It is a story that illuminates in fiery red and perturbing black Manhattan’s long decline as an art capital.

In 1945, New York City stood poised to become the new centre of modern art. Paris was exhausted by war and occupation. While great European artists like Picasso and Giacometti still had plenty of genius to reveal, it was a generation of young American painters based in and around New York who set the pace in the postwar years.

One of the most gifted of the abstract expressionists, as they came to be called, was a Russian Jewish immigrant called Mark Rothko. Colour was both a gift and a curse for this paradoxical artist. He had an innate feel for its beauty and poetry, and could make a powerful painting out of nothing but rectangles of blue and yellow or two shades of purple. Rothko, however, was a very serious man. He read Nietzsche and pondered the modern condition. In his later work, he progressively excluded the joy of colour until he was creating darkness that made Goya’s Black Paintings look positively cheerful. In 1970, he killed himself in his Upper East Side studio.

A sketch shows a fake Mark Rothko painting in Manhattan federal court. Photograph: Elizabeth Williams/AP

Rothko is a giant of New York’s artistic golden age but his legacy has become embroiled in a tale of deception and possible corruption that seems an image of the far less creatively heroic, much more money-obsessed, culture of New York now. In 2011, Knoedler and Company, one of New York’s oldest and most respectable art dealers that had been in business for 165 years, suddenly closed. It had been caught selling fake abstract expressionist paintings cooked up by a talented Chinese-born forger. The question still to be answered is whether it did so knowingly or was itself deceived.

Now that question has come to trial in a lawsuit over a fake Rothko.

It looks plausible. A tall rectangular canvas. A dark block floating over a reddish space. Numinous borders and melancholy intimations: the forger who painted this false Rothko knew his stuff. It was supplied to Knoedlers by Glafira Rosales, who has already confessed to her career as a dealer in fakes. But was the respected gallery complicit? The trial turns on a series of high-powered art world witnesses who the defence claim shared in Knoedlers’ innocent mistake, and chanced on a cache of lost abstract masterpieces. The gallery has settled out of court with buyers of some of the other fakes.

The brilliant British scholar David Anfam, who is intimate with Rothko’s work, has already testified that he never believed the supposed hoard to be authentic. Chistopher Rothko, the painter’s son, has also testified that he never gave his sanction for the gallery to cite him in support of its attribution.

In an age when art prices have gone into orbit, it is scarcely surprising that galleries and collectors leap enthusiastically on the idea of undiscovered treasures by great names. Paintings attributed to Jackson Pollock and Willem de Kooning, as well as Rothko, were among the fakes Knoedler and Company sold. It is not inconceivable that experts can also get overrexcited – though Anfam and Christopher Rothko have testified otherwise.

It all makes you wonder what Mark Rothko himself might feel. He saw himself as an artist fighting to be honest in a corrupt world. He was disgusted by the rise of Andy Warhol, turning his back on the young pop artist at parties. His final masterwork, the paintings of the Rothko Chapel in Houston, is an austere and magnificent attempt to free art from the cant and mercantilism of the art world. Far from New York’s galleries, these dark icons of a soul-searching religious experience reveal his contempt for the small change of chicanery and cynicism in which his legacy is now mired.

Rothko’s art aspires to be tragic. The story unfolding in a New York court reduces it to farce.