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A painting stolen by the Nazis from a Jewish gallery owner in Austria, recovered by the American armed forces, and then handed over to the wrong family after World War II, can no longer be considered stolen, a Southern District judge ruled Wednesday. The painting, “Portrait of Wally,” had been the subject of a prolonged battle between an Austrian foundation that loaned the Egon Schiele work to a New York museum and federal and local prosecutors. But Judge Michael B. Mukasey lifted a magistrate judge’s seizure warrant for the painting sought by Southern District U.S. Attorney Mary Jo White, and granted a motion to dismiss brought by claimant Leopold Museum-Privatstiftung in United States v. Portrait of Wally, 99 Civ. 9940. “Portrait of Wally” was coerced from the hands of Austrian citizen and gallery owner Lea Bondi Jaray in 1939 by Freidrich Welz, a member of the Nazi Party. Jaray surrendered the painting to Welz at the height of the Nazis’ “Aryanization” of Jewish property. Following the war, the possessions of Welz, a suspected Nazi war criminal, came under the control of the U.S. Army. The army mistakenly turned the painting over to the wrong party -� gallery owner Heinrich Rieger –and Rieger’s heirs eventually sold the painting. Ultimately, the painting was sold to the Leopold Foundation. When the foundation loaned the painting to the New York Museum of Modern Art for display in 1997, Manhattan District Attorney Robert M. Morgenthau sought to seize it, pursuant to a subpoena on Jan. 7, 1998. The subpoena was ultimately quashed by the New York Court of Appeals on Sept. 21, 1999. The court ruled that Section 12.03 of New York’s Arts and Cultural Affairs Law prohibited the seizure of any work of fine art while it is on exhibition by a non-resident exhibitor — in this case, the Leopold Foundation -� in a New York museum. At that point, the U.S. Attorney’s Office stepped in, claiming that “Portrait of Wally” was stolen, and the shipping of the painting into this country and then out of it, would be a violation of the National Stolen Property Act, 18 U.S.C. Section 2314. Southern District Magistrate Judge James C. Francis IV immediately issued a seizure warrant. But Mukasey said that the U.S. Armed Forces, which were under orders to return paintings and other property stolen by imprisoned suspects such as Welz to the countries from which they had been stolen, had an “agency” relationship with the original owner. “In this case, the U.S. Forces were charged with recovering stolen items and acting on behalf of the items’ true owners,” he said. “Accordingly, when they recovered the painting they did so as agents of Lea Bondi Jaray � even though they did not know her name, or that the painting was hers,” the judge wrote. “Although the painting may not have been placed in the correct hands when the Rieger heirs received it, in the eyes of the law it was no longer stolen.” POSSIBLE APPEAL But Mukasey stayed the dissolution of Francis’s seizure warrant pending a possible hearing on the issue before the U.S. Court of Appeals for the Second Circuit. Marvin Smilon, a spokesman for White, said the office was “reviewing the opinion to decide whether to appeal.” Assistant United States Attorneys Barbara A. Ward and Sharon Cohen Levin represented the government. William M. Barron, of New York-based Walter, Conston, Alexander & Green, was lead counsel for Leopold Museum-Privatstiftung.

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