What's that? You haven't been following the bizarre tale of John Fox and his ultra-high-end Berkeley wine store, Premier Cru?
Well, let me give you the whirlwind tour.
- Premier Cru was for many years a fairly small operation, first in the upscale Piedmont Avenue district of Oakland, then later in a newer facility in Emeryville. In 2010, they moved to a big splashy new location in Berkeley: Wine seller Premier Cru signs deal for Berkeley complex
Premier Cru is a long-time wine seller in the East Bay.
The company was founded in 1980 with two locations on Oakland's Piedmont Avenue, Fox said. In 1998, Premier Cru moved to Emeryville.
"We're going back to our roots," Fox said. "When we first opened, we were there for the local customers and built our reputation from the kind of wine selection we had then. We will do that again on a larger scale and a bigger audience."
- But at some point during the recovery from the Great Recession of 2008, things had changed, and the wine industry was changing, too: How to invest in wine
In fact, since 2001, when Liv-ex began its 100 Index, wine has significantly outperformed the leading equity indices in western markets with an average annual return of 16%. By comparing other pieces of research it is also possible to look at fine wine returns since 1950. Again the results are extremely positive and remarkably consistent. Since, 1950, the average gross return is 15% and is 17% if you start in 1960.
Wine remains less volatile than stocks and shares, making it a less risky investment. However, with the increasing number of wine funds and more and more private investors coming into the market, it appears that the wine market is becoming more closely correlated with the stock market than was the case two years ago. In the past, the fact that it was not highly correlated with equities, made it extremely attractive to investors looking to diversify a portfolio.
Generally, wine is also regarded as a wasting asset so doesn’t attract Capital Gains Tax.
- The money started flooding in, and places like Premier Cru turned out to be major players in this new world of wine "investing": the company had $42 million in customer deposits on hand in December 2014. As part of this craze, there developed the notion of wine futures, or "pre-arrivals"
Premier Cru carries some of the world’s best – and most expensive – wines. For example, it is currently offering a three-liter bottle of a 2010 Mouton Rothschild for $3,615.
The wine is among vintages advertised as “pre-arrival.” Many wine collectors buy French Bordeaux while it is still aging in the barrel. It costs less then than when it is bottled. But to snare futures, collectors must pay up-front and wait a few years before delivery.
- Unfortunately, either the business was too complex for Fox to handle, or the temptation became too large, and things went south: Berkeley store sued over $3M of undelivered wine
Seven disgruntled customers have filed lawsuits against Premier Cru, a high-end wine store on University Avenue in Berkeley, contending that the store purchased thousands of bottles of expensive French wine on their behalf, worth around $3 million, but never delivered it.
All of the plaintiffs in the lawsuits – many of whom live in Asia – say they paid Premier Cru to buy them “futures” of French Bordeaux (wine that is still aging in barrels and not bottled), but they have yet to see the wine. Some of the customers said they have been waiting years for their wine. Whenever they call the store to complain, they hear a litany of excuses, they said.
- That was just the tip of the iceberg, though, and a few months later Embattled wine dealer files for bankruptcy
Premier Cru, a wine retailer and importer based in Berkeley, California, filed for Chapter 7 liquidation Friday, citing $70 million in liabilities and only $7 million in assets. The case is believed to be the biggest wine-seller bankruptcy in recent history, and could rattle confidence in the fine wine world.
"This is by far the biggest that I've seen," said Marc Lazar, president of Domaine, a leading wine advisor and wine-storage company. "I think people are going to feel burned after this and feel less willing to open up their pocketbooks for wine."
The case is likely to include some of the richest wine collectors in the world. While the court documents are abbreviated for now, there are more than 9,000 collectors and companies listed as creditors — including billionaire collectors William Koch and Jeff Greene.
- As the investigation dragged on, the story just became bigger and more spectacular: Premier Cru owner had penchant for expensive cars
John Fox leased a $199,264 2014 Ferrari, as well as a $90,000 2016 two-door Corvette ZO6 with a 650-horsepower engine, according to court documents. Fox stopped making his $2,206 monthly payments on the Ferrari in November, and the company that owns the car, Ferrari Financial Services, is trying to get it back. Wells Fargo Bank is also asking to repossess the Corvette.
- It soon became clear that Bankrupt Premier Cru not run in ‘reliable fashion’
the company had $42 million in customer deposits on hand in December 2014 — most of which was no longer there when the company filed for bankruptcy in January 2016, according to court documents.
Those two startling numbers, along with some statements from a former employee and an accountant hired to examine the records, reveal chaotic business practices at the Berkeley wine company owned by John Fox and Hector Ortega. Those dealings have prompted the Federal Bureau of Investigation to investigate whether Fox ran a Ponzi scheme.
- And, last week, the final shoe dropped: Wine, women and scam: High-end seller guilty in Ponzi scheme
Fox said little during the hearing. But in his plea agreement, also filed Thursday, he admitted selling about $20 million worth of “phantom wines,” which he said he knew he could not deliver, from 2010 to 2015.
Fox said he used some customers’ money to buy wine for previous customers — the “Ponzi scheme” practice — and had also embezzled funds from his company. He said he used some of those funds to pay the mortgage on his home in Alamo, to pay credit card bills for himself and his wife, and to buy or lease fancy cars.
“I also spent more than $900,000 on women that I met online,” Fox said, without offering specifics on who the women were or what he paid them for. He said he made the payments through PayPal. The fraud charge to which Fox pleaded guilty covers a period from about 2009 to 2015. But Fox said in his plea agreement that he first started creating fraudulent purchase orders in about 1993 or 1994.
1993?! And it took 25 years for it all to come crashing down?
Sadly, it seems that it was sort of an open secret that all was not well at Premier Cru, for a long, long time:
From 2002 to 2004, the wine company purchased $296,235 in wine from Mark Anderson, a Sausalito businessman who was charged in 2004 with embezzling $1 million worth of wine from clients at his wine storage facility. He was later charged and convicted of setting a fire in a Vallejo warehouse that destroyed 4.5 million bottles of wine worth $250 million. Anderson is now serving a 27-year prison sentence.
Premier Cru didn’t seem to do due diligence on where Anderson got his wine to sell, according to a former Premier Cru employee who asked not to be named. Anderson would pull up regularly to the Premier Cru warehouse in Emeryville in an old burgundy Cadillac with loose wine bottles rattling around in plastic milk cartons in the back. The employees unloaded them, no questions asked. “I doubt John Fox ever asked Mark for documentation regarding the provenance of the wine he sold,” said the former employee. “It seemed like Mark would bring the wine by, then they would agree on pricing, John would cut a check, and that was it.” After Anderson was indicted and articles about him appeared in newspapers, Fox did sever relations. But within two weeks, Anderson turned around and sold $34,800 in French wine to Premier Cru under a different name.
It was all about "image", and about trading on that image to do business online:
Business appeared to be flourishing. Fox and Ortega held a grand opening bash in December 2011 with valet parking, gold and black balloons, and platters of food. Fox often hosted after-hours work parties on Fridays, according to people who attended. Fox would open numerous bottles of fine wine for his friends, and serve bread and cheese as accompaniments.
The bulk of Premier Cru’s business, however, was online. The company became known for its aggressive email marketing campaigns, which went out twice a week with great offers on premium wines.
Well, now it is over, and I suspect all that money is, well, "down the hatch."
For some reason, I find it fascinating that various art forms, whether they are wine, painting, sculpture, etc., all seem to eventually contain some aspect in which the worlds of art and finance intersect.
At which point the discussion becomes less about aesthetics, and more about interest rates, and tax considerations.
And, at that point, once the rich are wishing to hide their money, there always seems to emerge those unscrupulous folk who collude with them, and, all too often, bad things happen.
I suppose this is just what people always do to people.
Anyway, now you know about Premier Cru.