[MSN] Davis Charges Salander "Stole and Converted" $30 Million Worth of Art

[MSN]

Davis Charges Salander "Stole and Converted" $30 Million Worth of Art

by David Hewett

Earl Davis, the son of prominent American artist Stuart Davis, filed a complaint in federal court on February 1, 2008, charging Lawrence and Julie Salander with fraud, embezzlement, larceny, theft and conversion, false pretenses, and willful and malicious injury. Davis charged that the value of the paintings both wrongfully sold and missing is over $30 million. He filed documents itemizing the losses and identifying the alleged criminal acts that caused those losses.

Davis made those charges in a specifically worded legal document, "Complaint to Determine Non-Dischargeability of Debt under Section 523 of the Bankruptcy Code."

Without a non-dischargeable ruling, the Salanders' debt to Earl Davis would become just another claim and would join the company of unpaid credit card bills, monthly cable company arrears, and late garbage removal fees. If the final ruling were to state that all outstanding claims were to be settled with a one-cent payment per dollar of claim, then that would be all he'd get, and that would end it. If those debts were determined to have come about because of criminal actions, however, then a judge could rule that they were not wiped out (discharged) at completion of the bankruptcy.

Those following the rise and fall of the house of Salander for the past six months know the issues that culminated with the much-ballyhooed Renaissance art show, scheduled for October 2007 at the Salander-O'Reilly Galleries, which closed before it opened. That incident was the tipping point for the events that followed in rapid succession: the involuntary Chapter 7 bankruptcy filing, the gallery's Chapter 11 filing, and, one day later, the filing of the Salanders' own Chapter 11 proceedings (both of those actions were filed in November 2007 in Poughkeepsie).

Earl Davis's initial suit against the Salanders had been filed well in advance of the bankruptcy actions, although he said he only recently learned the details of some of the alleged criminal acts.

In his February 1 complaint, Davis stated that over a period of several years he had delivered "hundreds of Stuart Davis works of art to the Salander-O'Reilly Galleries LLC" for sale at specifically chosen prices. All went well up to 1994. Then things went bad.

Davis alleged that he learned "that during a 13-year period, from 1994 through 2005, [Salander] and his Gallery transferred to others in purported sale or exchange transactions nearly fifty Stuart Davis works of art owned by [Davis], without ever disclosing any of those transactions [to Davis], without ever consulting [Davis] regarding those transactions, and without ever paying to [Davis] the proceeds derived from those transactions."

Then, Davis alleged, Salander "fraudulently induced [Davis] in 2006 to sell thirteen additional works of art under false pretenses...." He said he was never paid for any of those paintings either. Altogether, the court papers stated, "There are a total of 96 works of art owned by [Davis] that are missing."

Davis said that he has now learned that 80 of that number have been sold for prices far below anything he had authorized. "Documents demonstrate [Salander] and his Gallery received more than $9,561,610 plus several works of art as proceeds from the fire-sale transfers," he alleged. Davis claimed, "The real value of those eighty works of art, however, is more than $28.5 million."

In 2006 Earl Davis received an inventory sheet for the paintings that remained at the gallery. It had 124 paintings on it. Davis said that he was told that 103 of those paintings were either out on consignment or had been loaned to museums and other galleries. On January 5, 2007, he received a new list from Salander, and it revealed, according to the court document, "that 73 of the Works had been sold."

Many had been sold for prices considerably below what he and the gallery had agreed to, according to Davis. For one example, the painting known as Work numberY.65 had been listed for $850,000 in 2003, but Davis said that Salander told him he'd "sold it in 2005 for $290,000."

Once Davis began digging into the history of his father's consigned art, he found some damning evidence. He said he learned from recently released documents that Salander-O'Reilly Galleries "stole and/or embezzled and converted [his] property" and "used it for their own purposes" as early as 1994.

His complaint lists 34 specific transfers of Davis art, which he claims were never disclosed to him or paid for. Salander is accused of "breach of fiduciary and statutory duties to Plaintiff," along with "thefts and conversion." There were a series of transactions with another art dealer, Joseph Carroll, "which ultimately resulted in Carroll acquiring 18 of [Davis's] Works between January 1, 2006 and June 1, 2006," he claimed.

Earl Davis stated that the sale of the 18 paintings to Carroll was because, "[Salander] and his Gallery…needed cash and wrongfully transferred property…for fire sale prices." The total paid by Carroll for the 18 paintings, according to Davis's reckoning, was $1.73 million. Davis said he received nothing for the purchases.

In all, Davis said he was paid nothing from the $7.75 million Salander realized from the sale of 65 of his father's paintings.

In May 2006, Davis said, Salander told him he had a buyer for one of his father's "most valuable" paintings, the work known as Punchcard Flutter. Davis said in the court document that he was initially not interested in selling it, but Larry Salander told him he would get a $2.25 million price. Davis relented, but it turned out there was no $2.25 million buyer for this painting, according to Davis. He stated he has since learned that investor Hester Diamond bought a half-interest in the painting for $500,000 on May 11, 2006. (Salander reportedly told Diamond that she could purchase it for $1 million, and they were to sell it for $2 million and split the profits.)

But that deal didn't go down in that fashion either, Earl Davis claimed, because on the same day as the Diamond deal was to happen, another dealer, Michael Altman, actually bought the painting for under $2 million. Altman sold it on May 25, 2006, for exactly $2 million, Davis stated, so it is unlikely he paid as much as $2 million for it.

Despite all his concerns, Earl Davis continued to deal with Larry Salander. Later in May 2006, Davis turned over another 12 paintings to Salander, who supposedly had a buyer for them for $650,000. That person, Davis said he was told by Salander, already had "cash on the table." Salander was paid in full by the buyer by a wire transfer on May 17, 2006, Davis said he has recently learned. Davis has not been paid.

Fraud, embezzlement, and larceny were involved, Davis stated, in a number of transactions. Even when a sale was reported to him by Salander, there was apt to be fraud involved, he charged. For example, in 1999 Salander told Davis he had sold one of the Stuart Davis paintings, Still Life with Dial, for $800,000. Davis has learned it actually sold for $1.2 million. In 2006, Davis said, he took in $5,329,992 in "rubber checks" from Larry Salander.

There are 96 Stuart Davis works that were not returned to him or paid for, he claimed, among them 44 oil paintings, "which constituted the majority and core of Plaintiff's personal collection of his father's art, and more than 50 works on paper." Davis claimed that 80 paintings were transferred to other dealers or collectors to pay off the existing debts of the gallery, and Salander received more than $9,561,620 for the entire 80.

Davis's court complaint begs the court not to discharge those debts in the bankruptcy action.

Davis's complaint is actually the second one received by Judge Cecelia Morris. On January 30, 2008, Florida collector Carol F. Cohen entered an "Adversary Complaint" against Lawrence Salander to "Determine Non-Dischargeability of Debt." And as Earl Davis has done, Cohen charged that Larry Salander committed specific criminal actions in selling her art collection. She charged him with acts of false pretenses, fraud, larceny, and willful and malicious injury.

She said she left 15 artworks from her collection with Salander in March 2007. The approximate value was $3.4 million. The purpose of the placement was storage while she and Christie's decided how best to sell the pieces. On March 15, she said, Salander sent her a letter offering to sell the works on consignment. She refused. At about the same time, Christie's did sell the three pieces they had agreed upon for a total of $2,375,000. She was paid directly by Christie's. The art remaining at Salander-O'Reilly's was valued at $3,417,625, she stated.

Later, she discovered that Larry Salander "personally oversaw the surreptitious sale of all of the Artwork in his custody." He not only failed to tell her of the sale, she claimed, he has failed to remit any of the funds realized to her.

Finally, on September 19, 2007, less than two weeks before the first bankruptcy filing occurred, Antoinette Favuzzo, then chief financial officer of Salander-O'Reilly Galleries, "admitted the fraud and theft described above, stating that Salander had handled the transaction, and he and SOG had sold Cohen's Artwork 'early in the year and at one time had the cash in its custody, but no longer has the money.'"

Cohen attached a copy of the March 15 list of the paintings and the prices Salander set on them to her complaint. She owned works by Larry Rivers, Jean Dubuffet, Jasper Cropsey, Robert Henri, Fernand Leger, and others. Now they, as well as the works by Earl Davis's father, are out there in someone else's collection, while the money paid for them has long since disappeared into the sinkhole below the now-padlocked gallery at 22 East 71st Street.

-Other Developments in the Bankruptcy Filing, Corporate and Personal

On January 25, 2008, the Salanders filed an adversarial lawsuit against Edith Weber & Associates, including son Barry Weber. The Webers are among the top jewelry dealers in this country and longstanding Antiques Roadshow regulars.

It seems that the Salanders were repeat customers at the Edith Weber firm at 994 Madison Avenue. They made their last purchase from the Webers in December 2006 and after that purchase owed the jewelry firm some $80,000.

"In October of 2007, the Debtors [the Salanders] left their entire collection with Weber for the sole purpose of appraisal [their emphasis] so the Debtors could ascertain its market value."

On November 2, 2007, the Salanders filed for Chapter 11 bankruptcy relief. When Julie Salander returned to the jewelry firm on November 6, she left with neither an appraisal nor jewelry. Instead, she was given a document titled "Return Authorization Cancellation of Sale and Consignment Agreement."

The Webers maintain that the $80,000 prefiling debt trumped the bankruptcy filing. And to further muddy the waters, they told Julie Salander that they had already sold one piece of her jewelry, worth approximately $50,000 (Salander figure), resulting in a $20,000 credit on her account.

That must have been particularly galling to the Salanders, because several of the creditors of the Salander-O'Reilly Galleries claim that is precisely what happened to their property when they left it with Larry Salander.

The Salanders maintain that the jewelry left with the Webers was worth "approximately $180,000." They have demanded that the Webers turn over the jewelry and account for its value. When reached for comment, Edith Weber said she had no choice but to remain silent. "That entire business is in the hands of our attorney," she said.

Life goes on for the Salanders, though. Their personal Chapter 11 filing states that their assets total $110,289,828. Julie's jewelry is valued at $1.5 million; their jointly owned art and antiques at $30 million. Life is expensive for millionaires. Their personal Chapter 11 filing lists $4000 a month for groceries and $600 a month for telephones. The cable bill alone for their Duchess house is $581 a month. Larry is paying for his past obligations too-his monthly alimony and child support bill is $19,084. The monthly school bill amounts to $12,500.

In other news, on January 31, 2008, Judge Cecelia Morris was scheduled to consider requests by the landlord that the gallery must vacate the East 71st Street premises for non-payment of rent for the last six months, including amassing a debt of nearly $750,000 before the bankruptcy filing. She decided to adjourn that action, along with a whopping 42 other hearings, to February 14. They were later moved to February 27.

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