Premier Cru Master Complaint Thread (MERGED)

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#6851 Post by **Peter Kleban** » November 30th, 2017, 3:14 pm

Given all that re Brian Nishi, and the fact that apparently nobody else knows the computer system well, one can wonder what hanky-panky he might have got up to in his dealings with the bankruptcy procedure. Just speculation on my part, of course, but the question comes immediately to mind given the circumstances and his intimate knowledge of the inner workings of PC.

#6852 Post by **Dave Nerland** » November 30th, 2017, 4:58 pm

Don-would you call hiring Brian Nishi ethical behavior?

#6853 Post by **Don Cornwell** » November 30th, 2017, 6:50 pm

Dave Nerland wrote:Don-would you call hiring Brian Nishi ethical behavior?

Dave:

I think it raises a real interesting issue. Aside from the broadest types of ethical prohibitions about misleading the Court, I can't think of any legal prohibition or ethical rule which would limit or restrict a Bankruptcy Trustee from hiring someone who was employed by the debtor in a Ponzi scheme operation or similar fraudulent scheme. Getting someone who was an employee in the Ponzi scheme operation obviously makes the Trustee's job easier to do because they usually know where the proverbial bodies are buried. The key question is whether there was full disclosure so that the Bankruptcy Court could make the appropriate decision. Did the Trustee make an adequate disclosure to the Court about Brian Nishi's involvement in the scam? Not in my view, but that's just my opinion. I tried to get the FBI and the US Trustee's Office to either oppose the Trustee's application to hire Mr. Nishi or to give the Bankruptcy Court a more accurate description of his activities on behalf of Premier Cru, but they chose not to do that. At that point, the criminal investigation was still ongoing and the US Attorney's office had not made any decisions about who would be charged. I suspect that the Chapter 7 Trustee's retention of Mr. Nishi as a consultant significantly reduced the likelihood that Mr. Nishi would be charged with a crime. (After all, for the DOJ to charge Mr. Nishi would have been viewed as interfering with the administration of the bankruptcy estate. That's precisely the reason I was concerned when the Trustee proposed to retain Brian Nishi as a consultant.

But, to help put this in proper perspective, criminal prosecutors have to deal with this type of issue all the time in terms of making deals with one person who committed a crime in order to be able to prosecute another one. None of them like it, but they all recognize it is a practical necessity in their jobs.

#6854 Post by **k s h i n** » December 8th, 2017, 7:24 am

Has anyone else received a demand letter from the trustee’s counsel based on net benefit analysis? It goes back all the way to 2004. It is so frustrating in so many ways.

Also I must express my sincere gratitude to Don for providing the expert advice in this matter.

Steven Miller · #6855 Post by **Steven Miller** » December 8th, 2017, 10:16 am

k s h i n wrote:Has anyone else received a demand letter from the trustee’s counsel based on net benefit analysis? It goes back all the way to 2004. It is so frustrating in so many ways.

Also I must express my sincere gratitude to Don for providing the expert advice in this matter.

'

Wow. I'll ask a friend who was a bigger customer than I.

#6856 Post by **Dale Bowers** » December 8th, 2017, 10:24 am

I'm sure the trustee has mined through the early pages of this thread and took notice of those supporting PC and listing all the great deals they got.

Al Osterheld · #6857 Post by **Al Osterheld** » December 8th, 2017, 1:02 pm

Doesn't need to, since he has their software system and sales database. Most of the high rollers don't post here in any case.

-Al

#6858 Post by **Scott Jameson** » December 8th, 2017, 1:08 pm

k s h i n wrote:Has anyone else received a demand letter from the trustee’s counsel based on net benefit analysis? It goes back all the way to 2004. It is so frustrating in so many wa

I have no idea what "demand based on net benefit analysis" means and Google didn't help. Could someone explain it in layman's terms, or point me to a post in case I missed it somewhere in this (or another) thread ? Thanks !

#6859 Post by **Wes Barton** » December 8th, 2017, 2:17 pm

Scott Jameson wrote:
k s h i n wrote:Has anyone else received a demand letter from the trustee’s counsel based on net benefit analysis? It goes back all the way to 2004. It is so frustrating in so many wa
I have no idea what "demand based on net benefit analysis" means and Google didn't help. Could someone explain it in layman's terms, or point me to a post in case I missed it somewhere in this (or another) thread ? Thanks !

Google helps if you use both words of the two word term.

#6860 Post by **Arv R** » December 8th, 2017, 3:17 pm

The idea of running a net benefit analysis* going back 13 years for normal operational / transactional elements of a business (rather than capital providers) seems like a huge stretch of preference credits. If its fraudulent conveyance, I thought even that was delimited by 4 years.

What is crazy is that customers weren't in any position to see the financials of the enterprise, but the vendors and lenders were. And they're more likely to be benefited from any monies shaken out of the customers.

* I'm ignoring how anyone would even fairly calculate that. Is the trustee using todays prevailing market prices?

#6861 Post by **Dale Bowers** » December 8th, 2017, 3:23 pm

Al Osterheld wrote:Doesn't need to, since he has their software system and sales database. Most of the high rollers don't post here in any case.

-Al

I agree, but my posting only pointed out this thread could have alerted the trustee that some people certainly came out "ahead" with PC. The computer sales records obviously have confirmed that.

#6862 Post by **Wes Barton** » December 8th, 2017, 4:45 pm

Dale Bowers wrote:
Al Osterheld wrote:Doesn't need to, since he has their software system and sales database. Most of the high rollers don't post here in any case.

-Al

I agree, but my posting only pointed out this thread could have alerted the trustee that some people certainly came out "ahead" with PC. The computer sales records obviously have confirmed that.

More than that. It provides evidence that points to PC knowingly giving preferential treatment to specific customers to whom the term "useful idiot" would apply. Vocal loyal customers getting enough of a flow of wines to keep them happy, and squeaky wheels getting greased, were key to the perpetuation of the fraud.

Al Osterheld · #6863 Post by **Al Osterheld** » December 8th, 2017, 6:03 pm

I don't recall any evidence that PC gave preferential treatment to people who posted in this thread. The people who posted here and elsewhere who felt they "came out ahead" listed wines they bought at prices that those individuals felt were low enough compared to competitors that they felt they came out ahead even after subtracting for the wines that were not delivered when PC went under. I don't recall that any of these discussions/arguments involved people who had been given special pricing not available to other customers.

As far as what the trustee meant in the demand letter, I don't think we have enough information about his demand to speculate about the details of his argument.

-Al

#6864 Post by **k s h i n** » December 8th, 2017, 8:08 pm

The trustee subtracted all the wines delivered since 2004 plus the cc and check refunds from the total payment made. The wines that were purchased since 2009 are not that much, relatively speaking. However most of the deliveries took over five years so it kinda takes back another five years.

#6865 Post by **Frank Drew** » December 9th, 2017, 8:52 am

Al Osterheld wrote:The people who posted here and elsewhere who felt they "came out ahead" listed wines they bought at prices that those individuals felt were low enough compared to competitors that they felt they came out ahead even after subtracting for the wines that were not delivered when PC went under.

Al describes my feelings about my purchases from PC: I made occasional small purchases over the years -- when I felt that the advertised prices were good and I could afford to buy -- and lost a few hundred in undelivered wine at the end. I never felt that any of the salespeople there knew my name, let alone threw any special deals my way.

#6866 Post by **David Glasser** » December 9th, 2017, 11:56 am

Isn’t the idea of a clawback that anyone who received something of value within x (with x typically being 90) days prior to the bankruptcy filing is presumed to have received "preferential" treatment compared to the other creditors who have to go hat in hand to the bankruptcy court or trustee in hopes of restitution?

It matters not whether you knew or were known by the owners, management or employees or if your net interactions with the company were positive or negative.

What surprised me was that they went back all the way to 2004 with Kevin. Unless those 2004 purchases were still undelivered and the basis for a delivery of wine or cash that was made within a much shorter window prior to the bankruptcy filing, I don’t understand how they could do that.

#6867 Post by **Ken V** » December 9th, 2017, 12:00 pm

I seem to remember something like this with the Madoff settlement where they went very far back to look at anyone who had received any benefit. Not sure how they could justify that here, but I'm no lawyer.

Victor Hong · #6868 Post by **Victor Hong** » December 9th, 2017, 12:14 pm

Return the wine to the trustee.......post "processing".

#6869 Post by **David Glasser** » December 9th, 2017, 1:02 pm

Victor, I suspect the trustee would reply with some version of that hard-bitten lawerly retort, "Don't pee on my leg and try to convince me it's raining."

Al Osterheld · #6870 Post by **Al Osterheld** » December 9th, 2017, 2:01 pm

I'm not a lawyer, but my understanding is that 90 days is the default look back period for preferential transfer because the law assumes the business was already insolvent. However, the trustee can attempt to clawback transfers farther back with the argument that the business was fraudulent and insolvent from a much earlier date. There is a maximum look back period that depends on the state, in California it's apparently seven years (PC filed bankruptcy on 1/08/16). In John Fox's statement at his trial, he admitted that the business was a fraud since at least 2009. These clawback periods are sometimes challenged in court (and Picard recently lost a challenge in the Madoff case), but it appears that the PC trustee is going to assume any transfer of wine or refund since the beginning of 2009 is a preferential transfer.

-Al

#6871 Post by **Wes Barton** » December 9th, 2017, 4:21 pm

Al Osterheld wrote:I don't recall any evidence that PC gave preferential treatment to people who posted in this thread. The people who posted here and elsewhere who felt they "came out ahead" listed wines they bought at prices that those individuals felt were low enough compared to competitors that they felt they came out ahead even after subtracting for the wines that were not delivered when PC went under. I don't recall that any of these discussions/arguments involved people who had been given special pricing not available to other customers.

As far as what the trustee meant in the demand letter, I don't think we have enough information about his demand to speculate about the details of his argument.

-Al

The issue in the various complaint threads was futures/pre-arrival purchases not getting delivered. The big voices defending PC on those threads were receiving enough wine to delude them into the Ponzi-Koolaid stance of "Just be patient. It takes time for the underpants gnomes to do their magic, but I always get my wines." Meting wines out to the right people was part of the scam. That doesn't mean most people who received such preferential treatment didn't lose big. Since they were true believers, the size out their outstanding orders likely continued to grow. Some squeaky wheels that got wine to shut them up probably may have made off better, though those with a lot of outstanding orders often were just meted out a few wines which was often not enough to satisfy them something wasn't wrong.

This thread alone doesn't prove anything, but along with the books it could. Just compare the relative value delivered for those names compared to the total.

#6872 Post by **Don Cornwell** » December 9th, 2017, 8:26 pm

There are actually two kinds of letters that are being sent out by the counsel for the Trustee -- (1) preference claims and (2) fraudulent conveyance claims. They are quite different. I've now seen multiple versions of both thanks to some of you.

The first group of letters sent out were mostly "preference claims," which in this context means that either the person received a refund from Premier Cru in the 90 days before the bankruptcy petition was filed, or that the person involved received wine in the last 90 days before the bankruptcy petition was filed which was provided in satisfaction of "antecedent debt" -- here, a prior pre-arrival order that PC couldn't fill for which substitute "in stock" wine was provided. On true preference claims, there is essentially no defense. The Bankruptcy Code provides that people who received cash or property in the last 90 days before the filing got "preferred" by the debtor over the other unsecured creditors who weren't so lucky or industrious, and they are required to give the money back and can be sued for the preference as long as it exceeds the current statutory minimum claim.

The second group of letters are the "fraudulent conveyance" claims. These are claims which are being asserted mostly under California law (which has a longer statute of limitations/statute of repose than the Federal fraudulent conveyance statute.) In the case of Premier Cru, with the Ponzi scheme/fraud allegations, the statute of limitations extends back to transactions which occurred up to seven years before the Bankruptcy Petition was filed, i.e. to transactions occurring from January 8, 2009 onward.

There are two very distressing things about the fraudulent conveyance claims letters that I have seen so far. First, in one instance (the one Kevin Shin refers to) the Trustee is purporting to claim money due by aggregating all transactions that have occurred since 2004. It's my understanding that is completely improper under the applicable California Civil Code provisions (Civil Code Section 3439.09) and the applicable Federal court decisions which have interpreted that law and its interplay with the Bankruptcy Code and the two-year Bankruptcy Code tolling provisions (which apply merely to extend the underlying statute statute of limitations for up to two years after the Bankruptcy Petition filing date -- which was January 8, 2016).

The second distressing aspect of the fraudulent conveyance letters is that the Trustee is suing people who purchased wines from Premier Cru for the difference between the market value that the Trustee is ascribing to the wines purchased versus the price for which the wine was sold by Premier Cru. The Trustee's counsel is sending out purported calculations with the demand letters on the fraudulent conveyance claims which are very misleading. The accounting materials attached to the letters contain a schedule of the wines purchased and received by the recipient. These schedules purport to list "unit cost" and "total cost" which, of course, imply that these are the amounts that were actually paid by the recipient to Premier Cru -- but not so. These figures are apparently purported "market values" for the wines purchased by the customer that have been assigned by the Trustee. The Trustee then purports to aggregate all of the purchase transactions over time and compares the price actually paid to Premier Cru, in order to ultimately determine whether the purchaser was a "net winner," i.e. paid less in the aggregate than the assigned fair market value.

If you weren't alarmed enough already by the thought that someone might try to sue you for not having paid enough to Premier Cru for wines you actually received, it gets worse. First, it is not clear from these demand letters where these purported market values came from, or the dates of the market values used for the calculations. In some cases, because the deliveries took place several years after the wines were sold, this can produce huge swings in value. In the letters, the Trustee is simply claiming what is described as the "net winnings" the customer received, which is the difference between the aggregate of what the customer paid to PC (for which no breakdown is provided) versus the aggregate total market value purportedly assigned by the Trustee (for which there is a schedule of wines and values). In some cases the numbers listed are less than what the purchaser paid (i.e. the purchaser paid PC slightly more than the Trustee's attributed market value).

But in other cases the purported market values claimed by the Trustee are patently ridiculous (e.g. a $600 per bottle as the asserted fair market value for 2007 Chateau Lafite sold and delivered in a wholesale transaction (420 bottles) to another licensed trade buyer at $408 per bottle in the summer of 2012. The same wine sold at retail (in a 6 bottle lot) at Acker Merrall in December of 2012 for $533 per bottle, including the buyer premium.

#6873 Post by **alan weinberg** » December 10th, 2017, 9:24 am

is one out of the letter loop if received ordered and paid wines during the 90 days prior to bankruptcy, i.e. no substitution, just the ordered wine?

Victor Hong · #6874 Post by **Victor Hong** » December 10th, 2017, 9:49 am

Any holiday wishes for John Fox?

#6875 Post by **David Glasser** » December 10th, 2017, 6:42 pm

John Fox and Premier Cru - the gift that keeps on giving.

#6876 Post by **Don Cornwell** » December 10th, 2017, 8:05 pm

alan weinberg wrote:is one out of the letter loop if received ordered and paid wines during the 90 days prior to bankruptcy, i.e. no substitution, just the ordered wine?

Alan:

Presumably you would not be subject to any claim -- as long at the purchases were close to the fair market value at the time (i.e. you paid "reasonably equivalent value" for the wine).

SteveC · #6877 Post by **SteveC** » January 8th, 2018, 9:08 am

If someone has recommendations for an attorney to help me in this matter, please PM me. Also, if you are part of this fiasco, I would love to hear about how you are dealing with it.

#6878 Post by **ClarkstonMark** » January 8th, 2018, 2:29 pm

SteveC wrote:If someone has recommendations for an attorney to help me in this matter, please PM me. Also, if you are part of this fiasco, I would love to hear about how you are dealing with it.

with what, there have been a lot of potential issues in this thread (don't need to give details if you don't want to)
Clawback, not receiving wine, claim against PC, AMEX/MC/Visa chargebacks ,etc

#6879 Post by **Larry Link** » January 8th, 2018, 3:26 pm

Do new demand letters and emails continue to go out? Is there a deadline for sending out these notices?

SteveC · #6880 Post by **SteveC** » January 8th, 2018, 3:42 pm

Clawback. I gave up on the lost $$$ and missing wine to Premier Cru and lost the Amex battle. This nightmare is like a bad virus. It just never ends.

#6881 Post by **Larry Link** » January 8th, 2018, 4:22 pm

SteveC wrote:Clawback. I gave up on the lost $$$ and missing wine to Premier Cru and lost the Amex battle. This nightmare is like a bad virus. It just never ends.

Sorry you have to go thru this, agree the clawback just adds insult to injury. When did you get your clawback email/letter?

SteveC · #6882 Post by **SteveC** » January 9th, 2018, 8:48 am

I originally received a letter dated 9/22/17 that was sent to an old address. I responded on 10/10/2017, gave them my new address and asked them for back up to their numbers, which were much higher than mine were. I also asked several questions. In addition, I left a phone message for the attorney.

I never got a returned call nor any correspondence.

At the end of last week I got a notice to the court that they are pursuing this matter. It was sent to my old address.

I am ready to tell them to just come get the wine, as I have not yet drunk any of it! I got screwed not once, but twice by Premier Cru. I feel like I am the only one losing twice! UGGGHH

#6883 Post by **Dave Nerland** » January 9th, 2018, 8:48 pm

Looked at Pacer today, appears counsel is filing many complaints (clawbacks)....

Ouch.

garrett devries · #6884 Post by **garrett devries** » January 15th, 2018, 2:25 pm

A friend of mine received a clawback claim in the PC case. He is looking for bankruptcy counsel in Oakland or SF that is already familiar with the PC case. Please PM me if anyone has a referral. Thanks in advance.

Al Osterheld · #6885 Post by **Al Osterheld** » January 15th, 2018, 7:57 pm

The Trustee has been filing a large number of adversary actions to attempt to clawback transfers of money or equivalent value in merchandise. Besides customers, these include businesses that had the misfortune to deal with Premier Cru during the last six years of its operation: sources of wine they sold, entities that had loaned money and received partial repayment, credit card companies, various entities involved with the property at 1011 University. One striking example is American Express which had allegedly received $9.8M+ of payments during those six years. Of this amount, the Trustee claims that $7.8M+ was paid on account of personal credit cards of John Fox and other individuals. That's $1.3M per year.

-Al

#6886 Post by **Arv R** » January 17th, 2018, 9:34 pm

I fully grasp why a bankruptcy code needs protections against preference payments and fraudulent conveyance, but these actions seem far away from the spirit of the code. How can one have regular transactions with any business/person if this is a real risk? People buying stuff from a vendor are in a different position than a lender -- they're not looking at financials nor thinking they are wearing some strange contrived clawback risk.

If this turns into a true risk for a credit card company like Amex, I could see credit being curtailed. I've heard they have some kind fraud / money laundering unit that inspects their clients but maybe they'll step that up.

The poison Fox released just keeps on spreading. And its stunning that his ex staffers seem to have gotten off scot free, and the victims are getting hit again!

#6887 Post by **Ken V** » January 18th, 2018, 5:29 am

Well said, Arv.

Al Osterheld · #6888 Post by **Al Osterheld** » January 18th, 2018, 6:51 am

The Trustee is just filing actions, he is not the arbiter of whether they are successful. Some of the businesses settled for a fraction of the money in question and I imagine this is a tactic to get more of them to settle. But, I would think this is pretty standard stuff. The actions against the customers seem pretty aggressive. As far as American Express, I think this is a small enough drop in the bucket that it won't change any of their policies.

-Al

#6889 Post by **Dale Bowers** » January 18th, 2018, 7:15 am

How about clawing back some employees salaries who helped spread the lies when they damn well knew the ship was sinking?

andy velebil · #6890 Post by **andy velebil** » January 18th, 2018, 7:21 am

Dale Bowers wrote:How about clawing back some employees salaries who helped spread the lies when they damn well knew the ship was sinking?

Victor Hong · #6891 Post by **Victor Hong** » January 18th, 2018, 7:49 am

I believe that salaries are deemed super-senior obligations unlikely for clawback because, if operationally key employees leave during bankruptcy, a distressed business would generate much lower recoveries and face much greater liquidation risk.

#6892 Post by **Dale Bowers** » January 18th, 2018, 7:57 am

Victor Hong wrote:I believe that salaries are deemed super-senior obligations unlikely for clawback because, if operationally key employees leave during bankruptcy, a distressed business would generate much lower recoveries and face much greater liquidation risk.

Then I'll settle for a few more indictments......

#6893 Post by **Dale Bowers** » January 18th, 2018, 8:03 am

Now that I'm all fired up, I can't believe the IT guy Brian N. not only escaped prosecution, but actually made money post fraud. There is no way anyone can convince me he didn't f*cking know what Fox was up to.

Victor Hong · #6894 Post by **Victor Hong** » January 18th, 2018, 8:18 am

This is actually why the BK trustee and creditors had to pay for his services.
If he were clever, he would have demanded a broad indemnification in advance, atop his fees.

Al Osterheld · #6895 Post by **Al Osterheld** » January 18th, 2018, 9:38 am

The trustee retained Brian Nishi, with the judge's approval, because he understood PC's software that tracked inventory, customer purchases, and fulfillment. It did not keep track of orders from suppliers to cover the pre-arrival purchases (according to Fox's plea agreement, he was solely responsible). There was nothing Nishi did for the trustee that required any knowledge of the fraudulent aspects of Fox's business.

I understand the frustration with Nishi (and others) but I don't think we should misrepresent what he did for the trustee and what it implies about his knowledge of the fraud.

-Al

#6896 Post by **dave kammerer** » January 18th, 2018, 9:44 am

Just got an email from Premier Cru Wine Merchants offering "A vintage offer worth looking at. Amazing bottles of great older wines". Are they still in business?

Al Osterheld · #6897 Post by **Al Osterheld** » January 18th, 2018, 9:51 am

I believe that's an unrelated business in NYC.

-Al

#6898 Post by **Dale Bowers** » January 18th, 2018, 2:18 pm

Al Osterheld wrote:The trustee retained Brian Nishi, with the judge's approval, because he understood PC's software that tracked inventory, customer purchases, and fulfillment. It did not keep track of orders from suppliers to cover the pre-arrival purchases (according to Fox's plea agreement, he was solely responsible). There was nothing Nishi did for the trustee that required any knowledge of the fraudulent aspects of Fox's business.

I understand the frustration with Nishi (and others) but I don't think we should misrepresent what he did for the trustee and what it implies about his knowledge of the fraud.

-Al

Dozens of smart IT guys from outside PC could have figured out the inventory/purchases/fulfillment system in about a week. You can't tell me Brian didn't realize that there should have been multiple warehouses full of wine? Not one single salesperson ever picked up a phone and called a supplier? Sorry. not buying it. The Feds went after the one big fish and let the others swim.

Al Osterheld · #6899 Post by **Al Osterheld** » January 18th, 2018, 3:00 pm

I've made no claim about what he did, didn't, or should have known. Victor made a remark that implied he was hired because he knew about the fraud, I've seen nothing in the docket that would support that claim. As far as what people believe about his level of culpability, that's up to them and doesn't particularly matter to me. I don't recall that I ever interacted with him.

As far as whether the Feds should have pursued the smaller fish, I think they would have had trouble without Fox implicating them and he pretty much did the opposite.

-Al

#6900 Post by **Neal.Mollen** » January 18th, 2018, 3:04 pm

Al Osterheld wrote:I've made no claim about what he did, didn't, or should have known. Victor made a remark implied he was hired because he knew about the fraud, I've seen nothing in the docket that would support that claim. As far as what people to have been his level of culpability, that's up to them and doesn't particularly matter to me.

As far as whether the Feds should have pursued the smaller fish, I think they would have had trouble without Fox implicating them and he pretty much did the opposite.

-Al

In the criminal context, what they did is absolutely typical and, I think, appropriate. Flip and get cooperation from the small fries; bring the hammer down in the big fish. Routine.