Big Dreams, Big Expenses: In a Lavish Town House, an Art Gallery in Trouble, Yazzy's at www.williamverdult.com

Chip East/Bloomberg News

Security guards documented the removal of artworks Oct. 16 after an exhibition was canceled.

According to the New York Times, in the gossipy world of Manhattan art dealers who ship expensive canvases back and forth on little more than a handshake, it was talked about long before it opened in the fall of 2005: a lavish gallery in a town house from the Roaring Twenties that had just undergone at least $2 million in renovations.

It was on East 71st Street, right in the heart of art-gallery country on the Upper East Side, around the corner from the renowned Frick Collection. One reviewer wrote that the look inside was “robber-baron chic,” with thick carpets on the floors and velvety coverings on the walls.

The rent was $154,000.

A month.

The town house — and the money it consumed — seem to be central to understanding the widening legal and financial crisis that has made the gallery it housed, the Salander-O’Reilly Galleries, the talk of the art world.

The story behind Salander-O’Reilly’s tumble is a complicated one, but to art world rubberneckers who are both involved and watching from the sidelines, it is a story of big dreams and big expenses, combined with something unusual: a respected dealer who tried to expand beyond his long-established niche.

Originally, the town house was planned as an offshoot of a smaller gallery eight blocks away, on East 79th Street — one that had a solid reputation, mounted regularly reviewed shows and represented a comfortable roster of artists. The rent there was $58,333 a month.

The smaller gallery closed within a year after the town house opened. Now the town house itself is dark, the locks on its wide front doors changed by order of a judge. The dealer behind Salander-O’Reilly, Lawrence B. Salander, is facing a tangle of lawsuits from angry collectors who say he and Salander-O’Reilly defrauded its customers and business partners.

The lawsuits accuse him of falling millions of dollars behind on obligations like the rent and the payments he had promised the well-connected people who invested in paintings with him. One lawsuit described the gallery as “nothing more than a Ponzi scheme.”

Some artists’ estates say the gallery sold consigned paintings without their permission for less than the paintings were worth, and never paid them. Some artists’ relatives say they have discovered works entrusted to Salander-O’Reilly in other galleries or museums.

The Manhattan district attorney’s office says it has been reviewing complaints about Salander-O’Reilly, and at least one artist’s family has gone to the police. John Crawford, a son of the abstract painter, photographer and printmaker Ralston Crawford, said that he did so after it became clear that at least a dozen paintings and photographs consigned to the gallery were missing. He estimated that they were worth $1.2 million to $1.5 million.

Mr. Salander “used to say, ‘Do the right thing for the art and the rest will follow,’” Mr. Crawford said.

“The idea was that he was putting everything he could behind the art, promoting it in an intelligent way and doing the right thing,” Mr. Crawford said.

Back in 2005, when Salander-O’Reilly opened the town house, dealers and collectors marveled at how Mr. Salander had managed such an extravagant expansion.

They marveled, too, at his strategy of using the town house gallery to show and sell old masters after years of specializing in 20th-century American art on East 79th Street.

Richard L. Feigen, another prominent dealer, said he was “flabbergasted by the size of the space” and the scope of the operation Mr. Salander was trying to run. “The market for old masters and Renaissance sculpture right now is a very small market and there are few buyers,” he said.

Frances Beatty, a vice president of Mr. Feigen’s company, said of Mr. Salander’s foray into buying and selling old masters: “It is as if a talented, successful pop singer decided to go into opera and then build himself La Scala. It’s pretty ambitious and it requires very deep pockets.”