Masterworks’ fractional art sales getting the brush off

Masterworks, the “elite alternative asset” that allowed investors to buy fractional shares of high-end paintings, scrapped a funding round amid concerns it could face regulatory scrutiny in the coming months, a source familiar with Masterworks’ thinking told On The Money.

The company was valued at $1 billion in its Series A funding in October 2021, but faced an uphill battle to raise more money as the economy slows and wary investors fear placing bets on growth-oriented companies. 

The masterpieces available include works by the likes of Jean-Michel Basquiat, Claude Monet and Banksy.

However, a recent report noted brokers — who have a fiduciary responsibility to their customers — have at times pushed clients to buy shares of artwork that were riskier investments.

 “It wasn’t really what was best for the client,” one ex-staffer told Artnews about the company’s sales process. 

A source close to the SEC told On The Money the company is on its radar. Currently, there are no open probes into any alleged shenanigans. 

“The Artnews article was full of lies and misleading information supplied by disgruntled former employees,” a Masterworks spokesperson told On The Money.

“We did not suspend a raise. We haven’t begun a second raise,” the spokesperson added. 

Meanwhile, Masterworks revenue has flagged in recent months as the company struggles to retain employees, another source said. 

The company has received a $110 million investment from Left Lane Capital, Galaxy Interactive and MoMA board member Glenn Fuhrman’s Tru Arrow Partners. 

More skeptical observers say it’s Masterworks’ troubles shouldn’t be a surprise. 

“Coinbase tried to follow every rule in the book to the extent they reported to the IRS all purchases and sales on the platform so they would be aware of what taxes were owed… and they got slapped with a lawsuit,” another source added. “Selling fractional pieces of artwork is a totally new thing – of course there will be issues.”