Two months after a prominent online auction house filed for Chapter 11 bankruptcy protection this year, a new lawsuit has been filed alleging that its former chief executive misappropriated funds from its auctions to cover the company’s operating expenses.
The suit, which was filed in United States Bankruptcy Court for the Southern District of New York, is brought against Valentine Uhovski, who resigned as CEO in February, on behalf of the company’s unsecured creditors seeking at least $1 million in damages. (One unsecured creditor listed in Paddle8’s original bankruptcy filing is the publication Robb Report, which is own by ARTnews’s parent company, Penske Media Corporation.) The Art Newspaper first reported news of the lawsuit.
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In the suit, the unsecured creditors, who are typically among the last to receive any funds that might be owed to them in a bankruptcy settlement, allege that while he was Paddle8’s CEO, Uhovski “engaged in acts of gross mismanagement and disloyalty” that “involves a knowing and culpable violation of his obligations as a fiduciary of [Paddle8] and its stakeholders, including its creditors, the absence of good faith, and a reckless disregard for his duties.”
The creditors claim that Uhovski directly “misappropriated certain funds from the auctions, including charity auctions, by using those earmarked proceeds to pay the operating expenses” of Paddle8. The complaint also points to a recent lawsuit by an unnamed nonprofit (possibly the New American Cinema Group, which filed its suit just before Paddle8 filed for bankruptcy) and claims that others have also threatened legal action.
In an email to ARTnews, Uhovski said, “I was blindsided by this bizarre suit, as was nearly every wonderful colleague that I’ve worked with. During my time as a leader for CEO my priority was fighting for the brand, employees, and partners we love. The owner made that commitment impossible, and I left the company in February after months of deceit and misinformation. A lot of pain was brought on to the staff, and the organizations and this is just the latest ruthless blow. I have every piece of evidence to back up my work and integrity and will not tolerate these hurtful lies.”
A representative for Paddle8 did not immediately respond to a request for comment on the new lawsuit.
The suit also states that Paddle8’s board instructed Uhovski “to scale back business operations, cut expenses and conduct reductions in force” in January, but he soon resigned. After his resignation, the suit states, it was discovered that Uhovski had used funds from its auctions to pay the company’s expenses.
For several years, many nonprofits in the art world relied on Paddle8’s services to conduct silent auctions at fundraising events, with artworks typically being sold between $1,000 and $100,000. Some of the unnamed creditors are seeking to recover some of the money that they say was never paid to them.