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Sunday, July 4, 2010

Coast Art Dealer Admits Running Ponzi Scheme

Here is a different side of an art scam - one to bilk art collectors out of money rather than the artists. I feel terrible for the art collectors who thought they were buying art and the way these scams chip away at buyer's confidence.

This appeared in Portland's Register Guard newspaper:
PORTLAND — A gallery owner accused of devising an art-themed Ponzi scheme pleaded guilty to wire fraud.

Donald D. Seybold, 37, who owned galleries in Cannon Beach and Seaside before his arrest, is scheduled to be sentenced Nov. 22 in Portland. Prosecutors estimate that he defrauded about 200 people out of more than $3 million.

Assistant U.S. Attorney Hannah Horsley said Seybold defrauded customers and investors by promising to buy art for them and then sell it for a profit. Seybold admitted that he used the money he received from later investors to pay earlier investors in a Ponzi scheme.

Most of the 200 victims came from the West and Midwest, with a few on the East Coast. Some had come to Cannon Beach for a vacation and learned of Seybold’s offer. Others learned about it through family and friends.

The one count of wire fraud carries a maximum sentence of 20 years and $250,000, but a plea deal reached before the hearing could reduce that sentence. The sentence will consider how many victims Seybold defrauded and their financial loss.

“We have yet to fully unravel that,” she said.

The FBI learned of Seybold after he confessed his wrongdoing in an e-mail to his investors and customers. Although Horsley said she didn’t know what precipitated the e-mail, “It was becoming clear to him that his whole house of cards was about to collapse,” she said.

The FBI arrested Seybold on May 14, 2009, after a federal grand jury indicted him on nine counts of wire fraud.

The FBI initially said Seybold defrauded 100 victims who suffered $3.2 million in losses. The number of victims doubled after the FBI published a phone number for victims to call, so the total loss may be greater.

Horsley said she didn’t know what Seybold might have done with the money that he collected from those who invested in his business and from customers who bought nonexistent artwork.

“A lot of people who invested in this art never saw it,” she said. “We use the term ‘ghost art.’ ”

One victim, Rick Ashton of Olympia, estimated he lost more than $100,000. Relatives and friends also lost money, he said.

“I thought he was a friend,” Ashton said. “I met him when he bought the gallery. I trusted him. I went to his wedding. I went to his house.”

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