The "Picasso" drawing was not actually sketched by Pablo Picasso, but was drawn by Norman Rockwell in 1908, while visiting the studio of Picasso and Georges Braque. While Picasso was working on his Degas painting, Braque showed Rockwell and Indiana Jones around the studio, and unveiled a large painting that Picasso had done of women in his Cubist style. Rockwell began drawing a version of the painting in his sketchpad.
When Picasso entered to show off his finished painting, he saw Jones holding Rockwell's sketch in his hands. Seeing Rockwell's talent, he signed the sketch, saying that it was as good as he himself could have done.
Two days later, while going to Le Lapin Agile, Rockwell gave Jones the drawing as a souvenir of their adventures together. When Picasso had tricked Kahnweiler and Edgar Degas with his fake Degas painting, Jones saw an opportunity to turn the tables on Picasso.
Jones offered the drawing to Kahnweiler as a genuine Picasso sketch for sale. While Picasso denied that he had drawn it, Rockwell, Braque, Fernande Olivier, and even Edgar Degas insisted that only Picasso could have made the drawing. Not only did Picasso eventually confess that it was his, Kahnweiler increased his price on it from 500 francs to 1,000 francs. Paying Jones, Kahnweiler left with his two acquisitions - not knowing that they were both fakes made by gifted artists.