NEW YORK—Gallery owner Lawrence Salander and his wife, Julie, filed for bankruptcy on Nov. 2 in U.S. Bankruptcy Court of the Southern District of New York (Poughkeepsie). A few days earlier, on Oct. 30, the Manhattan District Attorney’s office had executed a search warrant at Salander’s private Upper East Side residence. “We have moved forward, and it is now a full-fledged investigation,” Barbara Thompson, a spokeswoman for district attorney Robert Morgenthau’s office, told ARTnewsletter. Thompson declined to elaborate on the case.
However, a person familiar with the search said authorities are examining “documents and computer records” at Salander’s home, adding that the search “does not involve physical works of art.”
Last month Salander-O’Reilly Galleries was shuttered and barred from doing any further business, even as creditors, clients and investors sought the return of more than $80 million worth of artworks and funds they claimed were owed (ANL, 10/30/07, pp. 6-8).
On Oct. 19, after a hearing with at least two dozen claimants in New York State Supreme Court, Judge Richard B. Lowe III granted an attorney’s request to change the locks on the gallery in order to prevent Salander from further accessing any of the artworks that may be in dispute. According to the ruling, “No person shall enter into the Gallery without the express permission” of Judge Lowe.
In a court document, Salander said the bankruptcy filing was “initiated to prevent the race to the courthouse and wholesale liquidation of my assets.” As ARTnewsletter went to press, the various litigants were scheduled for a hearing on Nov. 7 in state supreme court, with Judge Lowe presiding.
Meanwhile the First Republic Bank, San Francisco, is among the numerous clients and institutions that are feeling the effects of Salander-O’Reilly’s mounting financial and legal woes: Of $59 million that First Republic loaned to Salander, $40 million is currently in default, according to information first reported on Bloomberg.com.
A spokesman for First Republic Bank told ARTnewsletter via email, “First Republic’s credit position is sound and adequately collateralized. We are working with all parties to achieve an orderly resolution.”
The Chapter 11 filing reveals that the bank is Salander’s largest secured creditor. The gallerist’s statement includes details of related real estate assets: First Republic Bank “asserts a claim for approximately $17 million secured by the New York town home and $1.4 million secured by the Millbrook house,” a reference to his Upper East Side residence in Manhattan and his home in New York’s Hudson Valley.
Sotheby’s Is Among Recent Claimants
New claims have emerged in recent weeks. Among them is a suit brought by Sotheby’s and its Financial Services Division against “Salander-O’Reilly (SOR)” in New York supreme court on Oct. 25. As a result of various loans, consignments and equity stakes, the claim charges, “the amount loaned or paid by Sotheby’s to SOR that it has not yet recovered is $1.64 million, excluding more than $25,000 in interest, which continues to accrue at the rate of approximately $350 per day.”
Sotheby’s argues that, despite the current restraining order on artworks connected to Salander, the house should be allowed to proceed with the planned sales of works the house believes it is entitled to hold under the various agreements. “This Court’s orders have had the effect of freezing Plaintiff’s interests in the consigned works and the Equity Works. . . . Plaintiffs have fully and overwhelmingly documented their security and equity interests” in the respective works, the Sotheby’s suit contends.
Debra A. Mayer, of Shatzkin & Mayer, New York, is representing several plaintiffs who have brought legal action against Salander-O’Reilly. Lisette Georges, the widow of artist Paul Georges (1923-2002), is seeking the return of six of her late husband’s works that were consigned to the gallery. According to the charges, the value of the works is “not less than $219,000.”
Mayer also represents the heirs of the late Alexander W. Pearlman, a collector of Impressionist and African art. Deborah Pearlman, Ellyn Shander and Beth Smith consigned their father’s collection to the gallery in 2004. The complaint asserts: “Defendants notified Plaintiffs on or about September 2007 that seven of the most valuable of the Artworks—the heart of the Impression [sic] collection—had been sold and Plaintiffs were owed $1.2 million on the sales.”
To date the plaintiffs have received none of the proceeds from the sale, nor have the artworks been returned to them, the suit asserts. It further accuses the gallery of being “engaged in a deliberate scheme to sell off works of art belonging to third parties and then diverting the proceeds of those sales to satisfy . . . other creditors and Salander’s own personal ends.”
Last month, prior to the bankruptcy filing, Salander’s attorney Edwin Larkin, of Winston & Strawn, told ARTnewsletter his client and the various plaintiffs were attempting “some type of financial workout—either with the agreement of all creditors under the auspices of the bankruptcy court or a global settlement” of all the claims.
One of the biggest claimants is Renaissance Art Investors (RAI), which is controlled by Donald Schupak, chairman of Triumph Apparel Company (formerly Danskin). In his statement Salander said that RAI’s “actions started a domino effect, which has resulted in approximately 40 parties making claims against the Gallery and me personally. . . . This situation has devolved into a ‘first-come, first-served’ race to the courthouse.”