Masterworks Advisers, a recently minted registered investment advisor that specializes in investing in art, was called on the carpet this month by securities regulators in Maryland over mistakes in the firm’s selling of securities related to the firm’s registration, akin to technical errors that new or growing firms sometimes make.
The result? Masterworks Advisers in a consent order dated June 18 with the Securities Commissioner of Maryland agreed to pay a penalty of $75,000 for having 45 salespeople for three months in 2023 who were not licensed properly in Maryland.
This happened around the time when the firm was switching its business and sales model from working with broker-dealers to an RIA, according to the consent order.
Calls to the firm on Friday for comment were not returned.
Masterworks was launched in 2017 but its RIA, Masterworks Advisers, is just three years old and manages $8.1 million in assets, according to the Form ADV.
“Masterworks Advisers is an investment advisory firm providing investment advice to investors interested in diversifying their investment portfolio through exposure to blue-chip artworks with strong appreciation potential,” according to the firm’s most recent Form ADV.
The firm “currently limits its advisory services to art as an investable asset class and to financial products issued by Masterworks and its affiliates through retail investor services,” according to the filing.
Masterworks is a fast-growing enterprise, and it has faced scrutiny.
The firm “democratizes the art market by offering average investors an opportunity to buy $20 shares in individual paintings by Warhol, Picasso and others that the company has agreed to purchase, according to an article last year by the New York Times. “In just eight years, it has become one of the art market’s biggest buyers. Its collection of 500 artworks is now valued at more than $1 billion and its platform has drawn 70,000 investors.”
“Some art market experts, though, suggest that the company can be too optimistic in its marketing of artworks, a practice that understates the potential to lose money, especially for art market rookies,” the Times reported. “While Masterworks provides caveats and warnings about the risks, its website is awash with splashy graphics that promote the potential upside of the market. Paintings are presented as similar to others by an artist that have historically appreciated at rates as high as, say, 31 percent a year — far outpacing the stock market.”
“Our question is: How do we expose more people to art and how do we make it more investable by everyone than what has historically been available?” Scott Lynn, the company’s founder, said in an interview with the Times last year.
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