July 12 (Bloomberg) -- A painting attributed to Sandro Botticelli and valued at $9.5 million may provide some relief to creditors of Salander-O’Reilly Galleries, more than four years after they fell victim to New York’s biggest-ever art fraud.
Earlier this week, a New York federal court judge ruled that although a consignor still owns “Madonna and Child” (circa 1500), state law may permit the bankrupt gallery to sell it to benefit creditors.
None of the hundreds of creditors have recovered any money since the November 2007 bankruptcy, said Ilan Scharf, a lawyer who represents the trustee responsible for selling most of the approximately 4,000 artworks in the Upper East Side gallery and its warehouses.
In 2010, proprietor Lawrence Salander pleaded guilty to stealing more than $100 million from investors and customers, including Robert De Niro and John McEnroe.
In his spending sprees, Salander acquired heaps of Renaissance art, two lavishly appointed homes, jewelry for his now-ex-wife, Julie Dowden, rare books, furniture and private-jet rentals.
The dealer admitted to pocketing proceeds from selling art he didn’t own and peddling half-shares in the same work three or more times. He’s serving 6 to 18 years in state prison.
“I don’t expect to get anything,” said Roy Lennox, a former hedge-fund manager with Caxton Associates who lost more than $3 million in what prosecutors described in court as a Ponzi scheme. “Maybe an infinitesimal amount. There are too many people and not enough stuff. And some of the stuff is pure junk.”
The Botticelli may offer millions for creditors, after U.S. District Judge Cathy Seibel ruled this week against the owner’s effort to wrest it from bankruptcy-court control. A similar work sold in 2006 for $7.5 million at Christie’s in London.
Some creditors, such as De Niro, were able to retrieve art through a claims process in bankruptcy court. (De Niro’s late father, the artist Robert De Niro Sr., was represented by the gallery.) The only people who’ve received money from the gallery since the bankruptcy filing are lawyers, auctioneers and others involved with its unwinding.
Kraken Investments, based in the Channel Islands, consigned “Madonna and Child” to the gallery with an asking price of $9.5 million, according to a letter of agreement filed in federal court. The 14-by-10-inch work was to be displayed in an exhibition titled “Masterpieces of Art: Five Centuries of Painting and Sculpture,” which Salander billed ahead of its October 2007 opening as his grandest show to date.
But as lawsuits piled up from aggrieved customers and partners, a state judge ordered the gallery closed, and a London dealer collaborating on the show pulled his art.
The Botticelli, which the catalog said was once owned by Imelda Marcos, became entangled in the bankruptcy that began days later.
The bankruptcy “has been nothing less than a nightmare,” said Tel Aviv-based dealer Ronald Fuhrer in a telephone interview. He described himself in a 2008 claims form as an agent for Kraken.
Kraken sought that ownership of the painting be decided in the Channel Islands, in accordance with its Salander-O’Reilly consignment agreement, which stipulates that disputes be arbitrated there. U.S. Bankruptcy Judge Cecelia Morris in New York denied Kraken’s motion, calling bankruptcy court the proper forum to determine ownership. Kraken appealed Morris’s ruling to the U.S. district court.
In her decision, filed on July 10, Seibel affirmed the bankruptcy-court decision.
“The court well understands why Kraken is perturbed, even outraged, by the idea that Salander-O’Reilly creditors may enjoy the proceeds from the sale of a valuable painting concededly owned by Kraken,” she wrote. She said New York state law allows for that because the owner failed to make a filing required by New York’s Uniform Commercial Code.
In an interview, Fuhrer described Kraken as a trust company for a family he declined to identify. After he was reminded of a 2011 affidavit in which he called himself Kraken’s sole owner, he said he’d forgotten that all shares in Kraken were passed on to him.
The artwork sold at Christie’s New York in 1991 for $231,000. At that auction it was attributed to “workshop of Botticelli.”
“It was discovered later to be a genuine Botticelli,” Fuhrer said, adding that Nicholas Penny, now director of London’s National Gallery, endorsed the attribution. Christopher Blake, a press officer with the National Gallery, declined to comment.
Petra Davenport, a lawyer for Kraken, declined to say whether it will appeal the July 10 ruling.
The case is Kraken Investments v. Alan M. Jacobs, 11-cv-06133, U.S. District Court, Southern District of New York (White Plains).
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