More Wine Fraud, Can it be stopped?

WINE TALK
#1

http://www.winespectator.com/webfeature/show/id/Napa-Wine-Merchant-Accused-of-Fraud-in-Lawsuit

“When the inspection was complete, he says that more than 60 bottles of prized rarities—including Latour 1928, Haut-Brion 1945, Cheval-Blanc 1947, Lafleur 1947, Lafite Rothschild 1953, Mouton-Rothschild 1959, Pétrus 1961, and others—were deemed fake by the unidentified expert, coming to an estimated loss of more than $1 million.”

#2

It won’t be until consumers start caring more about what’s in the bottle than they do what’s on the bottle.

#3

Perfectly said.

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#4

My primary motivation when buying a bottle of wine is to consume said bottle (eventually). If more high end collectors felt the same, you might find people caring more what’s in the bottle and possibly a lower threshold of what one is willing to pay.

#5

The interesting question to me is what the source was of Soutirage’s fakes. Rudy? Greenberg (which means Rudy indirectly)? Or were these from some other potion-maker?

It’s kind of amazing that Gundlach only had his wines checked out in 2015. Had he never heard of Rudy or Rodenstock? He had to be pretty clueless/gullible/careless to be buying those kinds of trophy wines after 2012 without asking some questions.

#6

I will be interested in seeing how this fleshes out. Chad is pretty knowledgeable, but a lot of people have been taken in by Rudy and others. If it involved Rudy, et al, there should be other people coming forward as it’s unlikely there would only be one “victim.” On the other hand, it may have been a brokered deal that the folks at Soutirage never had a chance to dig into the “real” provenance.

#7

I don’t have much sympathy for anybody in this case.

Bill Koch sued Hardy Rodenstock in 2006 and began his jihad against the auction houses. The Wall Street Journal carried a front-page feature about the Rodenstock scandal that year and the New Yorker followed with a longer story the next spring. The Billionaire’s Vinegar about Rodenstock was published in 2009. Meanwhile, the infamous Ponsot auction at Acker was in 2008. That year and the next, Acker had to take back millions and millions of dollars in Rudy fakes that it had guaranteed – showing that a large number of high-end collectors realized by then that there were fakes galore. Rudy was indicted in May 2012 after a highly-publicized FBI raid on his home in LA.

So by 2012 the existence of many faked trophy wines had been widely publicized and there was no excuse for Gundlach or Soutirage naively accepting unsubstantiated statements of provenance for 1945 and 1947 Bordeaux or the like. According to the WS story:

[Gundlach] claims that he learned the wines were fakes in August 2015 when he arranged to have bottles inspected by a “world-renowned expert in wine sourcing and provenance.” When the inspection was complete, he says that more than 60 bottles of prized rarities—including Latour 1928, Haut-Brion 1945, Cheval-Blanc 1947, Lafleur 1947, Lafite Rothschild 1953, Mouton-Rothschild 1959, Pétrus 1961, and others—were deemed fake by the unidentified expert, coming to an estimated loss of more than $1 million.

Gundlach had been a client of Soutirage since at least 2012, according to the complaint.

#8

Is that the same Matt Wilson we sometimes see posting on WB?

I’m surprised a canny investor (and artist!) like Gundlach got tripped up by this.

At least we’ll have some other JG litigation to watch.

#9

Maybe it’s the remaining cop in me, but I need evidence. A lawsuit isn’t a complete investigation, though it may garner enough probable cause for a criminal investigation.

#10

I agree. Unless these were bought before the whole Rudy thing I have no sympathy for any rich person who isn’t smart enough to understand and realize there is a better than not chance some old French wine they are buying is fake. I mean it doesn’t take a rocket scientist to realize there have been more of these wines sold in the past decade than were ever made to begin with. I will never understand “smart” wealthy people who still can’t figure out when something is too good too be true. But I guess the allure of having something so expensive is too good to pass up even if it’s fake.

#11

I think we are going to see a lot more stories like this going forward, unfortunately.

We who monitor the markets- or even just active participants on message boards- are going to have some degree of skepticism by being on the front lines or hearing the bad stories as they unfold, but there is a vast ocean of high dollar wine consumers out there who never trouble themselves with the research necessary to navigate this dangerous marketplace. Many of them do not even realize there is a problem.

Compounding the problem is the emergence of the private wine consultant in recent years. Contrary to what one might expect, the increased demand for high end wine has actually dramatically reduced the retail scene for such wines. Between the potential tie-ins, and just the sheer cash flow implications of buying on futures or prearrival (plus the big losses we have seen when futures speculations heat up), a LOT of retailers are no longer dealing in high end Bordeaux. This has displaced a lot of wine experts who used to have retail sales jobs. Plus of course there is ongoing demand for older bottles.

Add in a lot of amateurs looking to make some money dealing in a now-prized commodity, and there is a vast ocean of consultants out there who build and maintain cellars for high net worth clients who do not have the time or interest in really understanding the markets. They want the best, they will pay for it- and they assume they will get it.

Some of these consultants are actually very good gatekeepers and do a fine job, some are outright crooks, and a great many in the middle are naïve and- while honest in spirit- do not have to knowledge to do their job properly.

This, most unfortunately, ensures that there is a thriving “off the grid” market for high end wines that does not touch retail or auction, and is thus not easily traced or monitored.

The Rudys and Rodenstocks of the wine world are like Madoff and Stanford- big time schemes, a big public show and a dramatic takedown. But behind these scenes and under the radar- in both wine and finance- there are far more people operating on a much smaller scale. Unfortunately their cumulative impact can be as bad or worse, and far less easy to detect.

#12

I agree as to Soutirage. This is a complaint – it’s just allegations.

But, on the other side, I think it’s fair to ask how Gundlach could have been this careless/stupid/clueless. Presumably a bond trader reads The Wall Street Journal, which covered both Rodenstock and Rudy. Yet he just took the word of Soutirage, the seller, as to authenticity?

#13

After 2003, as rising prices tempted counterfeiting, I had largely stopped buying collectible wines. LMHB 2005 via Costco was my last major purchase.

Caveat emptor.

#14

Tom - I agree but if these guys are trying to make some money through an investment, don’t they do some kind of analysis? If they are willing to drop a million on the say so of a seller, what does that say about their investment abilities?

I also have a question about this:

Gundlach’s filed complaints, however, speak loudly on their own. One accuses the four cofounders of being complicit in the sale of fraudulent wines, stating that the defendants “made and conspired to make numerous misrepresentations of material facts … namely, their representations and guarantees regarding the provenance of the fake bottles.”

If they knowingly sold fakes, that’s arguably misrepresentation, but what do the guarantees actually guarantee? Seems like he could return the wine and they’d refund his money. If they were smart, they would have worded their documents such that they disclaimed anything they didn’t know at the time and sold goods only as “buyer beware”, with a guaranteed refund as the option in the event that something is discovered later. Just as the buyer couldn’t have been entirely in the dark about wine fraud, neither could the sellers have been naive enough to believe that everything that they came across was genuine. To actually guarantee that the wine was that vintage of Petrus would have been supremely foolish, even if the wine came from the cellars of Petrus directly. In that case, that’s all they can guarantee. They can’t even guarantee that the wine in the bottle was actually Petrus - some employee may have replaced a few bottles over the years. So if they were in the business of reselling, they’d be dumb to guarantee things they couldn’t prove definitively.

#15

I could understand why many question why the buyer didn’t delve into the authenticity of these wines further. But remember that he was using a private company to get these wines for him, and the reputation of this company should have ensured that the wines were pristine and authentic according to the buyer. I truly and honestly see no issue with that whatsoever.

And as far as seeing more of these moving forward, that is certainly a guarantee with how many counterfeit wines Maureen and others have said still remain in the marketplace.

Many continue to crave these hard-to-find wines and will feel fortunate if they can acquire them.

Is the sound Behavior? Just ask those that continue to purchase from Premier Cru after many many many red flags have been raised.

Cheers.

#16

Being well to do, even amid caveat emptor, does not justify victimization.

#17

… on many sides. On many sides.

#18

Hope to be able to find out how this plays out. Interesting on several fronts.

On Jeffery Gundlach, the dude is known as the Bond King, a guru or about as much as anyone can be. Outside of the chairmen of the fed or US Treasurer Secretary his comments carry weight. About as much as anyone in the privet sector thus the Bond King. He is very rich and I suspect carries a huge work load. Have seen/read a number of interviews and articles on him. Impressive stuff, like the old EF Hutten commercial, when he talks everyone listens.

My take is rather than him being a wealthy chump who maybe trusted some people, he is raising an alarm bell. Who knows.

Would absolutely love to have a glass of wine with the guy.

Am on board with the concerns of the scale of fake wine but those are out of my reach so not personally concerned.

#19

I know a lot of people with very deep cellars, I cannot think of any of them who are treating wine solely as an investment. I am a finance guy in my day job, and after years both doing that and collecting I feel pretty secure in saying wine is a terrible investment vehicle long term (I have done the numbers in my spare time over the years out of interest). It can be profitable if you are able to successfully time the markets- but that is about the worst endorsement there is when considering whether a given class of assets is reliable for investment.

Rather- I think with the development of a highly liquid secondary market, plus the social prestige of owning good wine (which is also fairly new in the United States- when I got started in the mid 90s it was still considered very snobby to be wine collector), there are a lot of people who invest in wine with the notion that they want the prestige of owning/drinking it, and see it as somewhat safe because it is easier to sell should they so desire and either recoup their investment, not lose too much, or perhaps make a profit (and all of this without really considering the high cost of ownership that arises from cellaring costs, shipping, auction commissions paid by seller etc.)

#20

Wow! That’s quite worshipful.

It seems that Gundlach isn’t looking so brilliant over the last year, and investors have been pulling money out of his funds:
https://www.bloomberg.com/gadfly/articles/2017-08-24/gundlach-faces-battle-to-keep-his-bond-star-from-fading-gadfly

Everybody who beats the market for a couple of years thinks they’re a genius – at everything.

(Footnote: I’m not sure what weight the Treasurer Secretary’s word has these days. Anyone heard from him of late? His job now seems mainly to stand by awkwardly and in silence at presidential press brieflings.)