March 26 (Bloomberg) -- New York art dealer Lawrence Salander, sued by former tennis star John McEnroe, publisher Arthur Carter and other clients for allegedly selling their artwork without permission, was charged with operating an $88 million scam over 13 years.

Salander, 59, pleaded not guilty in Manhattan today before State Supreme Court Justice Michael Obus after being indicted on 100 counts of larceny, fraud, forgery, falsifying business records and perjury. He was arrested earlier in the day at his home in Millbrook, New York.

The judge set bail at $1 million. Salander’s lawyer, Charles Ross, said he’s “hopeful” his client will be able to post the money.

Salander and his gallery filed for bankruptcy in November 2007 after being sued by hundreds of clients including McEnroe and Carter, former publisher of the New York Observer. Creditors claim that Salander owes them about $500 million.

Prosecutors allege that Salander sold clients’ artwork and kept the cash, and lured investors with fake opportunities. The dealer also is accused of defaulting on loans and other obligations.

“The fraud in each investment opportunity occurred when Salander did not own the work of art he offered for investment in whole or in part, or he misrepresented the actual terms of the investment,” Manhattan District Attorney Robert Morgenthau said at a press conference.

Padlocked Townhouse

Morgenthau said Salander bilked 26 victims between July 1994 and November 2007.

The gallery was padlocked by court order in October 2007. The order also barred the removal of any art from the 45-foot- wide Italianate townhouse off Madison Avenue that Salander rented for about $154,000 a month. The owner, Aby Rosen’s RFR Holding, put the building on the market early last year for $75 million.

Salander, his wife Julie and their seven children lived a few blocks north in a six-story, 9,000-square-foot townhouse. He traveled the U.S. and Europe on a private plane, searching for Renaissance art he believed he could sell for a profit, according to friends, family and court records.

Bank of America

In addition to several celebrity clients, claims have been filed against Salander in U.S. bankruptcy court by his ex-wife, gallery employees, business partners, artists and lenders such as Bank of America Corp.’s First Republic Bank.

At a hearing in January 2008, Salander said he could repay his debts if was permitted to sell his gallery’s art. Since the bankruptcy filing, a “chief restructuring officer” has run the gallery without any input from Salander.

Last April, a Justice Department lawyer monitoring the Salanders’ personal bankruptcy case complained that they were accumulating new debt and were slow to sell assets. The court then ordered them to cede control of their finances to an independent trustee.

The bankruptcy case is In Re Lawrence B. Salander, 07- 36735, U.S. Bankruptcy Court for the Southern District of New York (Poughkeepsie).

To contact the reporters on the story: Philip Boroff in New York at pboroff@bloomberg.net and; Karen Freifeld in New York at kfreifeld@bloomberg.net.

Last Updated: March 26, 2009 16:16 EDT