The New York old master dealer Salander-O’Reilly Galleries is being accused of operating a so-called “Ponzi scheme”, in a New York court. A Ponzi scheme is one in which earlier investors in a business are paid profits from the funds of subsequent investors, not from real returns.
The claim, which has been filed in a state trial court in New York by collector Roy Lennox, alleges that Salander-O’Reilly, and its owner Lawrence Salander, “extracted millions of dollars” from him, “promising attractive returns on ‘investments’ ” which they “convinced him [Mr Lennox] to make” in a number of works of art. But Mr Lennox alleges that the gallery was using his investments “to pay other creditors and investors”. He is seeking $4.63m in damages, plus $10m in punitive damages. Mr Lennox is also asking the court to appoint a receiver, to sell the art held by Salander-O’Reilly in which he owns a stake, and pay him his share.
Mr Salander adamantly denies these charges. He told The Art Newspaper that “Salander-O’Reilly has had a long relationship with Mr Lennox and regrets that the matters in question have come to the point of litigation. The gallery seriously disputes the issues raised by Mr Lennox.” He declined to comment further.
Mr Lennox says that in January 2003, he agreed to pay $400,000 towards Salander’s purchase of a painting by Corot in exchange for a 50% stake in it. In January 2004, he received—as agreed—$625,000 when the work was resold. Following this, Mr Lennox says he paid the gallery for a share in several other works, including $375,000 for a sculpture by Santi Buglioni, San Giovanni da Capestrano, for which he was to receive $550,000 upon resale; and $300,000 to buy a painting by Stuart Davis, Combination Concrete (above), for which he says he was to receive $500,000.
Mr Lennox says that he was told that buyers had already been lined up for the works. But “when the time came to pay Lennox for his investments”, the dealer instead offered “excuses” or “alternative arrangements” including a roll-over of Mr Lennox’s investments into other art. Mr Lennox also alleges that he paid $812,812 for a sculpture which he was told was by Donatello, but which he says “is in fact a copy”.
Mr Lennox says Mr Salander also offered to pay him in gallery stock and on one occasion the gallery sent him works of art which Mr Lennox returned. Mr Salander also promised monthly payments of $100,000 beginning in May 2007, but they were not received, Mr Lennox says. Beginning with the Corot, Mr Lennox invested a total of $3.6m, but has received only $958,332 back, he says.