CHAPTER 13

PARIS

Picasso Louie was a fat, oddly dressed man in his mid-to late-forties whose appearance seemed much older than his chronological age. His clothes were always mismatched as if in one of Pablo Picasso’s cubist paintings—blocks of red in his shirt against black-striped pants, over which Louie’s prominent abdomen hung. He smoked non-stop. His favorites were Camels. A poorly fitted toupee covered his misshapen head. His English had a peculiar Parisian sensibility, as if he were a native to France but had studied somewhere in the Southern part of America, an occasional “y’all” slipping out during conversation.

Callahan met Picasso Louie in a small storefront on the third story of an off-street location not far from the Louvre. Callahan’s first purchase as an art dealer was a small Picasso portrait that was from his early blue period. The piece cost half of what Callahan had expected to pay. It was a beautifully rendered painting and Jim Callahan was so stunned at the price, he didn’t even negotiate.

On the flight home the next day to New York, the choice Picasso safely tucked into a briefcase, Jim Callahan devised his art future. Callahan was at first upset with himself for not trying to bargain with Louie, but the more he thought about it, he realized it was a stroke of luck. Paying Louise’s asking price would help him in his new venture as an art broker. Louie would bring him better material expecting a better price from the eager American, cutting out the greedy New York City dealers completely. Callahan would wait for something of great value before playing hardball.

Callahan didn’t declare the small Picasso when he entered the country, figuring he could argue it was a trinket, a copy of one of the great Masters. Once safely through customs, he immediately took the painting to a dealer who had sold him a Picasso in the past. The dealer inspected the painting closely. He asked about its history and Callahan told him he had purchased it from a private collection in France. The dealer agreed the piece was legitimate and fairly priced. It sold the same day, with a nice profit of $7,500. The portrait paid for his trip plus a hefty return, and Callahan would get a much better piece on his next trip for free. In fact, Callahan decided he would get a group of investors together and make a big hit, a new addition to his already lucrative stock advising and another level he would conquer in the pyramid of investing. He had been seriously collecting art for over a year and now was also selling. How hard could it be?

The pyramid was a classic model of investing. Like the Egyptian pyramids, the strongest architecture is a solid base that allows the structure to be built upon. The lowest and largest investments (the base) should be CDs, treasury securities, and US savings bonds. As you progress higher, each level gets more risky. The top of the pyramid or sixth level is the most risky: this is options, futures, and art.

Callahan went to his three top clients and explained he would be able to get them a 20 percent profit in a few weeks once the exact art piece was secured. Callahan had provided solid returns for years for these three investors, so they jumped at the chance to get such a windfall. Jim Callahan was able to get a total of $750,000 from the three well-to-do New Yorkers, not a small amount in 1962.

Next he called Picasso Louie and explained he was looking for a major Picasso, preferably from an early period—cubist and large. He would prefer an older piece as Picasso was still alive in 1962 and was actively producing ceramics, sculptures, and paintings. Callahan explained that he had half a million dollars to spend, and Louie should let him know when he had a piece.

Two months after Callahan phoned him, Picasso Louie called to tell him he had found an exceptional painting from 1941 done during World War II—a very strong and large image of the photographer/painter Dora Maar, one of Picasso’s lovers. The piece was out of an old collection that had never been on the market. Callahan made the call to his investors and arranged to see it in two weeks… the time clock was now ticking.

Flying over in first class to spend close to a million dollars was a great feeling. Callahan had thoughts of completely getting out of the financial world, and just buying and selling paintings. He figured even if none of the big boys were interested in the piece for inventory, he could sell it at one of the auction houses. Worst-case scenario was he would make at least $150K, not bad in 1962.

The painting was everything Picasso Louie promised it was: huge and impressive, amazing in its composition of Dora Maar sleeping, her bent head looking so sad. A very compelling image. The price was $650K, non negotiable. Callahan made a halfhearted attempt to negotiate but realized he didn’t have the stomach for it and besides it was a bargain. He would still have $100K for something else. Picasso Louie had another small painting for $50K, which was twice as good as the last piece. It was pricey but Callahan figured he could skim this off the top as a kind of bonus for being such a good negotiator on the large piece. He had a receipt made out for one painting at $700K; the little Picasso portrait just didn’t exist.

The money was transferred into Picasso Louie’s account and the painting was released to Jim Callahan. Getting it back duty free was a little more difficult. It was too noticeable to take on a commercial plane, so it was time for some real art-dealer work. A private jet was hired for $7K, first to the Dominican Republic, then on a boat to Miami. Presto, no duties.

The painting was easily smuggled back into the States. The $7K cost was still much less than duties on $700,000. Callahan was excited at such a magnificent masterpiece and he was the owner, just two years from when he had seen his first art show at Hunter College.

First stop, that pompous ass dealer on Madison Avenue who had told him he wasn’t cut out to be in the art world. Callahan had decided he would charge him an extra $7K on top of the $1 million price tag. He could hardly wait to see Brit’s face.

An appointment was set up with the gallery owner. Retribution time. Callahan wished he had a hidden camera to see the expression when Brit Currency’s little mouth started to water.

Callahan carried the painting in a large art case that he bought especially for the Picasso. He waited until the owner came out from his inner sanctum. Brit escorted Callahan back to his private office to see the painting. He offered Jim some coffee and began the ritual of small talk before looking at what Callahan had brought to show. It was agony for Jim Callahan, engaging in drawn-out conversation with the man who had called him unprofessional, especially with a million-dollar painting just waiting to be rubbed under Brit Currency’s pompous nose.

Finally his moment of victory arrived. Brit was ready to see Jim’s masterpiece Picasso. Callahan extracted the painting from its expensive case at a slow pace savoring the moment. He watched the owner’s face, locked onto Brit’s eyes. It was the moment he had been waiting for… a heartfelt apology.

Brit Currency, the owner of Brit’s Fine Art on Madison Avenue, never flinched. Callahan was amazed; his own mouth dropped open as if he were a cartoon character, disappointed at the lack of excitement shown by Currency. “This is one good poker player,” thought Callahan.

Then came the worst words any person could hear after spending $650K: “Very nice copy, have you ever seen the original? It’s in Madrid. Was this what you wanted me to see? Looks like Picasso Louie’s work. Yeah, see the signature. He always changes the “O” just a bit, as a marker of his work. That way he can always say he was not trying to make a forgery. His work is starting to get a following. I’ve known of one selling for almost $10K. It was as good as this one.”

All the blood drained out of Jim Callahan’s face, his heart speeding out of control. He had been had. Money spent that wasn’t his. He wondered if the bonus painting was a fake as well. He felt nauseous and thought for a split second he might pass out. Mustering all his inner strength and not wanting to fall apart in front of the despised gallery owner, he sheepishly asked, “I guess all the dealers know of Picasso Louie’s work?”

“Yes, it’s fairly common knowledge in the trade. Mr. Louie has been known to take advantage of neophyte dealers and collectors. Particularly unscrupulous dealers have been known to refer individuals to him if they want to inflict monetary damage. I’ve heard Louie will offer a dealer a kickback for the referral. They send some pigeon over and they split the profits. Quite a racket. But he is good at these copies. Very good.”

“I thought you would like to see the piece. It’s quite a lovely reproduction, don’t you think?” Callahan mustered to the now immensely hated Brit Currency, the man who had just shattered his life.

“Yes, it’s nice. If you want to sell it, I would be happy to give you $5,000, which would be a fair wholesale price. I always like to have these to put in the window as a come-on, and I don’t have to worry about it getting stolen or damaged. I have quite a few collectors for Mr. Louie’s work, usually monetarily challenged individuals who like their friends to think they are serious collectors. They know I am very discreet so they don’t have to worry about me spilling the beans.”

“No, I’ve got a little more into it, I’m afraid, Brit. But thanks anyway. I just wanted you to see it. I thought it was quite nicely done for a copy.”

“Yes, I would agree. If you change your mind, let me know. It’s fun to have these knock-offs around. I love to hear unsophisticated so-called collectors go on and on about how important the painting is, not knowing it’s a second-rate copy. No offense, but you know what I mean.”

“None taken.” Callahan hated the man in the tweed suit. If he had had a gun at that instant, he would have killed Brit Currency and then turned it on himself.

Callahan was in serious trouble, down $707K counting the trip back to sneak in the fake. Ironically, the chartered trip cost more than the painting was worth and, worse, there was no record of how the piece got into the United States, no way to prosecute Picasso Louie or his U.S. conspirators. If Callahan tried to go after Louie, questions would be asked about how the painting got to the States. The small Picasso he had previously snuck in and sold would be discovered. He would go to jail.

This was the end of the beginning for Jim Callahan. To keep his head above water, he devised a plan to siphon off money from his clients’ stock portfolios to pay off the painting investors’ $750K plus 20 percent interest. Thus a Ponzi scheme was born out of necessity.

The term Ponzi comes from Charles Ponzi, an Italian immigrant who set up a pyramid of investors buying discounted postal reply coupons. His scheme was so successful that in 1920 he was making $250,000 a month. This of course would be nothing compared to Bernie Madoff, who by 2008 had used a similar scheme to swindle $50 billion.

Callahan would have to take new clients into his investment holdings that now included both painting and stock portfolios. Their funds were used to replenish the original embezzled monies. He would use the testimonials of his original Picasso investors to convince new clients to invest in his fund. Each new client’s money was automatically used as if it were interest earned on stock/painting deals. Ultimately, just as with Ponzi in 1920 and Madoff in 2008, Callahan’s scheme blew up. The numbers needed to pay all the investors got too big and it only took a couple of clients pulling out their money at the wrong time and the whole thing collapsed. Callahan had no exit strategy and could not make enough on legitimate investments to cover the high promised rate of return he needed to keep the whole thing afloat. He never bought another painting.

Jim Callahan’s world came crashing down on him September 7, 1963: $17 million dollars lost. It was a huge amount in the early sixties. The press coverage was intense, as many influential New Yorkers’ wealth was taken down.

The New York Times headline screamed, “Fake Picasso brings down a Wall Street titan.” Articles ran daily. As details were exposed, the articles increased in numbers. Dealers were interviewed, all of them shocked Callahan’s art ineptitude. Eventually Picasso Louie was found and interviewed. His only recollections were of the small Picasso and a larger piece that he had clearly told Callahan was a reproduction of the famous piece in Madrid. He insisted Callahan’s intentions must have been disingenuous, or why did he go through the Dominican Republic and then by boat to Miami? Louie postulated that Callahan had stopped in the Caribbean to deposit money he had stolen from investors. The press ordeal would have been worse, but President John F. Kennedy was assassinated in Dallas on November 22^nd and everything newsworthy changed to the President.

At the time of Callahan’s arrest, no Picassos were found other than the Dora Maar copy Callahan had gotten from Louie and a few lower-end ceramics and drawings. The small fake Picasso he secretly gave to his son, Jim Jr. Callahan told Jim the little fake Picasso was very valuable and to hide it and never mention a word of its existence. He explained he was going to be gone for a long time but he would be back by the time Jim was finishing college.

Unfortunately this was not the case for young Jim, who now went by Bernard. His disgraced father who had ripped off the rich and socially important was killed in 1971 at the Attica riots in New York’s State Prison where 11 guards and 32 inmates lost their lives, including Jim Callahan I. The artist whose work put Jim Callahan in prison, Pablo Picasso, would live another two years, finally succumbing to old age in France in 1973.

The eight years since Callahan’s imprisonment meant enough time had passed and most New Yorkers had totally forgotten about the 1963 front-page headlines. The New York Times ran a small obituary and article on Jim Callahan and his greed, ending the piece with the story of the fake Picasso and how naïve Callahan must have been with regards to art collecting. Brit Currency was interviewed once more and went into great detail Callahan’s ineptitude, one final insult to the old family name. Bernard, now a teenager, made a mental note of the harsh words Mr. Currency had with regards to his now-deceased father.

The only money Jim Callahan’s family ever made from his Ponzi scheme was posthumously, 26 years after his death, when the now-deceased inmate Jim Callahan was part of a lawsuit that forced the state of New York to pay $8 million to those who had died in the riots. Jim Callahan’s family, now going by the last name Phillips, received $7,500 courtesy of the courts, the same amount that Callahan had made on his first and only real art deal, which set the wheels in motion for his death.