On the last day of his life--his hearing nearly gone, his body bent with arthritis, his frame reduced to skin and bones--Gerald Segelman found solace close at hand. With no children to comfort him and no family to gather at his bedside, Segelman turned to the objects he had spent a lifetime pursuing: dozens of gleaming Stradivari, Guarneri and Amati violins making up the world's most extensive private collection.

Unceremoniously spread out on chairs, bureaus and nightstands in his London flat, the collection would come to symbolize the transformation of rare and precious violins into big-ticket commodities. These instruments, handcrafted of maple and pine centuries ago in northern Italy, often became vehicles for quick profits, traded around the world as if they were pork bellies or cattle futures.

Segelman's death July 8, 1992, set off a feeding frenzy. The violins he picked up cheap during and after World War II, some now worth millions, were swept up in a fast-moving and secretive business that enriches dealers but leaves musicians who need the instruments increasingly unable to afford them.

With Chicago, London and Tokyo as its hubs, the violin market has developed an unseemly side in which self-serving appraisals, multiple middlemen, six-figure paybacks and artificially inflated prices are not uncommon.

"People want these violins so badly," said Vienna-based Dietmar Machold, one of the world's foremost purveyors of rare fiddles. "They talk about the instruments in such whispers that sometimes you'd think we were dealing in drugs."

In the last year of Segelman's life and after his death, violin merchants combed out the best of his collection, acquiring instruments at bargain prices in London, then reselling them in Chicago to a series of middlemen. Records, receipts and documents show that each one jacked up the price and took profits that otherwise would have been Segelman's and that would have gone into the charitable trust he had created.

Although these transactions typically are hidden from customers and from public view, the Tribune has traced the winding path of Segelman and his instruments through interviews and private records, as well as court documents from litigation by Segelman's estate against the dealers in March 1997. A lawsuit filed in federal court in Chicago in 1999 is continuing.

Segelman's journey, which began in extreme poverty, wends through two continents and a world war as the self-made millionaire crossed paths with Hollywood royalty, ingenious salesmen and violin collectors almost as obsessed with the instruments as he.

It is a tale of the violin trade at its most excessive, with large sums hanging on whether a violin was made in one year or another.

And it is the latest chapter in the biography of the most enduring icon of Western musical culture, the violin, with some of the most coveted instruments increasing in value 300 times since Segelman began collecting them.

An observant Jew, Segelman specified that the funds in his charitable trust go to Jewish charities such as the Jewish Blind and Physically Handicapped Society of London, as well as several synagogues and residential nursing homes in London and Leeds.

Though some of the money went to Segelman and his charitable trust, additional millions flowed into private pockets on both sides of the Atlantic.

Method to his music

When he was just 6, Gerald Segelman became smitten with the violin, imploring his parents to buy him one. But his family, Austrian Jews who had fled the pogroms of Central Europe for the freedoms of the West, couldn't afford even the cheapest model.

It was all his parents could do to rent a worn fiddle and pay for his lessons, at sixpence apiece. Nevertheless, the boy--born Gershon but eventually Anglicizing himself as Gerald--was hooked, as a teenager buying up cheap fiddles with money earned at odd jobs.

Beguiled by the silent movies that began flickering in theaters across England, the four Segelman brothers in the 1920s invested in a movie theater, eventually building a chain of 15 of them, with Gerald later starting his own movie theater company.

By the early 1940s, Segelman was wealthy enough to acquire the exquisite fiddles he had been denied in his youth, and he hardly could have picked a more advantageous moment, for the bottom had dropped out of the violin market. The war raging across Europe drove down the price of rare instruments (and other antiques), with owners unloading even their most valuable fiddles simply to obtain money for survival.

The violins of war-torn Europe were flowing in mainly one direction during those years: westward, toward England. Instruments that musicians and collectors had prized for centuries in Central and Eastern Europe were being sold primarily in Britain and some in the United States, where a few wealthy buyers remained in the market.

So while Europe became engulfed in war, Segelman began gathering up his fiddles. At his side was Annie Vera Farnsworth, whom Segelman had hired directly out of secretarial school.

She would become his sole confidante.

"He was a very dour man," remembers his nephew Philip Segelman. "He was not noted for a sense of humor.

"His favorite saying was: `Rubbish. It's rubbish.'"

As they dashed across the country, Segelman and Farnsworth looked every inch the chic London couple. He was slim and lithe, sporting a pencil-thin mustache, slickly combed hair and sleekly tailored suits. She was a proper couple of inches shorter than he and a decade younger, her hair pulled back and flowing to the neckline in the style of 1940s American movie stars.

The two never formalized or announced their personal relationship, though visitors understood that theirs was a long-running romantic liaison. Farnsworth maintained a separate apartment, but this was strictly for the sake of appearances, said Philip Segelman. Gerald Segelman paid Farnsworth a weekly salary from the first day of their meeting until the last year of his life, more than half a century later.

Together, the duo grabbed instruments for a song. Though no records are known to have survived of Segelman's purchases during World War II, the rock-bottom prices he paid shortly thereafter tell the story: $3,360 for the "Mary Portman" Guarneri del Gesu in 1949; $18,941 for the "Sasserno" Stradivari in March 1946; $19,665 for the "Arditi" Stradivari in December 1947.

Within a few decades, these instruments would be worth millions.

After the war, Segelman and Farnsworth took luxury ocean liners to the United States, where Segelman showed his best violins to American dealers, unloaded a few clinkers and rubbed elbows with Alan Ladd on the set of the 1947 film "Whispering Smith." It was a glamorous life.

But a protracted tax audit and legal battle concerning his cinema business fundamentally changed Segelman. Although he prevailed in the tax matter, he became reclusive and began to record his violin purchases in a secret code. He used a cipher keyed to the phrase CENTRALPICO, the name of his cinema house company (Central Pic Co.).

In Segelman's arcane code, the letter "C" stood for the number "1," the letter "E" for the number "2," and so forth, as his handwritten key to the code shows.

Thus a price of 3,225 pounds would be registered as NEER, an impenetrable notation for anyone but Segelman.

By 1962, Segelman had built an impressive inventory, including major Stradivaris, Guarneris, Amatis, Guadagninis, Stainers-- practically every rare kind of fiddle made. The living room overflowed with instrument cases and the cabinet in his bedroom was jammed with more than 30 violins at a time; his tiny apartment barely could contain them.

Dealers step up

Segelman's collection was too big, too valuable and too obscure for a couple of hungry young dealers from overseas to get near it. But luck and perseverance eventually conspired to put Segelman's violins into the hands of the salesmen from Chicago.

[unnamed Chicago violin dealer] and [unnamed Chicago violin dealer]--respectively a "bad cellist" and a "bad violinist," according to [unnamed Chicago violin dealer]--in the early 1970s had been seduced by the mystique of rare stringed instruments, as well as the prestige and profits they could yield.

Having opened a small violin shop in Cincinnati, not exactly a hotbed for international violin deals, [unnamed Chicago violin dealer] whiled away his days paging through books on rare fiddles and studying the accompanying photos.

[unnamed Chicago violin dealer] grew up poor in blue-collar Chicago Heights and took a job at the William Lewis Co., which had been selling instruments in Chicago since the 1870s.

That the city would emerge as a national purveyor of instruments of all kinds was inevitable, for in the latter half of the 19th Century, Chicago already was alive with symphony orchestras, grand opera companies, light opera houses, theaters, cafes, cabarets and music schools.

Almost a century later, with Chicago still a major center for the trade, [unnamed Chicago violin dealer] were ready to enter the fray, having been introduced to each other by a mutual friend. In 1974 they pooled their resources, acquired a Stradivari that recently had come up for sale, and jetted to Japan to sell it.

With the Japanese market heating up, the dealers knew they could get far more money for the fiddle there.

In Japan, [unnamed Chicago violin dealer] met London-based dealer Peter Biddulph. Tall, slender and suave, Biddulph was [unnamed Chicago violin dealer]'s opposite in practically every way. His crisp enunciation sounded nothing like their flat, Midwestern speech. And while Biddulph entered the world of rare fiddles at its pinnacle--working for Sotheby's and for Charles Beare, then and now London's pre-eminent dealer--[unnamed Chicago violin dealer] was self-taught and [unnamed Chicago violin dealer] merely another anonymous sales clerk.

Linked by their ardor for rare fiddles, the three became fast friends, pursuing buyers on the far side of the world.

Their timing was impeccable, for rare violins were beginning to take on previously unimagined values.

The trend had begun in May 1971, when Robin Loh--a Singapore financier who is one of the richest men in the world--bid on the 1721 "Lady Blunt" Stradivari at Sotheby's in London.

Though the smart money said the instrument might sell for $75,000 tops, Loh paid an unprecedented $201,000.

The price was shocking at the time, yet it barely foreshadowed the multimillion-dollar prices yet to come. For all at once, in the early 1970s, the demand for an ever-shrinking supply of rare fiddles soared.

With Europe's economy rebounding after the blight of the post-war years, a continent that primarily had been exporting rare fiddles since the 1930s again was buying them, thereby driving up prices.

Meanwhile, the Japanese were fully enraptured with Western symphonic music. Thanks to Shinichi Suzuki, who taught a generation of young Japanese how to play stringed instruments before they could read music (and often before they could read anything else), Japan was turning out young fiddlers prolifically in the 1960s.

Now the Japanese, too, were on the prowl for rare stringed instruments.

"Back then, the Japanese would buy anything," remembered Biddulph, of the emerging Tokyo market of the mid-1970s. "It was an exciting time. I lived off of buying in [London] auction houses and selling in America and Japan. In 1971 is when the prices started to go crazy. Something that you bought for 3,100 pounds would sell for 375,000.

"We were hooligans, buying fiddles anywhere. If it looked Italian, the Japanese bought it. They were not sophisticated buyers.

"I was traveling to America six to 10 times a year. I must have gone on the Concorde 80 times, taking instruments from one place to another."

[unnamed Chicago violin dealer], too, were seduced by the heady lifestyle of the violin trade.

"I was dining in Maxim's," said [unnamed Chicago violin dealer], recalling glittery nights spent at the posh Paris bistro while he was in his 20s. "It was a wonderful life. We ate in better restaurants, we drank more expensive wines and we had wonderful colleagues."

At the time, most of the world's major dealers had heard rumors that an obscure Londoner named Gerald Segelman owned an important cache of instruments, though none could say how many or how rare. Nevertheless, each tried to wend his way into Segelman's affections.

"Segelman bought his last major fiddle in '62, and we coveted those instruments, many of which were under his bed," recalled Biddulph.

"I rang him up in 1974. He was very gruff. He said: `Let's see how good you are. I'm going to show you my violins, and if you get one wrong, I won't show you anymore.'

"I was very unnerved," Biddulph continued. "So I said to [unnamed Chicago violin dealer], `Let's go to Gerald Segelman's together.'

"[unnamed Chicago violin dealer] had a superior eye. He had learned all these violins through books, and he had a photographic memory."

When the two dealers walked into Segelman's flat, they were appalled: His cramped, three-room apartment was fit for a pauper, not a collector of priceless violins.

"It was tiny, absolutely horrible, a terrible view out the back window," remembered Biddulph, cringing at the mere memory of the place. "It had a small living room, tiny kitchen. It was like a service flat."

Segelman was eager to play name-that-fiddle.

"Segelman would go to the bedroom to get one of his violins, and as soon as he came into the [living] room, Bob would identify them," recalled Biddulph, still in awe of [unnamed Chicago violin dealer]'s uncanny talent for recognizing instruments in an instant.

"Bob was calling out the names [of the violins] when Segelman came through the door, and he was always right. Gerald liked that."

Middlemen markups

Over the subsequent years, the violin dealers from Chicago and London regularly visited Segelman, whose holdings never ceased to amaze them. Finally, in 1990 Farnsworth convinced the old man that it was time to sell some of his finest instruments.

But he was out of touch with how radically the violin trade had changed.

With prices having skyrocketed, a few world-class dealers now wielded enormous power over the marketplace, playing multiple and potentially clashing roles as buyer, seller, investor, broker, appraiser, wholesaler and retailer.

In larger arenas, such as art or antiques, an individual does not typically hold all these positions. Instead, independent appraisers, for example, have no stake in the items they assess and therefore can offer disinterested appraisals.

In the arcane world of rare violins, however, the powerhouse dealers conduct all these functions, which gives them control of both the flow and the prices of antique instruments. They generally provide expert appraisals to a seller who has no other way to determine the true market value of an instrument.

Once a dealer has told the seller how much an instrument is worth, nothing prevents the dealer from buying the instrument himself or investing in a portion of it, unbeknownst to the seller. If the dealer buys well below the market value of the instrument and resells it, nothing prevents him from cutting the largest share of the profits for himself.

The original seller generally doesn't learn how much an instrument truly is worth, because the final sales price is kept secret.

Excessive profit-taking in the sales of rare instruments has started to come under fire in American courts. Specifically, plaintiffs have begun to rely upon the legal concept of "unjust enrichment," charging that dealers offer too little service to justify markups of 100 percent or more.

And though sellers can get a more straightforward and accurate assessment of the value of their instruments through auctions, many are uncomfortable dealing with a large and impersonal auction house, preferring instead to work one-on-one with major violin dealers.

The dealers, meanwhile, try to avoid selling instruments on a flat commission or percentage basis. Typically, "dealers give the seller a net figure, and anything over that figure is their commission, with the final sale price not disclosed," said Christopher Reuning, a noted violin dealer in Boston.

This was the world of dealers and speculators that Segelman stepped into at age 90, when he started unloading his best violins.

The London-Chicago dealers quickly established a pattern of selling Segelman's finest instruments to one another, thereby taking large cuts of the profits for themselves before the violins reached the retail market, according to court documents. The Tribune tracked the transactions by analyzing court statements of all the parties involved in the lawsuits filed by the Segelman estate in London and Chicago and through interviews with several of the participants.

Essentially, Biddulph would sell an instrument at a wholesale price to [unnamed Chicago violin dealer] or to Chicago investor Howard Gottlieb, a Chicago Symphony Orchestra board member. Gottlieb then would pay a fee to Biddulph in the hundreds of thousands of dollars, according to Biddulph's statements in the estate's case against him.

After paying Biddulph his cut, [unnamed Chicago violin dealer] or Gottlieb were clear to resell the instrument, at steep markups.

Biddulph allowed [unnamed Chicago violin dealer] and others to become wholesale middlemen, cutting large profits for themselves that otherwise would have gone to Segelman while he was still alive, and to his charitable trust after his death.

These profits were wholly justified, said [unnamed Chicago violin dealer].

"We buy at one price and sell at another," he said, noting his overhead that includes a payroll, rent and restoration costs. "We're not doing the Lord's work, but that's basic business."

The process began when Segelman decided to sell one of his most valuable instruments, the 1735 Guarneri del Gesu named the "Mary Portman," after a long-forgotten owner.

Because he acquired the instrument in 1949 for 1,200 pounds, or approximately $3,360, Segelman probably believed that he turned the maximum profit when he sold the instrument, through Biddulph, on June 3, 1991, for 600,000 pounds, or $950,000.

But Segelman achieved this profit by holding onto the instrument for more than 40 years. [unnamed Chicago violin dealer] unloaded the fiddle in a little more than a year for $2 million--a markup of 105 percent, or $1.05 million.

The middlemen--Biddulph, [unnamed Chicago violin dealer] and Gottlieb--divided the proceeds through an intricate process, court records show.

Biddulph sold the "Mary Portman" Guarneri for $950,000 to Gottlieb, an amateur violinist and successful Chicago entrepreneur. Gottlieb immediately handed over the instrument on consignment to [unnamed Chicago violin dealer], who in turn sold the "Mary Portman" to a prime client for $2 million.

The original deal called for the $1.05 million windfall to be divided, with half, or $525,000, going to Gottlieb, and the other $525,000 split evenly among [unnamed Chicago violin dealer] and Biddulph, according to documents from the lawsuits.

But because [unnamed Chicago violin dealer] didn't sell the instrument within the one- year time frame stipulated in the original consignment deal, Biddulph was cut out and [unnamed Chicago violin dealer] kept the entire $525,000. As a gesture, the firm gave Biddulph a $35,000 commission, Biddulph said in court papers.

Biddulph was not pleased with this comparatively small cut and took up the matter with Gottlieb, who gave him a cash payment. The exact amount of the "secret commission," as attorneys for the estate called it, is unknown.

This scenario was repeated, with slight variations, in other instances while Segelman was alive, as with his 1744 Guarneri del Gesu, the "Lord Coke." The London-Chicago dealers acquired the instrument wholesale from Segelman for $950,000 in 1991 and resold it the same year for $2.3 million, a markup of 142 percent or $1.35 million, court records show.

Selling off collection

On July 8, 1992, Segelman died in bed, setting off a stampede among dealers and relatives to grab control of his fiddles.

Segelman's will, drawn up two months prior to his death by his attorney, Jack White, left most of his estate to a charitable trust. Remarkably, Segelman did not mention a single violin in the will.

Three days after Segelman died, two associates keenly interested in the collection--Biddulph and nephew Philip Segelman--met at White's office, with Farnsworth at their side. They told White that Segelman wanted Biddulph to store, inventory and ultimately sell the violins.

White was astounded. He knew nothing of his client's prized collection. He agreed, however, that Biddulph was the logical choice to prepare the violins for sale, but only under certain conditions: Biddulph would collect a 5 percent commission on the retail sales, while absorbing all costs of storage, repairs, restorations and insurance.

Biddulph agreed orally but resented the arrangement. "They expect me to get by on 5 percent?" asked Biddulph incredulously, during an interview. "I can't run a shop on that amount."

Segelman's attorney made one more request--that Biddulph engage another appraiser for the collection to offer a second opinion on Biddulph's suggested sales prices.

Biddulph turned to the Chicago firm of Kenneth Warren & Sons, which had been dealing in rare instruments for generations.

In short order, owner James Warren sent a letter to Biddulph stating that the dealer's suggested sales prices for nearly two dozen Segelman instruments were fair and reasonable, according to court documents.

Now, Biddulph and his Chicago colleagues were ready to deal.

In December 1992, Biddulph sold four instruments to Gottlieb, among them the violin that Segelman called his best: the 1717 "Sasserno" Stradivari, for $1.75 million. In addition, the sale included the 1689 "Arditi" Stradivari, for $704,000; a T. Balestrieri for $105,600; and an S. Serafin for $176,000.

But the total price, approximately $2.7 million, was considerably less than the $4.52 million insurance valuation that Biddulph provided Gottlieb, according to court documents.

Gottlieb, in turn, paid Biddulph a $500,000 commission for his services. At this point, according to Segelman's estate, Biddulph violated his agreement to take a 5 percent commission, instead accepting a larger fee directly from the buyer.

This, the estate later alleged in court documents, was another instance of Biddulph selling Segelman's instruments to the Chicago contingent at fire-sale prices and receiving hefty returns.

At the time, White knew of none of these transactions. Biddulph did not inform the estate about which instruments he sold, when he sold them, or for how much. Biddulph's philosophy, he says today, always has been, "You keep the money in the bank until the client screams."

Nor did White or the Segelman estate realize that appraiser James Warren was investing in the Segelman cache, including a Peter Guarnerius violin, a Maggini viola and an assortment of bows. In his defense, Warren, who declined to comment for this article, argued in depositions that his letter assessing the value of the Segelman instruments didn't amount to an official "appraisal" but a "confirmation" of the prices that Biddulph had suggested.

Meanwhile, Biddulph began selling instruments and bows on behalf of Farnsworth and Philip Segelman, giving them--and not the estate-- part of the proceeds. Biddulph did not report these sales to the estate, the estate charged.

The estate did not even know of the existence of instruments such as a J.F. Pressenda violin that Biddulph sold for $150,000 and a C.F. Landolfi violin that Biddulph sold for $100,000, both to [unnamed Chicago violin dealer]. These instruments had been kept in Farnsworth's unused apartment. She died in 1996 at age 86.

Finally, in 1997, Timothy White--who had taken over for his uncle, retired attorney Jack White--went to court in London to obtain Biddulph's books. The High Court of Justice not only allowed White to examine Biddulph's records but froze the dealer's assets, stopped any further sales of Segelman's instruments and impounded the collection.

The instruments were moved from Biddulph's shop into a locked vault at Sotheby's, across the street.

After decoding Biddulph's dealings with his Chicago colleagues, White laid out his accusations in court papers, charging that Biddulph, Gottlieb, [unnamed Chicago violin dealer] Inc. and Kenneth Warren & Sons Ltd. siphoned off profits that should have gone to Segelman's charitable trust.

In their defense, Biddulph and [unnamed Chicago violin dealer] said their methods of acquiring Segelman's violins are commonplace, the very nature of the way the violin trade operates. Gottlieb's attorneys argued that "there is nothing inherently `wrongful' about purchasing goods at below market value," according to court documents in Chicago, though Gottlieb did not concede doing so.

As to the charge that [unnamed Chicago violin dealer] knowingly purchased instruments that Biddulph had no right to sell--instruments that Biddulph sold as the property of Farnsworth--the Chicago owners denied that "it had any duty to inquire into the state of the title of the instruments" or the bows, according to depositions in the London case against Biddulph.

Chicago claims

When the case went to trial in London earlier this year, Biddulph and Segelman's nephew quickly settled.

Biddulph agreed to pay the estate approximately $4.5 million over the next three years. This included the forced sale of the building that holds Biddulph's shop, which recently was bought by actor Anthony Andrews, who has allowed Biddulph to operate out of the basement. In addition, the High Court of Justice has placed a lien on all of Biddulph's assets.

But the Segelman affair has not come to a close. White and the estate are now pushing ahead with the Chicago phase of their claims, asking for the court to assess damages.

The complaint against Gottlieb was dropped by agreement between the parties, and a confidentiality agreement precluded them from disclosing whether there was a financial settlement, but Gottlieb's attorneys said he kept the instruments.

"I don't know what I have done that is wrong," said [unnamed Chicago violin dealer], seated in his office in the Fine Arts Building on South Michigan Avenue.

"Is it scandalous to make a profit?" he asked.

"If this were a criminal charge, would I tell my lawyer to plead to `first-degree violin dealing?'"

As far as [unnamed Chicago violin dealer] is concerned, the violin trade works fine as it is.

"Fiddles are a universe, a pretty self-contained universe," he said. "It has gods and lesser gods and people who dirty the universe."