From Bloomberg News:

www.bloomberg.com/apps/news?pid=20601088&sid=aV62s0dGt_04

Merkin Selling Art Frozen in Lawsuit for $310 Million (Update2)

By Karen Freifeld and Lindsay Pollock

June 30 (Bloomberg) — The financier Ezra Merkin, sued by New York Attorney General Andrew Cuomo over his role as a provider of client funds to convicted money manager Bernard Madoff, is selling Mark Rothko paintings and other artwork for $310 million that had been frozen in the litigation.

Merkin and his wife, Lauren, entered into a sales contract, subject to Cuomo’s approval, and agreed to put the net proceeds in escrow, pending the outcome of the lawsuit, according to a court filing. The sale needs approval by the judge in charge of the case.

“As Mr. Merkin continues to defend against the actions brought against him by the New York attorney general and others, he and his wife have decided to sell the core of their art collection in a private sale,” Andrew Levander, counsel to Merkin, said in an e-mailed statement. “The Merkins believe the lawsuits are without merit and have agreed, without prejudice to their rights, to place the net proceeds of the sale in escrow while the litigation continues.”

Restitution to Victims

The proposed deadline for the sale is July 15. The sale will yield about $191 million, after liens, taxes and fees, which will go into escrow, according to Cuomo.

“This will preserve assets that, if our litigation is successful, will provide restitution to victims of Mr. Merkin’s alleged fraud,” Cuomo said in a statement.

Cuomo said he will continue to seek “full recovery for investors’ losses” through the suit, which charges Merkin with concealing the investment of more than $2.4 billion with Bernard L. Madoff.

Merkin’s lawyers said they would move to dismiss Cuomo’s claims tomorrow.

State Supreme Court Justice Richard Lowe indicated he would sign the order, according to attorney David Pitofsky, who said Lowe also approved his appointment as receiver for Ascot Partners LP, a Madoff feeder fund.

The judge earlier agreed to the appointment of Bart Schwartz as receiver for the Ariel and Gabriel groups of funds.

Lien on Artworks

According to court papers, there is a lien on artworks held by PaceWildenstein LLC, as agent for Rothko’s children, Kate Rothko Prizel and Christopher Rothko, for $42 million, and a lien held by HSBC Bank USA, N.A. for $19.3 million on certain property, including 14 lesser works of art.

In addition, PaceWildenstein will receive a fee of $11 million for advising the buyer, the court papers say, and TLIA LLC will get $26.5 million for advising the seller.

Of the $211 million left, $19.2 million will be taken out for taxes expected to be due on the sale of the artwork, as well as other expenses, including legal fees directly related to the sale.

Christie’s International Plc, which conducted an appraisal, said the purchase price was fair, according to court papers.

The Merkins assembled their collection between 2003 and 2008 with the assistance of adviser Ben Heller. They acquired seven major paintings by Rothko, from the artist’s estate and heirs, in a deal brokered by PaceWildenstein.

Andrea Glimcher, a Pace spokeswoman, declined to comment. Heller declined to comment.

Giacometti Sculptures

Merkin owned five other Rothko paintings, according to Heller, including an electric blue oil on paper purchased at Sotheby’s in 2007 for $7.9 million.

The Merkins also owned two sculptures by Alberto Giacometti worth around $20 million, according to a dealer familiar with the collection. The Giacometti bronzes were acquired from dealers, and include the slender solo female figure, “Femme de Venise,” as well as “The Glade” featuring a cluster of tiny figures.

The Merkins’ Park Avenue apartment was also adorned with major African art as well as objects from Japan and China.

Earlier this month, Irving Picard, the trustee liquidating Madoff’s firm, asked a judge for an order forcing Merkin to transfer to the bankruptcy court any remaining money held by his Ascot Partners LP fund. The trustee said the order was needed to block Ascot assets from being moved by any receiver who may be appointed by Cuomo.

Picard did not immediately return a call for comment.

SIPC spokeswoman Ailis Aaron Wolf said it’s not involved in Cuomo’s lawsuit against Merkin and declined to immediately comment on the art sale.

State Supreme Court Justice Richard Lowe indicated he would sign the order allowing the Merkin art sale.

The case is New York v. Merkin, 450879/2009, New York state Supreme Court (Manhattan.)

To contact the reporter on this story: Karen Freifeld in New York at kfreifeld@bloomberg.net.