Update: Salander-O’Reilly Galleries

Manhattan District Attorney Morgenthau released a statement earlier today on the arrest of Lawrence Salander along with some details of the investigation. To read the full Morgenthau's press release with examples of the fraud, click HERE. It is a very interesting and enlightening read.

The press release states the arrest and 100-count indictment of former art gallery owner LAWRENCE B. SALANDER and the SALANDER-O’REILLY GALLERIES, LLC for stealing $88 million from investors, owners, and a bank.

The defendants, SALANDER, 59, and the SALANDER-O’REILLY GALLERIES, have been indicted on multiple charges of grand larceny, securities fraud, scheme to defraud, forgery, criminal possession of a forged instrument, falsifying business records, and perjury against SALANDER. The crimes charged in the indictment occurred between July 1994 and November 2007.

The investigation leading to today’s indictment revealed that SALANDER, the manager and co-owner of the SALANDER-O’REILLY GALLERIES, defrauded 26 victims resulting in the theft of millions of dollars. SALANDER stole from his victims in two primary ways: he sold artwork not owned by him and kept the money; and lured investment money in fraudulent investment opportunities.

Investors in this case are individuals or entities that paid cash in exchange for an ownership interest in a work of art. Investment deals were presented in two ways, as a pre-sale or speculative investment. In pre-sales, SALANDER represented to an investor that a work of art had already been sold to a buyer who needed time to pay. SALANDER told the investor that he could purchase a percentage of the work based on SALANDER’s actual cost and then share a corresponding percentage of the sales price when it was paid.

For example: SALANDER would claim that he purchased a work of art for $500,000 and had a buyer who agreed to pay $1 million in the future. SALANDER offered the investor a 50 percent interest in the art work for $250,000 with the assurance that upon receipt of the purchase price the investor would receive his initial investment plus an additional $250,000 as profit. In a speculative investment, SALANDER offered an investor the opportunity to purchase a work of art with him at cost, and thereafter SALANDER would sell the artwork at a greatly increased value and they would split the profit.

The fraud in each investment opportunity occurred when SALANDER did not own the work of art he offered for investment in whole or in part, or he misrepresented the actual terms of the investment. The misrepresented terms included: inflation of the purported cost (cost fraud), the sale of greater than 100 percent interest in a single work (oversale), the fabrication of the existence of the pre-sale (ghost investment), failure to pay the return when the money came in on the purported investment, or the misrepresentation of the amount payable to the investor (fraudulent retention).

The press release continues The bank in this case is the Bank of America from which SALANDER applied for a personal loan for himself and his wife, Julie. In support of his loan application, SALANDER offered certain artwork as security and provided documents to establish that his wife owned that artwork. In fact, several pieces were never owned by LAWRENCE SALANDER nor Julie Salander, but were owned by other individuals, including John McEnroe and the Estate of Dr. Alexander Pearlman. After previous offerings of collateral were rejected, these false filings enabled SALANDER to obtain a $2 million loan.