Vincent Lopreto, 48, and Ronald Bell, 49, were arrested on Wednesday. Investigators say the two men sold fake art of English artist Damien Hirst.
Authorities say the buyers in New York purchased the works on eBay and received pieces with forged signatures and phony letters of authenticity.
During the investigation, officials working undercover with the Manhattan District Attorney's Office purchased several pieces of fraudulent art from Lopreto. Laguna Beach detectives conducted surveillance and witnessed the mailing of the phony artwork.
Wednesday, search warrants were served at JazzArts in Laguna Beach and the homes of the two suspects. Authorities discovered that Lopreto and Bell were facilitating the operation through a joint bank account.
At the art gallery, investigators found additional counterfeit Hirst pieces, blank paper used to print the artwork, implements used to make the reproductions and fake certificates of authenticity and stamps meant to show that the artworks were originals.
Upon arrest, Lopreto and Bell were transported to Orange County Jail. They are currently awaiting extradition to New York.
Investigators believe other counterfeits were sold to people as far away as South Korea, Italy, Japan and the Netherlands. Authorities say most of the victims bought the phony art on eBay or through auction houses across the United States.
This is not Lopreto's first such brush with the law. In 2008, he was arrested for committing similar crimes also involving the sales of Damien Hirst artwork. He was sentenced to five years in state prison.