Lawrence Salander, the former operator of a prominent Manhattan art gallery, was arrested todayon charges of stealing $88 million from clients like Robert DeNiro and John McEnroe. Is he the art world's Bernie Madoff?
Prosecutors say that Salander, arrested today in Milbrook, New York, bilked 26 clients out of $88 million in a scheme which ran over 13 years. The indictment included 100 counts of grand larceny, scheme to defraud, falsifying business records, securities fraud, forgery, criminal possession of a forged instrument, and perjury. He is due to be arraigned this afternoon.
Salander, most recently a specialist in Renaissance art, operated by promising investors rich returns on money borrowed to finance sales which he described as a sure thing. His Salander-O'Reilly gallery on the Upper East Side closed amid a flurry of lawsuits in October 2007. As we wrote then:
It's the art dealer's primary shuffle, which works like this. Every sale is actually a loan. The phrase "Ponzi scheme" gets bandied about- though it's not much more illicit than any decent hedge fund.
And sure enough, the phrase "Ponzi scheme" is getting bandied about. The New York Times reports:
Mr. Salander had built his reputation with a gallery on East 79th Street with a solid reputation. But in 2005, he opened a second gallery, in a lavish town house on East 71st Street, steps from the renowned Frick Collection.
Rival dealers marveled that Mr. Salander seemed to be switching specialties. He planned to use the town house gallery to show and sell old masters after years of specializing in 20th-century American art. He told his landlord on East 79th Street he needed more space to display European works and attract "all the new money" that was pouring into the art market.
The pursuit of new money to cover old payments due is the classic mark of a Ponzi scheme. But don't all highly leveraged businesses look like Ponzi scheme when the markets seize up? When the new money dries up, when sure-thing deals fall apart, there's nothing left to a business that operates on the edge but empty promises.
Salander and his wife fled the city to move upstate and in November 2007 filed for bankruptcy. That same month, De Niro claimed that Salander had stolen a dozen paintings by his artist father to settle a debt Salander owed to an Italian gallery. The amount owed to his creditors has swelled to $500 million.