Nov. 5 (Bloomberg) -- Lawrence Salander, an owner of Salander-O'Reilly Galleries LLC, filed for personal bankruptcy protection, claiming he and his wife have debts of at least $50 million as New York prosecutors are investigating his business.

The Manhattan district attorney's office searched Salander's Upper East Side townhouse and gallery last week, as part of a criminal investigation based on customer complaints about fraud.

In an interview in late September, Salander insisted that his assets exceeded his liabilities and that he'd be able to avoid a bankruptcy filing. Three weeks later, a New York judge ordered the gallery padlocked indefinitely.

Lawrence and Julie Salander's bankruptcy filing isn't surprising ``because both they and the gallery had a lot of debt that seemed to be connected,'' said Dean Nicyper, a lawyer who represents artist Stuart Davis's son Earl, who says Salander and the gallery owe him $2.9 million.

On Nov. 1, creditors with $4.6 million in claims filed an involuntary petition against Salander-O'Reilly Galleries, asking a judge to force it into bankruptcy.

Gallery clients, such as Earl Davis, tennis star John McEnroe and former New York Observer Publisher Arthur Carter have sued Salander, claiming he pocketed proceeds of art sold on consignment, promised guaranteed investment profits while paying back little or nothing, and reneged on loans and bills.

Earl Davis placed his father's art at the gallery on the condition that any sales or prices be approved in advance, according to the younger Davis's complaint.

Home Address

The Salanders' filing for Chapter 11 protection listed an address in Millbrook, New York, as their home address. Salander lawyer John Moscow declined comment on why the dealer filed for personal bankruptcy or on whether a petition on the galleries own behalf is imminent.

Prior to joining the Baker Hostetler law firm, Moscow spent 30 years with the Manhattan district attorney's office. From 1988 to December 2004, he was deputy chief of the investigations division.

Among the couple's largest unsecured creditors were other galleries and art institutions, including Curtis Galleries Inc., with a claim of $7.7 million and Frelinghuysen Morris Foundation, with a claim of $3.1 million. Sotheby's has a claim for $640,000, the petition filed Nov. 2 in bankruptcy court in New York showed.

Old Master Properties LLC and Renaissance Art Investors LLC were listed in the petition as having unknown claims against Salander.

The filing didn't provide details about secured creditors.

First Republic

First Republic Bank, which Merrill Lynch & Co. bought in September for $1.8 billion, lent about $59 million to Salander and his galleries and to an investment fund that said it arranged to buy all of Salander-O'Reilly's Renaissance art, according to property records. A First Republic spokesman has called its credit position ``strong and adequately collateralized.''

The case is In re Lawrence B. Salander and Julie D. Salander, 07-36735, U.S. Bankruptcy Court, Southern District of New York (Poughkeepsie). The involuntary petition is In re Salander-O'Reilly Galleries LLC, 07-13467, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Tiffany Kary in New York bankruptcy court at 0133 or tkary@bloomberg.net; Philip Boroff in New York at pboroff@bloomberg.net.

Last Updated: November 5, 2007 16:30 EST