Dietmar Machold: The Bernie Madoff of violin dealers

Dietmar Machold lived like a prince, "a fairytale figure adored by highbrow music mavens and high-stake financiers", in an imposing 700-year-old fortress outside Vienna, says Strings Magazine. As the world's foremost expert in Stradivarius violins, he amassed a fortune buying and selling rare instruments. Today he's in an Austrian jail awaiting trial for a fraud that has sent shockwaves through the classical music industry. His victims, including musicians, millionaires and museums, are so numerous that he's earned the moniker, "the Bernie Madoff of violin dealers".

Machold's arrest last year capped "the slow-motion collapse of an empire that once spanned the globe", says the New Jersey Star-Ledger. The FBI began investigations in 2004, but his standing within the "genteel world of fine violins" was so great that he continued to operate with impunity, dismissing any allegations against him as "the ravings of jealous competitors".

When he finally declared bankruptcy in October 2010, with debts topping $40m, the Austrian courts liquidated his assets, including the castle and his collections of antique sports cars, rare carpets, clocks and other treasures. At least 17 rare stringed instruments and bows (including five Stradivari and four del Ges violins worth an estimated $82m), belonging to banks and other clients, had simply vanished into thin air.

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Machold boasted his family had been leading players in the German violin trade for five generations, and claimed the medieval French composer, Guillaume de Machaut, as an ancestor. In fact, the Bremen-based firm was started by his father in 1949.

Machold, 62, trained as a lawyer, deploying his "shrewd negotiating skills" and "cosmopolitan appearance" to parlay a small German violin shop into a global business. Renowned for his audacity, he claimed to have sold his first Stradivarius violin in 1985 to the North Korean government.

As prices of rare string instruments soared in the 1990s, Machold cleaned up: no other dealer could claim such expansive territory or match his volume. He was "a Gatsby-like figure", says Strings, who wore his wealth well, but "seemed to come out of nowhere". In 1997, Machold bought Eichbchl Castle, near Vienna, the better "to reinvent himself as an aristocrat". The Austrian government duly showered him with rewards and honours, and he became a Viennese society fixture.

In 2001, Machold began forming investment syndicates to purchase antique instruments, which were then loaned to orchestras and eminent soloists. Countless banks and wealthy investors piled in. Many of those deals have now been exposed as shams (see below). "There's just a trail of bodies, basically," says the British violin expert Roger Hargrave. "He's been cheating people for years and years and years." By the standards of your average fraudster, it was a virtuoso performance.

How the Stradivarius man fiddled the banks

When Dietmar Machold filed for bankruptcy in 2010, he fled to Switzerland hoping to escape trial. No dice, says Der Spiegel. Having lost his battle against extradition, he's back in Austria and, despite confessing to some of the charges against him, later this summer he will stand trial on further charges of embezzlement, bankruptcy fraud, and commercial fraud. It will be quite a show.

With some 46 criminal complaints from as far afield as Australia, it's taken investigators months to shed light on his tortuous business dealings. They may never uncover what happened to the multi-millions let alone the missing instruments. "Their efforts have pieced together a picture of a businessman who was probably cash-strapped for years."

Associates allege Machold was lying about the value and authenticity of instruments as far back as the 1990s. He progressed to pocketing large chunks of the proceeds from sales conducted on behalf of clients, "allegedly using the money to pay off other debts instead".

Machold's speciality, however, was a variant of the "Bialystock scheme" (named after the scam in the Mel Brooks satire,

The Producers), says Eric Felten inThe Wall Street Journal: "sell multiple parties the rights to the same properties" often "dubious properties at that". Machold secured millions in bank loans, collateralised by violins that he "vouched to be priceless". Bank after bank went along with it seduced by his self-proclaimed status as "the Stradivarius man". Some of the instruments were outright fakes; some were "Frankenstrads" (featuring just part of an original); others simply disappeared.

The banks he duped have only themselves to blame. The real victims are the many musicians who invested their life savings, and credibility, in the instruments. This violin "has enabled me to find my sound'", claimed one member of the New Jersey Symphony Orchestra, clutching what he thought was a priceless Stradivarius. It was, of course, a fake.