More scandals of the rich and famous: John McEnroe uncovers million dollar art scam
This past week, art dealer Lawrence Salander pleaded not guilty in New York Supreme court to over 100 charges, including grand larceny and securities fraud. Salander, whose gallery was at the heart of an $88 million scam, was uncovered with the help of John McEnroe. The famed tennis player, who had invested money with Salander, apparently filed suit against him in 2007 when he discovered that a painting that Salander had sold him had outstanding liens against it.
The art world and the world of high finance have a long and close relationship. In the past few years, it has become even more explicit, with massively overcompensated Wall Street honchos using art as a solid investment for their spare millions. As long as money fought to own highly regarded works, art prices have continually risen, further driving investment. While neither as widespread nor as well publicized as the housing bubble, the "art bubble" has been a major beneficiary of the overheated economy.
In art as well as finance, Warren Buffett's statement that "it's only when the tide goes out that you learn who's been swimming naked" certainly holds true. As Richard Fuld discovered last November, when his collection sold for less than 70 percent of its estimated value, a market that has driven prices through the roof may have created some unrealistic expectations.
As critics argue over whether the recession is good or bad for art, it is clear that it is definitely bad for the people who sell it. Some merchants have used a bullish market to drive prices upward and elevate artists of marginal talent, while others, such as Lawrence Salander, have crossed the dividing line between questionable ethics and outright fraud.
Salander's scheme reads like a checklist of potential art scams. On a basic level, he offered investors shares in works that he either did not own or had already sold. In the case of John McEnroe, for example, Salander convinced the tennis great to buy half shares in two paintings, Arshile Gorky's Pirate I and Pirate II. McEnroe later discovered that the shares, for which he had paid $2 million, already belonged to someone else.
The share-oversubscription scam duped numerous purchasers, including Renaissance Art Investors, a company that specializes in old master's paintings. Salander also seemed to have a knack for snaring relatives of the rich and famous: his client list included Robert DeNiro's father, Beastie Boys singer Mike D's mother, and the son of American abstract painter Stuart Davis. Furthermore, in addition to his share oversubscriptions, Salander had a lucrative sideline in loans. He managed to cheat Bank of America out of $2 million by mortgaging paintings that he didn't own.
The greatest strength in Salander's scheme lay in its simplicity. Unlike Bernie Madoff, who had to continually find fresh money to replenish his business, Salander merely had to keep investors from discovering each other. In 2007, however, he filed for bankruptcy amid a raft of lawsuits.