The bankruptcy petition and creditors list explains the $70 million in liabilities. It’s overwhelming money owed to customers, and possibly some suppliers. (There are a handful of commercial creditors that might be buyers from PC or sellers – you can’t tell.) And there are some tax liabilities. The customer claims are based on the sale price of undelivered wine, I would be pretty sure – not the market value (that’s way too sophisticated a concept in a case like this). I don’t believe any of the law suits are reflected in the creditors list.
You’d have to stop people from being stupid-greedy. That would end con men and scam artists, which won’t happen.
I agree with John on all counts above. No way PC tried to figure out market value when they did the creditor list. I bet they struggled to get the correct sale price amounts and names and addresses correct for the filing. The individuals who brought suit for undelivered wine are listed as creditors for the wine they’re owed, but I didn’t see separate listings for law suits.
Further, I don’t think there will be a map to $63 million worth of buried treasure on the secret computer. It wouldn’t surprise me if a few millions were squirreled away somewhere, but the odds of recovering a substantial portion of the shortfall seem remote. I think someone posted from one of the filings that PC did about $19 million in sales last year. As long as we’re speculating: Just 7 years of covering only half your bets adds up to about $63 million, and that would fit with the presumed acceleration of their decline when it came time to deliver 2005 futures. So where did the money go? Gambling? Drugs? Expensive toys? Bad investments? All of the above? Human nature being what it is, I’m betting it’s not all neatly hidden away waiting for Fox to retrieve it.
The bankruptcy petition and creditors list explains the $70 million in liabilities. It’s overwhelming money owed to customers, and possibly some suppliers. (There are a handful of commercial creditors that might be buyers from PC or sellers – you can’t tell.) And there are some tax liabilities. The customer claims are based on the sale price of undelivered wine, I would be pretty sure – not the market value (that’s way too sophisticated a concept in a case like this). I don’t believe any of the law suits are reflected in the creditors list.
Most of the tax liabilities are not estimated in the filing, so not included in the $70M. The exception is $175k owed to the City of Berkeley. As you say, most of the creditors were customers with outstanding orders and the amount listed reflects the sales value (not market value) of their orders according to PC’s database at time filing was prepared. This includes wine not yet procured and also wine that was procured but not yet shipped or picked up. The lawsuits are listed on one of the supplemental forms (there are eleven of them). For lawsuits by customers, their debt (according to PC’s database) is listed in the filing.
-Al
It wasn’t particularly hard for PC to compile the debts to customers for outstanding orders with original prices, it’s all in their electronic database. There are undoubtedly some errors (e.g., people who substituted in stock wine for unfilled orders late in the game and database was not updated), but the database contains PC’s understanding of what is owed. So, that was straightforward. It would have been more work to estimate current market value. Also, market value wouldn’t be the correct thing to list as the debt owed to a customer.
For the value of the inventory in stock, it’s not clear how they estimated. As I speculated earlier, it’s mostly wine that was ordered by customers but not shipped or picked up. For this portion, the easiest thing to compile is probably the purchase price paid by the customer. I also doubt they used current market price because that would have been more work (some of the wine has been there for a while).
-Al
Victor…understand your points.
One of the reasons why I posted my comments in Post NO. 5955; 5960 and 5961.
If I am the lawyer for the secured debtors, I would argue the wines currently in PC ware-house or office ( despite which had been paid-but-undelivered) are still legally property belongs to PC.
On the other hand, if I am the lawyer for customers, I would argue that the wines should belong to the customers who had already paid for them.
So the next real question should be : who wins ?? What a mess… 
PC put its customers in the awkward position, for their loss minimization.
Victor…I live in Canada where there is no problem for me to buy wine-future from LCBO and/or SAQ ( as they are provincial government agencies). Our import taxes are very high and when I look at the wine prices in USA, especial for Burgundy and the availability of some of my favorite white Burgundy, I often post here and said : I wish I live in USA.
But the PC saga …I am glad that I live here.
Small world. My family got deported to Canada, when I was little.
I really don’t think this reasonably explains something like net $63 million owed. It seems almost as out there as the theories earlier in the thread that they somehow had a mysterious, magical business model that allowed them to sell at those prices. It’s just not logical, especially knowing that they were definitely and intentionally engaging in underhanded business practices.
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Something else has to be going on here. If the plan was to sell $70,000,000 in wine, pocket the money, and move somewhere without an extradition agreement, it would seem like buying a plane ticket would be higher priority than borrowing a credit card from an employee to buying more wine and ship it to customers. The wheels had clearly come off the wagon at that point - how does $25k worth of wine make a dent in the $70m they owed to customers? None of this makes sense to me.
Here are some back-of-the-envelope calculations that could get you to that ballpark.
Fact: Revenue was $19 million in 2015
Assumptions:
- Revenue was substantially higher in prior years, before people got fed up/nervous about delays. I’ll use $30 million annually from 2010 to 2014.
- Wines were sold for 10% below cost (perhaps a bit high, but not totally silly as an average when you consider the impossibly low prices on the big-ticket items that would drive the top line)
- Overhead of 25% of revenue (probably quite low considering staff costs, mortgage, taxes)
That gives you:
Revenue: $169M
Loss on sales: $16.9M
Overhead: $42.5M
Cumulative loss: $59.4M
Vary the assumptions as you please.
If they came into 2010 with a deficit – owing customers more than they owned or were in contract for – that would push the figure higher.
The credit card companies dropped the ball here too. They are taking on the exposure for undelivered wine (at least I hope they will). They are supposed to do due diligence on their merchants. They should look at the creditors and aged delivery obligations. They should have seen the red flags on the wall because they have access.
I sure some people will cry foul at my suggestion that the blame goes further than PC and consumer greed. But wait until the end of the day, who will be the biggest losers here? And they actually have the ability to terminate their agreements and get out, and I am sure they tell their regulators that they are checking
Not so sure that many actually do any due diligence. My current CC processor has never looked or asked to see my financials for my business. Ever. I will have to look to see if they even have any legal or other standing to make such a request. I only say that because I really don’t know.
I would also make an assumption that their cc processor probably wouldn’t care unless they were getting a disproportionate amount of charge backs. Looks to me that PC was avoiding this by doing substitutions for in stock wines or cutting a check. That way no “red flags” to the cc processor.
Bad situation for all parties involved.
these numbers are a total fantasy and have zero relation to real world and/or PC’s business.
+1
Among other things, these figures assume that PC was constantly sourcing wine and then selling it to the public at 90% of cost. Not only does that not make any sense from a long-term business perspective (who would keep a business afloat just to sell wines consistently at a loss?), but we KNOW that PC in fact was frequently selling wine futures it had NOT sourced. Thus, if it typically sold a case of wine futures for $1,000, and if it didn’t in fact source the wine, then it wouldn’t have a loss on the initial sale. Down the line, if the customer squawked enough to get a refund, then there would be no loss at all. If the customer took the outstanding order as a credit against in stock wines, then whether PC suffered a loss would depend on its basis in the exchanged wine.
In any event, I must point out (once again) that you need to take the figures in the BK filing with a huge grain of salt. Those figures are subject to a potentially massive adjustment after the books and records have been sorted out, esp. when taking into account the potential debts to the taxing authorities.
Bruce
John’s is just drawing up what an example of a pro forma could look like, that would get to to cumulative loss number bandied about. I don’t think they’re total fantasy - that overhead number would make sense for all the vig skimmed out of the biz and why employees were so quiet/mum. If they were getting overpaid, and knew it, they’d stay on the down low. Madoff used the same strategy. And the 10% loss rate is averaged. Of course they never had the intent to sell wine at losses, but if they got caught short a few wines that rocketed up in price, all their efforts on the normal (i.e. profitable) activity get blown out. Look at credit officer guy’s list of delivered wines and his prices paid…that bleeds out a lot over the years.
If someone asked me for their financial model - I would just change the dates. I think their goose got cooked more than a decade ago. And they just kept borrowing (selling futures) since they were collecting so much in ‘salary’. And maybe that will be the defense that keeps this from turning into a criminal case. (I hope not, I’d like to see the principals and certain sales people do time)
I don’t believe John is trying to recreate PC’s financials. Rather, he’s trying to demonstrate that it’s possible (actually likely) to end up in a ~$65MM hole without there being some majority of the difference in cash hidden away somewhere.
Why the belief that there’s any basis in a reasonable or sustainable business model here? Offers, certainly recent ones, may well have been designed with no other intention than to raise cash, without any regard for PC’s future ability to source the wine. Why keep the business going? Because cash is the only way to kick the can down the road and continue to provide some mechanism to skim a lifestyle off the top. The natural consequence is longer wait times as wines are sourced at slim margins or a loss, but it keeps the cash flow going and what difference does it really make whether the jig is up when you’re $10MM in the hole (owing to fraud) versus $100MM?
What Bruce said. John, your math doesn’t make any sense to me for the reasons Bruce stated. Plus, regardless of how that figure got to be so high, Fox unquestionably knew what was happening for quite a while, while he continued to intentionally fleece his customers. I can’t think of any reasonable scenario in which he wouldn’t have squirreled away a chunk of that money. As to why he didn’t leave the country instead of going through with bankruptcy, he probably wants to stay in the US and thinks he won’t be convicted of anything criminal. That may be the delusion of a thief, or it may be true. We’ll find out.
I’m not saying there’s $50M hidden somewhere, but I can’t believe someone with the criminal mind that this guy obviously has who is engaged in fraud on this level wouldn’t put away a few mil for the inevitable collapse of the business.