They Called Him the Bernie Madoff of Violin Dealers
Tuesday, April 12, 2011
German violin dealer Dietmar Machold lived in an Austrian castle, owned a collection of sports cars and was always impeccably dressed. Over a period of several decades, Machold allegedly swindled banks, customers and dealers from millions of dollars, leaving behind a trail of bankruptcy, deep debts and unhappy customers.
On March 16, Machold, 61, was arrested on charges of aggravated fraud, misappropriation and fraudulent insolvency, said Thomas Vecsey, spokesman for the Vienna public prosecutor's office. Machold is officially charged with debts of $27 million Euros, or about 36 million dollars, but sources familiar with his business dealings suspect that sum is considerably higher, and the Austrian paper Der Standard has reported that there are over 100 million Euros in bankruptcy claims against him.
Machold’s arrest has been met with a sense of eventuality in the rare violin world, a business known to be rife with fraud, kickbacks, hidden commissions and lack of transparency. Locally, Machold is entangled with the embarrassing sale of $49 million worth of instruments to the New Jersey Symphony, and has done business with or knows personally most of the violin dealers in New York. Many of Machold’s colleagues, some of whom wouldn’t talk on the record because “it’s easy to get burned in this business,” compared Machold to Bernard Madoff: the big crook who comes to symbolize a business with plenty of smaller ones.
Acquaintances and colleagues described Machold as charming, flashy, ambitious, a smooth talker and a playboy. “He is elegant, well tailored and kind of a Gatsby,” said David Schoenbaum, an author writing a book on the social history of the violin who met Machold several times. At the height of his success, Machold had shops in New York, Zurich, Bremen, Vienna and agents in Tokyo and Seoul. His New York shop, open from 1995 to 2006, was known for paying salaries extravagant enough to bring in workers from competing firms, leaving a sour taste in competitors’ mouths. Machold also appraised the so-called "Golden Age" instrument collection that the New Jersey Symphony Orchestra purchased for $16 million, hugely exaggerating the values of the purchase.
Born in Bremen, Germany, to a violin dealer, Machold learned violin-dealing from his father. He has a law degree, and no formal violin-making training. “He bought his way into the field, and being a successful attorney, he had the capital to invest in instruments,” said Phillip Injeian, a violin maker and dealer in Pittsburgh who knew Machold professionally. No one seems to know if Machold actually played the violin. “I think he took a few lessons as a child,” said Schoenbaum, the author. “He’s coquettish about it.”
The arrest took place in Zermatt, Switzerland, on a warrant issued by the Vienna prosecutor’s office, and Machold will go through extradition proceedings, said Folco Galli, a spokesman for the Swiss justice ministry. Machold was charged with misappropriation because when selling customers’ instruments he pretended they were his own, said Vecsey, the Vienna prosecutor’s spokesman. The fraudulent insolvency charges are because he didn’t disclose assets when filing for bankruptcy and fraud charges are because he gave worthless instruments to banks to safeguard credit, Vecsey said. Some of these instruments, which Machold claimed were Strads, were later reported to be worth less than the cases that held them, said Schoenbaum, the author.
While some see Machold as a crook looking to deceive, others said his questionable business practices just spun out of control. “I feel that Machold was a little bit careless,” said Julie Reed-Yeboah, a New York City-based violin restorer who worked for Machold for twenty-one years. “He would put values on things based on what the owner wanted. I don’t think that he was so concerned that that would be considered fraud.”
He’s not a criminal but just did bad business at shaky financial times, said Dr. Wilhelm Häusler, the Austrian attorney who represented Machold in previous bankruptcy proceedings and has been corresponding with Machold in prison. “He suffered beneath the crisis,” he said. “He couldn’t make all his deals with Stradavaris and Amatis, because the persons who usually buy those instruments didn’t want to spend so much money for those things.”
Granted, putting a value on a violin is no simple task, especially in an unregulated market without guidelines like, say, like a bluebook for cars. A Strad violin can be worth anywhere from a half million to ten million dollars, said Injeian, the Pittsburgh maker. “To the dealer, the thing that is important is the authenticity of all parts of the instrument, then the condition, and then the playability.”
It’s a lot like the art market, said Stefan Bauni, a New York-based violinmaker who first met Machold in Europe, and later worked in the same building as the dealer. Names and origins – especially old Italians – are of paramount importance, and dealers and sellers work to create hype and stories around certain instruments, he said. “How many first violins of a great player can there be?”
Much of it is based on the individual sale, said Fritz Reuter, the Chicago-based violin maker and dealer. “Dealers analyze the customer and see what he is willing to pay.”
How common corruption is in the violin world is up for debate. “[Machold] is only one of a dozen individuals who do the same thing,” said Reuter, who lists dealers he calls the instrument world “mafia” on his Web site. “If any business is crooked, this one is.” In New York, there are probably a dozen people like Machold, said Emmanuel Gradoux-Matt, a violin restorer and dealer in New York who met Machold on several occasions. In the world of high-end instruments, it is common for a dealer not to disclose the source of an instrument and to give hidden commissions, such as to a teacher whose student buys an instrument from a recommended shop.
But some violin firms have gradually cleaned up their act, said Gradoux-Matt. “The good thing about people like Machold is that we’ve had to change some of the ways we’ve done business,” he said. About ten years ago, Gradoux-Matt said he increased transparency significantly, disclosing who bought an instrument, what they paid, and how much the dealer received in the commission.
Whether Machold’s arrest will cause major change in the business remains to be seen. “There have always been shysters and thieves of the like of Machold,” said Gradoux-Matt. “There were people like this in the 1800s, and there will be people like that 100 years from now. It’s the cost of dealing with beautiful artistic things at high price.”
1) Top: The location where Machold used to have his shop across from Lincoln Center. The building has since been torn down (Corinne Ramey).
2) Bottom: Emmanuel Gradoux-Matt, a violin dealer located on East 28th Street, says that dealers like Machold have led him to make significant changes in his business practices (Corinne Ramey).