German prosecutors have arrested three suspected art forgers believed to be at the centre of a major scandal involving the sale of dozens of faked early 20th century expressionist paintings which have fetched up to €500,000 ($882,000) each at top auction houses.

The case involves allegedly bogus works sold by a German art dealer couple named as Wolfgang and Helene Beltracchi and her sister. The three are being held in detention pending trial later this year following police raids on their homes last August.

The trio are accused of duping the art world over 14 years. They are alleged to have supplied top auction houses with forged paintings they claimed were undiscovered works by famous artists, including the German expressionists Max Ernst and Heinrich Campendonk.

Der Spiegel magazine, which broke the story after being tipped off by Cologne state prosecutors, compared the case to Germany's Hitler Diaries scandal of the 1980s, when its rival, Stern magazine, was duped into publishing excerpts from faked diaries supposedly written by the Nazi leader.

Helene Beltracchi is alleged to have started putting forged paintings on the market in 1995. She claimed she had been left the works by her grandfather, Werner Jagers, who she maintained had bought them at the beginning of the Nazi era from his friend, Jewish art dealer Alfred Flechtheim. The Beltracchis sold most of their paintings, claiming that they were from the Werner Jagers Collection.

Subsequent investigations have shown that Jagers, who died in 1992, was a member of the Nazi party who had little interest in art and made his money in construction. There is no evidence he knew Flechtheim and neither his widow nor his business associates knew anything about an art collection.

Prosecutors say the Beltracchis are suspected of putting 34 faked paintings on the market. They include an alleged forgery the couple claimed was by expressionist Max Pechstein, sold to a Swiss dealer in 2003 for €498,000.

Art historians have since discovered it was most probably copied from a small watercolour by the same artist.

The couple are believed to have put up a smokescreen by occasionally auctioning genuine originals. But in 2006, an auction house was offered a painting by Helene Beltracchi's sister which proved to be a forgery. Red Picture with Horses was supposed to have been painted by the early 20th-century Rheinisch expressionist Heinrich Campendonk. It was sold to a Maltese company at auction for €2.9 million. But staff became suspicious and commissioned an investigation. The paint contained a colour which did not exist in 1914, when the work was purportedly completed. Prosecutors are trying to establish how many paintings were faked.

- Independent