A grand jury in the San Jose Division of U.S. District Court, Northern District of California, indicted Anthony Barreiro and Ernest Ray Parker, alias Ray Parker Gaylord and Ray Gaylord, on September 25, 2013, for a total of 12 counts of conspiracy to commit mail and wire fraud, and the actual committal of mail and wire fraud.
United States Attorney Melinda Haag presented the evidence to the jurors, and United States Magistrate Judge Howard R. Lloyd signed an order to place the indictment and an arrest warrant for the two men under seal until they had been seized. The warrant for their arrest stated specifically “No Bail.”
Barreiro, chairman and CEO, and Gaylord (to use the same name used in the charges), president and executive vice president, were ARTLoan Financial LLC, founded in 2004, and/or ARTLoan Financial Services, Inc., incorporated in Delaware in 2007. ARTLoan made its money doing that which its name indicated: it took in money from investors and loaned it to people who either had or wished to buy valuable works of art they could pledge to ARTLoan. It made its money on the spread, or so it claimed.
Federal investigators charged that it was just an updated version of the old swindle known as a Ponzi scheme. ARTLoan had filed for Chapter 11 Bankruptcy in the Northern District of California (San Francisco) on April 13, 2011. It was during the proceedings of that filing, and an earlier Chapter 13 filing by ARTLoan director and treasurer Steven McVay in February 2010, that the details of the alleged felonies were revealed.
ARTLoan followed the classic Ponzi method, the U.S. Attorney for Northern California charged, but the situation appeared much safer to investors because ARTLoan claimed that the art and antiques taken in as security were worth far more than the money loaned. It would win either way, Gaylord and Barreiro boasted, because they would be repaid more than they loaned or they could sell the pledged material. The operation sounded good to many investors, at least until April 2011.
The initial bankruptcy filing of ARTLoan listed under 50 creditors with under $40,000 in assets and with liabilities that would run between $1 million to $10 million. (A more precise accounting of liabilities later listed debts of $3,648,526.80.) ARTLoan’s income from the business had been anemic, according to its initial bankruptcy filing. There had been $50,000 in 2009; $60,000 in 2010; and only $4000 up to mid-April 2011. The two largest creditors were Charles Gaylord (the father of Ray Parker Gaylord and owner of an antiques shop in San Francisco), who was owed $453,000; and Steven and Nancy McVay, who were owed $848,571. Steven McVay may have been an investor, but he was also a director and treasurer of ARTLoan.
It was not long after ARTLoan filed for Chapter 11 protection that problems began to emerge. The appointed U.S. trustees for ARTLoan’s bankruptcy met with no cooperation from Gaylord and Barreiro or the attorneys for the firm. The trustees filed for permission to convert the filing to a Chapter 7 matter, and Judge Thomas Carlson approved it on June 20, 2011.
Along with the change in bankruptcy schedules came a new U.S. trustee, Janina Hoskins. Hoskins’s discoveries led her to file an adversary case against Gaylord and Barreiro plus their attorneys and advisors—Wiegel Law Group, Wiegel & Fried, LLP, and Andrews Kurth, LLP.
Hoskins claimed that there had been fraudulent transfers of moneys to the two partners, and that they took “pawned collateral” given them and “removed and secreted these assets to a warehouse in Switzerland.” If there was still any remaining asset material, she charged, “they held in-house auctions and retained the proceeds to pay themselves executive salaries.” As for the attorney defendants, each “knew, or should have known, that Defendants Gaylord and Barreiro were engaged in unlawful self-dealing and other fraudulent business activities.”
Steven McVay’s bankruptcy filing revealed how ARTLoan drew in potential investors. An elderly couple, Jack and Theresa Spinler, and their adult daughter, Karen Williams, all Santa Clara County residents, filed objections to McVay’s bankruptcy petition. They first met McVay while taking dance lessons during the 1990’s, they said, and after that they met him regularly on a social basis. McVay allegedly told the Spinlers that he was the treasurer and director of ARTLoan Financial Services and offered to let them invest in the business that he said regularly paid him a steady 14% interest. From 2006 until about 2009, the Spinlers and Karen Williams invested in ARTLoan through six separate payments, amounting to a total of $300,000.
After one of the money handovers, executive vice president Ray Gaylord dropped by the Spinler home and drove them into San Francisco to the ARTLoan office at 2 Henry Adams Street to “verify the collateral” and “view the antiques.” The ARTLoan officials “explained the nature and history of each piece of art/antique,” and the Spinlers “were led to believe they were valuable pieces and were used as collateral for their loan.” (“Loan” and “investment” appeared to have been interchangeable nouns at ARTLoan.) The Spinlers did receive some “interest” payments and even made further loans to McVay, but after April 2009, no one came by the house to visit anymore.
In 2013, trustee Hoskins appeared before a judge and sought approval for a negotiated settlement, which she had reached with Gaylord and Barreiro. She asked for approval of a stipulated payment of $350,000 from the two men, to be “satisfied at a discounted payment of $175,000” or “the turnover of all net auction proceeds of the Swiss collateral, whichever is greater.” She also settled claims against one law firm, Andrews Kurth, LLP, for a payment of $125,000, and on October 31, 2013, she settled claims against all the various attorneys involved in the Wiegel Law Group for the sum of $210,000.
Hoskins admitted that Gaylord and Barreiro and the others had damaged the estate to the amount of $3 million but urged the court to accept the settlement amounts. She noted that the defendants were insisting on trials by jury, which could not take place in California until some years in the future. She also noted that the antiques business had been closed, and Gaylord and Barreiro had left California and settled in Texas. “Texas,” she noted to a bankruptcy judge undoubtedly familiar with the statutes of other states, “has an unlimited homestead exemption” in bankruptcy proceedings.
Even more pressing, there was the matter of timeliness. As John MacConaghy, the attorney for trustee Hoskins, told the court, “I am aware of at least three other six-figure litigation claims pending against Gaylord and Barreiro…,” and there was the chance that one of those claimants “will obtain and perfect an intervening judgment or attachment lien.”
In other words, it had reached that point in the proceedings where the estate had to get what it could get, now, or take a chance that someone else would get it. As Janina Hoskins wrote to the court, “Time is of the essence.”
On December 13, 2013, Judge Hannah Blumenstiel approved trustee Hoskins’s motions. Gaylord and Barreiro’s problems weren’t over, though. Based on the secret grand jury indictment handed up in September in the Northern District of California, Barreiro and Gaylord were arrested in Texas. On January 10, 2014, they were arraigned in Dallas and charged. They were released on bond and ordered to appear in San Jose, California, for further proceedings on February 11.
Judge Paul S. Grewal noted that the conditions of release set in northern Texas would remain in effect in California. Both men were subject to electronic monitoring and ordered to observe a curfew from 11 p.m. to 6 a.m. If convicted, they will face up to 20 years in prison for each count of the 12 counts. They have many more court appearances scheduled throughout 2014.
Originally published in the March 2014 issue of Maine Antique Digest. © 2014 Maine Antique Digest