A prudent buyer should always exercise caution in screening his source of wine purchase. Provenance is one thing to pay attention to, fraud is another.
Wine fraud has been around for a long time. Sadly, there will always be cheaters, in almost any business. After the successful prosecution of a few prominent cases in recent years, people finally have a better understanding of the fraud in the wine trade. There are two kinds of fraud that have been widely reported in the press: Ponzi scheme and counterfeit wine.
Probably the most well-known Ponzi scheme in the wine trade is the case involving the former high-flying wine store Premier Cru, located in Berkeley, CA. The case was recently brought to a closure after the perpetrator, John Cox, admitted guilt and was sentenced to six and half years of prison time for defrauding his customers over 20 years, involving $45 millions of "phantom" wine sales. He aggressively marketed "pre-arrival" deals, significantly underpriced Bordeaux classified growths. His customers were duped into buying his claims that his inside track in the en primeur market and access to special deals allowed him to sell top-rated wines for less. He required customers to make advance payment, sometimes years in advance. Once a customer stopped questioning the legitimacy of his low price and forked over cash in advance, he used new buyer's money to pay off old buyers and embezzled millions of fund for his own benefit. Stop asking questions when a deal sounded too good to be true, voila, a Ponzi scheme was born. This crime story is featured in an episode of American Greed, first aired on August 7, 2017.
The only successful prosecution of counterfeit wine in the US involved Rudy Kirniawan, a case well-documented in the movie, Sour Grapes. This criminal, now sitting in federal prison, famously sold his counterfeit Burgundy wines through major auction houses, to unsuspecting buyers including the legendary wine collector Bill Koch, one of the billionaire Koch brothers. It was partly through Mr. Kock's determined effort to bring the cheater to justice that Rudy Kirniawan was caught.
Less well-known but equally destructive to a wine collector's portofolio is the case of a wine storage operator whose poor internal control allowed an insider to siphon off customers' wines over several years, involving millions of dollars lost. The perpetrator just substituted customers' good wines with cheap bottles, then sold the stolen goods on wine exchanges who didn't question the provenance or rightful ownership of the wines been offered for sale.
Even in Bordeaux, the temptation is high for occasional fraudsters to market inferior wine under the more prestigious labels, hence the birth of "moon wines", as the fraudulent operations were often conducted at night to avoid attracting attention. A French wine luminary was recently sent to jail for illegally blending lesser wine with better ones.
Read more on the following external links:
- Bloomberg article reporting on how Bill Koch fought back
- The Guardian article on Rudy Kirniawan, a.k.a., "Dr. Conti"
- Wine Spectator article reporting on Premier Cru wine fraud
- Wine Searcher article on Premier Cru Ponzi fraud
- AFP article on French wine baron sentenced to jail for making "moon wines"
- OC Register article: "The $2.7 million wine heist"