It must have seemed, at the time, a fairly simple deal.
In late 2023, Elizabeth Mugrabi, known as Libbie, a Manhattan socialite, wanted to take out a $3 million loan.
She needed the money to buy a home in the south of France, she told The New York Post, though her lawyer would say later that she merely wanted “to get her finances in order.”
Ms. Mugrabi may have seemed cash poor, but she was art rich, having received valuable works in her divorce from the art market titan David Mugrabi. She approached a lending company — Art Capital Group — which specializes in loans that use artworks as collateral. The two sides agreed that to secure the short-term loan Ms. Mugrabi would put up a 1982 masterwork by Jean Michel Basquiat that depicts a haloed and Christ-like figure, with a black crescent moon overhead.
Things grew more complicated when it came time to pay what the company called in court papers a “small $12,500 due diligence fee” to cover work necessary to secure the loan.
Ms. Mugrabi addressed the fee not by writing a check, but by putting up as collateral another valuable painting from her collection. This time, it was one in a series of Andy Warhol portraits of Jacqueline Kennedy Onassis that she says is worth at least $1 million.
And while the Basquiat stayed with her, Art Capital removed the Warhol from her home.
Ultimately, Art Capital did not give Ms. Mugrabi the loan, pointing to concerns about her credit worthiness. Nor did it give back the Warhol, citing the loan agreement. The relationship between the parties has been deteriorating ever since.
Ms. Mugrabi has depicted the company’s principals as criminals, first in a police report she filed in Southampton, N.Y., and then in screaming tones last year at a fancy New York City restaurant.
“You stole my painting like a Nazi, right out of my house,” Ms. Mugrabi, who is Jewish, shouted outside at the time.
Matters escalated further last February, when Ms. Mugrabi told The New York Post that she had distributed “Wanted” posters outside Art Capital’s Madison Avenue offices and in East Hampton. The poster included photos of Art Capital’s directors.
“$10,000 reward given for returned painting,” it read.
The company’s directors, Ian Peck and Terence Doran, responded with a $30 million lawsuit in September in which they accused Ms. Mugrabi of engaging in “an unlawful campaign of intimidation and falsely and maliciously defaming them.”
In an affidavit, Mr. Peck said their company was forced to sell the Warhol for $325,000, a bargain price, to cover its escalating costs and what Peck described as damage to their reputations.
Ms. Mugrabi denies defaming anyone and, undaunted, has countersued. Twice.
“They’re nobody,” she said in a phone interview. “I’m the star, not them, right?”
Art and Acrimony
Ms. Mugrabi is accustomed to the limelight, to legal squabbling and to certain comforts. The daughter of Charles Scher, a plastic surgeon, she grew up “very wealthy,” she once told The New York Times, with homes in Oakhurst, N.J., and Palm Beach, Fla.
She met Mr. Mugrabi, whose art-dealing family owned the world’s largest private collection of Warhols, in Aspen, Colo., in 2001 and married him in New York four years later, at the Pierre hotel, wearing a Victorio y Lucchino gown fitted to her in Spain. The couple, who would have two children, jetted to art fairs in Venice (where they partied on the yacht of the Microsoft co-founder Paul Allen) and vacations in Portofino, Miami and St. Bart’s.
If the marriage was sensational, the divorce was perhaps more so. The precipitating event may or may not have been a 2018 dinner party at the couple’s Hamptons home. Ms. Mugrabi said she woke up in the morning to find her husband and another woman unclothed and asleep beneath a painting by Richard Prince, perhaps after a skinny dip. (Mr. Mugrabi has declined to comment on Ms. Mugrabi’s account.)
The divorce case became tabloid catnip, with the parties arguing over Mr. Mugrabi’s cash flow (she said he cleared $5 million a year; his lawyers said at the time he was taking home only $150,000 a month, after paying spousal and child support). Ms. Mugrabi was accused of “profligate” spending at Valentino and Chanel; she said she had to sell her $100,000 diamond ring to retain a divorce lawyer.
At one point, Ms. Mugrabi showed up to a family court hearing in a bulletproof vest after asserting Mr. Mugrabi might hire a hit man to kill her, something he vehemently denied. (She replicated the look during a 2023 show in Paris for a fashion label, L’Scher — based on her maiden name — that she is developing.)
The Mugrabis settled in 2020. Among other considerations, Ms. Mugrabi received the couple’s Sag Harbor mansion and some artworks, including the ones she would later use as collateral.
Banking on Basquiats
Recognition of the financial power of art has grown in recent years, and collectors and, at times, artists themselves, have pledged valuable works to borrow money, sometimes with double-digit interest rates.
The rates can be higher than in loan agreements backed by other assets because art values can be difficult to establish, according to Todd Levin, an art adviser. Paintings can be appraised, yes, but their value can have volatile fluctuations, driven by less predictable market factors, like emotion and taste.
“One share of stock is not better than another share of stock: The price is X, and that’s the price,” Mr. Levin said. “You can’t do that with a Picasso.”
Still, the popularity of such loans has ballooned in recent years as major auction houses and banks have become increasingly involved. A 2023 research study of the art market estimated that art-secured lending could reach a high of $34 billion that year, up 11 percent from 2022, continuing a trend of double-digit growth.
Art Capital Group, founded in 1999, says on its website that it has underwritten more than $5 billion in loans. Collectors, the website says, “are provided with flexible, customized creative services that traditional banks are simply unable to approach.”
But business has not always gone smoothly: Art Capital and related businesses have been named in several legal disputes. In one, a Colorado company, Loans on Fine Art, has been awarded more than $8 million in damages and interest stemming from an arbitration decision that was upheld last fall by a federal judge. Mr. Peck is appealing. His lawyers assert the arbitrator was wrong and the “Court erred in confirming the Award.”
Ms. Mugrabi’s loan, payable over a year, was to have carried a variable interest rate of more than 10 percent. In her legal filings, she says the Basquiat she put up as collateral is valued at more than $30 million. That figure was disputed by the lender, who said in a letter filed in court that an auction house last year estimated its value at between $4 million and $6 million.
Ms. Mugrabi’s lawyer, Claude Castro, has suggested in legal filings that Art Capital never intended to make the loan but sought rather to “make money by charging fees and expenses.” He said in court papers that only some of the lender’s expenses have been documented. In its suit, Art Capital has said it only sought its “rightful fees and expenses.”
The Warhol became involved in the transaction in the fall of 2023, when Art Capital asked Ms. Mugrabi to pay the $12,500 fee outlined in the Basquiat loan agreement. Ms. Mugrabi decided instead, the company said, to give it a lien on “Jackie, 1964,” Warhol’s small, blue-tinted portrait of Ms. Onassis — as a guarantee that those costs would be covered at a later date.
Ms. Mugrabi signed the Warhol agreement at 9 a.m. on a Sunday, without having a lawyer look it over, according to Mr. Castro. He says she believed the Warhol was replacing the Basquiat in the original deal. The company rejects that idea, saying, in a statement, that Ms. Mugrabi pledged both “the Warhol and Basquiat to ACG as security for her financial obligations.”
The Warhol agreement, signed on Nov. 19, 2023, with Ms. Mugrabi dotting the I’s in her name with hearts, does not discuss who would physically hold the painting. It does say Ms. Mugrabi would be responsible for any storage fees and for insuring the work. That same day, Mr. Peck of Art Capital took possession of the Warhol, removing it — bubble-wrapped — from Ms. Mugrabi’s Sag Harbor home as an associate of Ms. Mugrabi looked on.
Joon Ho Chun, a consultant who had introduced Ms. Mugrabi to the company and acted as an informal liaison to the deal, said he was there that day and didn’t see anything amiss.
“They didn’t take the Warhol,” he said, adding, “It was given.”
A Painting Off the Wall
Ms. Mugrabi didn’t see it that way. In a legal filing her lawyer says she thought the removal would be temporary, for the purposes of having the Warhol “inspected and/or appraised.”
When the $3 million loan still had not materialized several weeks later, she called the Southampton police to report her Warhol had been stolen. In their report, the police said Ms. Mugrabi told them that “when she briefly stepped away” from her living room, “the painting in question was removed from the residence.”
The police decided her account was “inconsistent,” according to the report, after Art Capital confirmed there had been a loan agreement. “No evidence to support any criminality at this time,” the report concluded.
In a statement, the company described Ms. Mugrabi’s transfer of the Warhol as “a choice she made.”
“To suggest that this constitutes theft is absurd,” the statement said.
The situation devolved further in January 2024, when the company told Ms. Mugrabi she would not be getting her loan. Art Capital says in court papers that Ms. Mugrabi had a “checkered credit history and one or more substantial judgments against her.”
In particular, the company said it had concerns about a $1.8 million judgment in a case brought by a former Upper East Side landlord who said she owed back rent. That decision, however, was later vacated by the judge and the case is back in court.
Still, for all the acrimony, last winter the parties reached a deal in which Ms. Mugrabi agreed to sell the Warhol to the company for $440,000, according to Mr. Peck’s affidavit, a discounted price that would cover what Art Capital said were mounting legal and other expenses.
The two sides arranged to break bread at Amaranth Restaurant, a popular Mediterranean restaurant on East 62nd Street, to finalize the deal at what the company said in court papers it envisioned as “an amicable closing lunch.” Ms. Mugrabi brought along her boyfriend at the time, Bobby Vaughn, of the Von Dutch fashion line — their hats once a go-to accessory for celebrities like Paris Hilton and Jay-Z.
But the mood soon soured.
Mr. Vaughn said in an interview that he and Ms. Mugrabi had come expecting to finalize the details of the sale, but soon felt Mr. Doran, of Art Capital, was being evasive about the $440,000 payment for the Warhol.
“No truth was being told so I basically just like stood up and said, ‘Look, I’m going to citizen arrest you right now,’” Mr. Vaughn recalled. “I was kind of joking, but I just did it, because I was like, ‘Look, enough is enough.’ ‘Look, you’re not telling us where the painting is, you’re not telling us the terms.’”
Mr. Vaughn filmed part of the encounter on his phone and captured Ms. Mugrabi screaming at Mr. Doran outside the restaurant. The company cites the restaurant encounter in its defamation lawsuit.
The pleadings make clear that Art Capital is also deeply concerned about the impact of the “Wanted” poster. Reminiscent of the notices that used to hang on post office walls, it spoke of an “art heist” and bore the photographs, names, ages and addresses of the company’s directors and Mr. Chun, who has joined in the lawsuit against Ms. Mugrabi.
In an interview, Ms. Mugrabi said the poster was Mr. Vaughn’s idea. For his part, Mr. Vaughn said he thought it was important to demonstrate to Art Capital that Ms. Mugrabi was frustrated and prepared to publicize her predicament. But he said the mock-up of a poster, made on a computer, was never distributed in public.
“I only sent it to them,” he said, contrary to what Ms. Mugrabi told The New York Post. “We never printed it.”
Bills and Damages
Art Capital says it sold the Warhol last June. By then, the company’s costs from the failed loan deal had risen to more than $200,000 and publicity surrounding the dispute had depressed the painting’s value, Mr. Peck said in his affidavit. He said that the $200,000 did not include “reputational damages” or “anticipated future attorneys’ fees in enforcing our rights under the agreements.”
Ms. Mugrabi and her lawyer disagree, saying in court papers that the $325,000 purchase price was far less than the painting’s value and far more than the company’s actual expenses.
Mr. Castro has also raised the specter in court papers that perhaps the painting wasn’t sold at all, saying the company has yet to provide a bill of sale or any details on how or when the painting was sold.
Among the remaining uncertainties is what will happen to Ms. Mugrabi’s Basquiat. She had intended to sell it in London last fall, but that plan has been sidelined by the legal uncertainty surrounding the artwork.
The company said in court papers that it is entitled to take possession of the Basquiat and sell it to cover what it views as the additional cost of damage to its reputation. In a statement, the company said that “the sale of the Warhol did not begin to cover ACG’s losses.”
“It is unfortunate that Ms. Mugrabi chose the path of defamation in an effort to escape her contractual responsibilities,” the company said.
In interviews and text messages, Ms. Mugrabi swung between anger and anxiety, between bravado and bewilderment. She said the legal battle has distracted her from her fledgling fashion business. Still, she said she has big plans for that clothing line and for a podcast she plans to call “Sexless in the Sticks,” focusing on “faith, fashion and female empowerment.”
For now, she acknowledged that most everything of what she has stems from her divorce. But the Sag Harbor house is in foreclosure, and the Warhol and the Basquiat are the focus of the dispute.
“I don’t know,” she said, “how these guys seem to feel entitled to not one, but two paintings, from my divorce settlement.”
She does, however, take a degree of responsibility for her travails, saying, “I let too many people around me and gave them much access.”
“And, you know,” she said, “now I’m learning the lessons.”
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