Two San Francisco men have been indicted by a federal grand jury on twelve counts fraud relating to a multimillion dollar art investment scheme, according to U.S. Attorney Melinda Haag.
Anthony Barreiro, 64, and Ernest Ray Parker, also known as Ray Parker Gaylord, 50, both residents of San Francisco and Dallas, reportedly ran a business known as ARTLoan Financial, where investors were invited to provide ARTLoan with money to provide lending capital to borrowers seeking to finance high-value art, Haag said in a statement. ARTLoan would also use art as collateral against a loan, that in the event of a default, the art work would be forfeited to ARTLoan for the benefit of its investors, who were promised regular interest payments over the term of each loan they financed.
The indictment alleged that Barreiro and Gaylord received about $3.4 million, Haag said. By June of 2010, the two allegedly had made about $1.8 million in "Ponzi" payments to investors to show they were getting a return, and they reportedly used $1.5 million for their own personal benefit.
ARTLoan filed for bankruptcy in April 2011 and the documents show the largest 20 creditors, some of which are owed hundreds of thousands of dollars, including Gaylord's father, Charles, who has a claim of $453,000.
The men were interviewed by the website Art & Antiques in 2009 about their new business model. They tell the website that after a visit to a local bank to obtain a loan backed by a Picasso painting was rejected, they saw an opportunity for a loan business backed by art.
"We went to a major bank in San Francisco because they had extended credit to us based on real estate," Barreiro said, "but the idea of lending on a Picasso made no sense to them. They said that it had no value to them. We said, 'There's something wrong with this.'"
The defendants made their initial court appearance last Friday in Dallas and again Thursday in San Jose. They will return to court Feb. 11 and 12.
They face a maximum penalty of 20 years in prison, a fine of $250,000 or more, and restitution for each count of the indictment.