By Jonathan Stempel
NEW YORK (Reuters) - Federal prosecutors on Tuesday charged a New York art dealer with tax fraud in connection with the sale of paintings she claimed to be the works of celebrated abstract expressionists, but some of which the government said were fakes.
Glafira Rosales, 56, faces three counts of filing false tax returns and five counts of concealing a Spanish bank account from the U.S. Internal Revenue Service.
"Rosales gave new meaning to the phrase 'artful dodger' by avoiding taxes on millions of dollars in income from dealing in fake art works for fake clients," U.S. Attorney Preet Bharara said in a statement.
Prosecutors said Rosales hid at least $12.5 million of income between 2006 and 2008. If convicted, the Mexican native faces up to five years in prison on each charge related to the bank account.
Tuesday's charges mark a turning point in an unusual case that, according to prosecutors and court papers, had its origins in the 1990s, when Rosales began selling dozens of previously unknown works by celebrated artists such as Willem de Kooning, Robert Motherwell, Jackson Pollock and Mark Rothko.
Many of these works were in fact counterfeit, according to art experts cited by the government and lawsuits against dealers that sold some works from Rosales. One dealer, M. Knoedler & Co, shut down in 2011 after 165 years in business.
Rosales was arrested on Tuesday at her home in Sandy Point, New York, and she made an initial court appearance in Manhattan federal court in the afternoon.
Her lawyer, Steven Kartagener, argued she was not a flight risk and could post her home as security for bail. He also said Rosales was willing to wear an electronic ankle bracelet.
"She is fully prepared to come before the district court and defend herself against these charges," he said.
But U.S. Magistrate Judge Sarah Netburn disagreed and detained Rosales. "We have a defendant who has every incentive to flee," Netburn said. She set June 20 as Rosales' next court date.
Before being taken away, Rosales, who was wearing gray sweatpants and a blue sweatshirt, turned and smiled at her daughter, Isolina Bergantinos, 22, who was in the back of the courtroom.
"Obviously we're very disappointed," Kartagener said after the hearing. "But this is the first step in a long journey."
According to the indictment, Rosales reaped $14.7 million by selling to Knoedler and another gallery about one dozen works she said were by artists such as de Kooning, Pollock and Rothko.
Prosecutors said Rosales claimed to represent a Swiss client or a Spanish collector, neither of whom existed, but instead kept most proceeds and transferred large sums to her boyfriend at the time.
"The artwork Rosales sold appears to be as fake as her story about the clients she claimed to represent," FBI Assistant Director-in-Charge George Venizelos said in a statement.
Rosales' boyfriend was not charged. The defendant's businesses included King's Fine Arts Inc and Glafira Rosales Fine Arts LLC, according to prosecutors and New York state records.
One gallery that bought works from Rosales, Julian Weissman Fine Art Inc, was sued in October by a trust affiliated with the children of Sheikha Paula Al-Sabah of Kuwait, which accused it of selling the sheikha a worthless painting that had been attributed to Robert Motherwell.
Knoedler has faced multiple lawsuits stemming from works procured from Rosales.
In one unusual case, it was sued in February by Canadian theater producer David Mirvish.
He claimed to have invested in some actual masterpieces by Pollock the gallery had obtained from Rosales and that Knoedler cost him millions of dollars by failing to sell them. Mirvish is seeking possession of the unsold paintings.
Both of these cases are pending in Manhattan federal court.
Lawyers for Knoedler and Mirvish noted that the criminal charges focus on tax fraud, not sales of forged artwork.
"Ms. Rosales' attorneys have consistently maintained one thing - and one thing only - throughout this case, that their client never knowingly sold fake art," Mirvish's lawyer Nicholas Gravante said in an email. "For that reason, the government's decision not to charge Ms. Rosales with that offense is notable."
Charles Schmerler, a lawyer for Knoedler, said in an email that his client will continue to assist authorities and that the case against Rosales "does not affect our core arguments" in the civil litigation.
Calls to lawyers for Weissman and the trust for the sheikha's children were not immediately returned.
David Mirvish is a son of "Honest" Ed Mirvish, the late Toronto businessman and theater impresario.
(Reporting by Jonathan Stempel; Additional reporting by Bernard Vaughan; Editing by Ellen Wulfhorst, David Gregorio and Eric Beech)