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Friday, June 21, 2024 | Back issues
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Accountants Blamed in Old Masters Art Fraud

(CN) - Renaissance Art Investors claims a Tenafly, N.J.-based accounting firm cost it $42 million by aiding and abetting Lawrence Salander's scam in Old Masters paintings. Renaissance claims Reichman & Lazaroff and its named partners provided "active aid and assistance" to Salander, who "proceeded to loot the RAI art by, among other things, stealing individual pieces."

Manhattan art dealer Lawrence B. Salander was sentenced in August 2010 to 18 years in prison for defrauding investors and art collectors of as much as $120 million.

Salander, onetime co-owner and manager of Salander-O'Reilly Galleries in Manhattan, admitted in March 2010 that he had stolen millions of dollars from art owners by selling paintings and other artwork he didn't own.

The admission amounted to a guilty plea to 16 counts of grand larceny in the first degree, 10 counts of grand larceny in the second degree, three counts of grand larceny in the third degree and one count of scheming to defraud in the first degree.

Salander also told New York State Supreme Court Justice Michael J. Obus that he lured people to invest in fraudulent ownership interests involving works of art.

Among these, according to Renaissance Art Investors' complaint in Newark Federal Court, were Salander's accountants Marc Reichman and Allan Lazaroff, and their firm, Reichman & Lazaroff LLC.

Central to the RAI complaint are statements attributed to Salander during his March 2010 court appearance.

"During his allocution, Salander admitted that, to perpetrate his criminal acts, he directed the creation of false financial statements and materials, all of which were, upon information and belief, prepared by or at a minimum with the knowledge and assistance of the defendants," the complaint states.

"Salander further confessed that he directed that these falsified financial materials could "be found with the Gallery's accounting firm [the defendants]" and he knew "the accounting firm submitted these falsified accounting data to First Republic Bank to support all lending facilities."

"Defendants also submitted these falsified documents to RAI," the complaint states. "Once Salander's scheme was discovered, Salander was indicted, and he and the gallery went into bankruptcy; defendants, on the other hand, have so far avoided responsibility for their significant role in this far-reaching scheme."

RAI claims that Salander approached it in June 2005, ostensibly for advice on how to free up cash using his or his gallery's collection of Old Masters, work by artists from the Renaissance period.

"Prior to completing the purchase of the art, Salander agreed that he would have the gallery hire a full-time officer who would report directly to RAI about the status of RAI art," the complaint states. "Salander delayed doing so initially, and appointed the defendants as the chief financial officers of the gallery.

"In doing so, Salander and defendants assured RAI that defendants would be able to answer all of RAI's questions related to the transactions. As a result, RAI was directed to rely and did rely, solely on defendants for all financial reporting information related to the deal."

Prior to this new arrangement, Reichman & Lazaroff had handled the Salander-O'Reilly Galleries' bookkeeping, reviewed its bank statements, prepared its taxes and advised it on cash flow. In addition, the defendants were responsible for preparing on a monthly or regular basis financial compilations, statements and reports accurately reflecting RAI's inventory and accounts receivable, according to the complaint.

Based on the assurances of Salander and the defendants, RAI says that it and investors it brought in invested in Old Masters artwork.

Immediately thereafter, "Salander proceeded to loot the RAI art by, among other things, stealing individual pieces of art, with the defendants acting in concert with him," the complaint states.

Salander misrepresented information about the art, sold some of the art from the collection and in some instances used it to satisfy his own debts, and directed others to not to inform RAI that he had sold its art for his own benefit, according to the complaint.

"Among other acts, the defendants aided and protected Salander through false statements and financial reports to RAI, which allowed Salander to continue to misappropriate plaintiff's assets without detection," the complaint states. "Defendants also participated in and furthered Salander's criminal enterprise by misrepresenting the value of the RAI art, and misstating and concealing material financial information concerning the art, Salander, Salander LLC and the gallery."

RAI claims that at a minimum, "defendants either negligently ignored or recklessly disregarded numerous 'red flags' and 'warnings' of Mr. Salander's criminal scheme, which infected every financial and other report defendants prepared or transmitted as well as every representation defendants made."

"Defendants knew that without the information they were providing to RAI, RAI would not have agreed to the deal or would have sought the information through another source, one that would have uncovered the scheme behind the warning signs," the complaint states.

"Defendants materially benefited from this scheme, by obtaining payment, ostensibly for their services to the gallery, but in reality for their complicity in Salander's multiple frauds and cover-up. If defendants did not continue to provide material support to Mr. Salander, his scheme would have unraveled far sooner, and defendants would have lost the income derived from payments to them."

In addition, RAI said, Salander enriched the defendant accountants by giving them pieces of art in compensation for their complicity.

RAI seeks punitive damages, disgorgement of ill-gotten gains and court costs on claims of negligent misrepresentation, malpractice, negligence, fraud, aiding and abetting fraud, fraudulent concealment, constructive fraud, civil conspiracy and RICO violations.

It is represented by Christopher Dalton with Buchanan Ingersoll & Rooney of Newark.

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