Sept. 27 (Bloomberg) -- Housed in a 25,000-square-foot palazzo off Madison Avenue, Salander-O'Reilly Galleries bills itself as a top-flight New York dealer that offers unprecedented access outside of a museum to Titians, Michelangelos and other masterpieces.

Roy Lennox, a senior managing director of hedge-fund company Caxton Associates, which manages more than $14 billion, puts it differently. During four years dealing with proprietor Lawrence B. Salander, Lennox claims he was a victim of ``what has emerged as nothing more than an illegal Ponzi scheme,'' according to a lawsuit he filed in August in New York State Supreme Court.

Lennox seeks to recover at least $4.6 million and $10 million in punitive damages.

John McEnroe says in a May suit that Salander didn't make good on a promise to double the tennis star's $162,500 investment in five months. Former New York Observer Publisher Arthur Carter filed an August suit seeking more than $1.2 million for funds he says he's owed.

Anthony Doniger, a Salander lawyer, said in an April court appearance regarding one suit that the dealer ``has a liquidity crisis, there's no question about it.''

At least 15 lawsuits have been filed against the 31-year- old gallery in the past year, many of them naming Salander himself as a defendant.

The maelstrom is the talk of dealers who are concerned the accusations could erode confidence in the art market, inspire new legislation that crimps the lightly regulated industry and send collectors to trade at auction houses instead of with galleries.

Roland Augustine, president of the Art Dealers Association of America, said if the allegations are proven, it will be a problem ``of monumental proportions.''

Prizefighter Build

Salander, a stocky 58-year-old, was alternately anxious, strident and charming in a 90-minute interview. Built like a prizefighter, with a balding aureole of salt-and-pepper hair, he deflected pointed questions with on- and off-the-record anecdotes.

When pressed, he denied many of the allegations, including that he operated a Ponzi scheme. He said his own creditors are behind on payments and that medical problems he had last year waylaid him and his business. Nonetheless, he said his assets exceed his liabilities.

``Everybody who is owed money by me has always been paid and will be paid,'' he said in the gallery's burgundy-walled fifth-floor conference room. ``And they know it themselves.''

Among Friends

He portrays many of the suits as a dispute among friends. McEnroe briefly apprenticed in Salander's gallery in 1993 after retiring from the tour, and he's a godfather to one of Salander's seven children, the dealer said. (Salander has paid $200,000 of the $325,000 McEnroe seeks in his suit, according to court records.)

Lennox is a neighbor of Salander's in Millbrook, New York. Salander represented publisher Carter in his avocation as a sculptor. (Carter's suit is filed under the name of his company, Utilities & Industries Management Corp.)

By selling them art, Salander claims he has made his wealthy clients wealthier -- far wealthier than he is. Some are suing because he's vulnerable, he said.

``They call it getting in line,'' he said. ``I feel worse than victimized. My whole life has been devoted to promoting art I believe in.''

On Sept. 24, a U.S. district judge in Massachusetts ruled in favor of collector Saundra Lane, whose late husband, William Lane, amassed a major American art collection. Salander stopped making payments on a 1932 Charles Sheeler painting she sold him, according to the suit. The judge awarded her $4.3 million.

Staffers Quit

Earlier this year, Salander-O'Reilly withdrew from the Art Dealers Association, a trade organization of prominent American gallerists, when confronted with complaints about its conduct. Last month, several longstanding gallery staffers quit.

Salander and former partner William O'Reilly founded their gallery in 1976, focusing on the once sleepy, undervalued field of early 20th-century American art.

Known for their energy and charisma, the two mounted scholarly exhibits and represented the estates of such artists as Elaine de Kooning, Robert De Niro Sr. (father of the actor) and Stuart Davis. O'Reilly left the business in the mid-1990s.

Salander ``was one of the kings of American Modernism,'' private dealer Linda Hyman said. He recently changed focus to Old Master paintings, as the supply of prewar American paintings dried up.

In 2006, he upgraded his base, moving from a 5,000-square- foot space on East 79th Street to the 45-foot-wide Italianate mansion on East 71st Street, built in 1922 for wool merchant Julius Forstmann. The rent is ``in the neighborhood'' of $200,000 a month, Salander said.

Behind on Rent

His former landlord is suing, seeking as much as $1.7 million in back rent and penalties. Last week, a dealer of rare books, Ursus Books and Prints, sued to recover $315,000 from purchases Salander-O'Reilly made in 2004 and 2005.

Hedge-fund titan Lennox is an unlikely candidate to get snared in the mess. A longtime executive at Caxton, he has lectured at Columbia University on ``behavioral finance,'' which looks at how psychology affects market anomalies.

Lennox and Salander became acquainted in early 2002 and Salander made his first proposal a year later, according to Lennox's suit. The dealer allegedly told Lennox he was short of funds to buy a painting by Jean-Baptiste-Camille Corot, a French 19th-century landscape artist, for $800,000. According to the suit, Salander said he'd lined up someone else to buy the same piece from him for $1.25 million, a 56 percent markup.

Deals With Lennox

Lennox wired the dealer $400,000. A year later, as promised, Salander paid him back, plus $225,000, the suit alleges.

Ten deals with Lennox followed, according to the suit, most of them under the same template. Salander needed money to flip an artwork by a major artist. He'd lined up a buyer who'd pay a premium. Lennox need only invest and sit tight.

Salander, who with his wife, Julie, has donated more than $50,000 a year to the Frick Collection, portrayed the deals as an extension of his beneficence.

``I'd be happy to let you have up to 50 percent of this deal if you wish,'' Salander wrote in a letter attached to the suit --about an Italian art purchase in which Lennox had a one- third interest. ``I'm happy either way. The point is that I did not mean to seem stingy.''

Most of the transactions were ``guaranteed by me personally,'' Salander wrote to Lennox, according to court documents. Yet after the first successful deal, Lennox received just one payment, according to the lawsuit. Over four years, Lennox gave Salander $3.6 million and got back $958,332, the complaint alleges.

Stuart Davis Estate

For more than 20 years, Salander-O'Reilly represented the Stuart Davis estate. The artist's son, Earl Davis, placed hundreds of his father's artworks at the gallery for Salander to sell or exhibit with the proviso that deals and prices be approved by Davis in advance. His suit accuses Salander of selling dozens of artworks without notifying Davis or paying proceeds of approximately 73 works that sold for about $9.4 million.

``I love the guy, he's my friend,'' Salander said of the suit. ``I don't understand it.''

American art collector Myron Kunin, founder of Edina, Minnesota-based Regis Corp., the parent company of Supercuts and Hair Club, seeks more than $7 million. The money is for unpaid loans and a Georgia O'Keeffe painting Salander bought from Kunin, according to Kunin's suit, filed through his entity, Curtis Galleries Inc.

`Addicted to Buying'

Salander ``became addicted to buying, and he bought too much stuff,'' Kunin, whose collection has been exhibited at museums around the country, said in an interview. ``He's dug a hole so deep he can't see the air anymore.''

Kunin said he likes Salander. Stanley Moss, a private dealer in Riverdale, New York, calls Salander well-intentioned. Last month, Moss won a $1 million judgment against Salander -- who, besides running a gallery, paints.

``He's an artist of some distinction,'' Moss said. ``Artists are children. I know he's gotten into some trouble, but I very much hope he pulls out.''

Salander-O'Reilly's next show, ``Masterpieces of Art: Five Centuries of Painting and Sculpture,'' opens Oct. 17. It has the biggest names in Old Master art: a Madonna and Child panel from about 1500 by Botticelli, a self-portrait by Titian, Michelangelo bronzes and a Raphael tapestry.

Caravaggio, the genius of raking light, will be represented by six paintings. ``Apollo the Luteplayer,'' whose attribution is the subject of heated debate among scholars, can be had for about $100 million, Salander said.

When the painting was sold at Sotheby's in 2001 for $110,000, it was attributed to ``Circle of Caravaggio.''

The sale, presented with London dealer Whitfield Fine Art, may fetch as much as $750 million, Salander optimistically predicted. It will be his 580th show and his last. He plans to vacate the mansion at year-end and downsize.

``If I make $100 million on this show, or nothing, I've done my last show here,'' he said. ``I'm going out on a very high note.''

To contact the writers of this story: Lindsay Pollock in New York at lindsaypollock@yahoo.com; Philip Boroff in New York at pboroff@bloomberg.net.

Last Updated: September 27, 2007 00:12 EDT