as co-defendants are his third ex-wife and her mother. Both are charged with helping him stash $1.5 million in assets where creditors couldn’t reach them. The third co-defendant is the seller of the Bohemian cello, a longtime Machold associate.
The trial is likely to be over in a few days or weeks. But the fallout could remain toxic for years. The task of locating an indeterminate number of missing instruments alone is likely to keep buyers, sellers and art-crime teams busy far into the future.
Philip Margolis, a Swiss-based American expat whose Web site, Cozio.com, is the closest thing the world has to a dependable database of fine stringed instruments, is convinced that the locations of many of them are known. But those in the know are unlikely to come forward if it means a shoot-out, for example, with the Austrian National Bank.
Hargrave, his skepticism nourished by a lifetime in the trade, takes a still-darker view. Violins weigh about a pound. To most people, they look as interchangeable as kittens. They remain essentially portable, despite ever-knottier airline security and ever-stingier overhead bins. Demand for Strads and their extended family is global. Supply, estimated at a few thousand, is inevitably limited. Underground billions in all major currencies are believed to be looking for a home.
Shapreau, the cultural-property law professor, wants buyers to know how to find credible second opinions. She would welcome more and better international law enforcement.
But the scarcity of technical skills will not make this easier. Nor will the complexities of multinational transactions, involving platoons of silent and not-so-silent partners, dealers, teachers, players, collectors and advisers.
Since at least 1890, courts and juries have been asked to rule on authenticity. The results have been mixed, including deepened skepticism about the authority and credibility of experts, and earnest discussion of what constitutes due diligence in questions of provenance.
Expertise itself has become a minefield as art historians find themselves facing liability suits for their professional opinions. “I’m glad that we’re done with the days of ‘buyer beware,’ ” says Jason Price, chief executive of Tarisio, a New York auction house that sold the 1721 “Lady Blunt” Stradivarius last year for $15.9 million. “But I’m equally frightened of the days of ‘seller, be well-lawyered.’ ”
It’s anybody’s guess where the Rev. H.R. Haweis might have stood on income tax reform, dialogue with the Lutheran church and same-sex marriage, had he returned to life at the General Convention of the Episcopal Church in Indianapolis in July. But it’s fair to assume that he’d feel right at home when the Machold case comes up around the bar at the Violin Society of America’s November meeting in Cleveland.
David Schoenbaum is a Washington writer whose latest book, “The Violin: A Social History of the World’s Most Versatile Instrument,” will be published by Norton in December.