Is that the Sunday Morning one? or the Wed. morning one? I’ve been in contact with two sets of CBS New shows.
the Sunday Morning guy was sitting next to Don today in court (or so he told me…)
Re. that Decanter “transcript”, why do so many of the points/quotes begin with “Decanter:…”?
It’s very confusing as to whose words we’re reading much of the time…
Here’s a report on the first day of testimony. I apologize to anyone who may think this doesn’t have sufficient detail. Unfortunately I worked on this for 90 minutes earlier only to lose everything when I tried to upload it and I had to start from scratch after dinner with friends here.
Three witnesses were called by the government on day one. Barbara Chu, who is a partner and was the underwriter and principally responsible person at Emigrant Bank Fine Art Finance (formerly known as “Fine Art Capital” in 2007-2008); Truly Hardy of Acker Merrall & Condit, and James Wynne of the FBI. Mr. Wynne was still on the stand with his direct testimony at the end of the day. He will resume testifying a 9:00 am tomorrow.
Barbara Chu
Barbara Chu testified about the $2.5 million loan which was negotiated in December of 2007 and funded in January of 2008. She explained that Fine Art Capital had loaned Rudy $2.5 million in January 2008 which was funded in two separate loan draws. The loan was made at prime plus 5% and she believes the prime rate was 3.25% at that time. The loan was secured by 24 pieces of artwork owned by Rudy valued at $6.86 million by two independent groups of appraisers retained by the bank. The artwork was placed in the control of two warehouses, one in Delaware and one in California under a bailment agreement which, while it left ownership of the art in Rudy’s name, prevented Rudy from selling, moving or doing anything else with the art without the consent of Fine Art Capital. The loan went into default in November 2008 after Fine Art Capital was contacted by attorneys for Acker Merrall and learned that Rudy had also pledged the same artwork to Acker Merrall in connection with the consent Judgment against Kurniawan. The bank ended up entering into an agreement which technically extended the loan in order to allow the artwork to be sold by Christie’s auction in order to repay the loan. The artwork was sold in May of 2009. The sale generated an amount sufficient to pay off the full amount of the loan due to Fine Art Capital and to pay Acker more than $500,000. The defense tried to make much on cross-examination about the fact that Fine Art Capital had not lost money on the loan, but seemed to get nowhere on this…
According to Ms. Chu’s testimony, Rudy Kurniawan contacted Fine Art Capital on his own, because another art lender had committed to loan him funds and then withdrew. According to Ms. Chu, Eddie Milstein, who is the brother of Howard Milstein, the Chairman of Emigrant Bank, was involved in the loan only to the extent that they consult Mr. Milstein if there are loans that involve the issue of wine, since Ed is a noted wine collector. Despite vigorous cross-examination, Ms. Chu insisted that Mr. Milstein’s involvement was limited to telling her that Rudy was considered one of the top five wine collectors in the world and that he knew Rudy well. She insisted that Ed Milstein had not “vouched for” Rudy Kurniawan.
When Rudy filled out the loan papers he initially failed to fill in any of the blanks in the personal financial statement. She and a member of her staff followed up with Rudy to obtain the required information. Rudy listed no regular income, liabilities of $7 to $8 million dollars (consisting of $6 million in mortgage debt on two residences and $1 to $2 million in estimated tax liabilities). Rudy also reported that his total yearly living expenses, over and above his mortgage expenses and business expenses, were $150,000.
When Rudy filled out the loan application, he indicated that he was not a US citizen and was a citizen of Indonesia. On one of the forms Rudy listed himself as “P.R.” which Ms. Chu said stood for “permanent resident.” She said she could not recall whether Rudy initially said he was a permanent resident, or whether he said he was applying for permanent residence, but on the final report she submitted to the credit committee it indicated that Rudy claimed that he had applied for permanent residency. She testified that Rudy at no time told her that he was under a deportation order and that his appeals of his deportation order had been denied. (On cross-examination she further insisted that Rudy had never mentioned filing any appeal of his deportation order.) She insisted that if Fine Art Capital had known that Rudy was under a deportation order, Fine Art Capital would never have made any sort of loan. She also testified, repeatedly, that when Fine Art Capital finds out the buyer has lied in one or more respects on the loan application or the related documents, then no loan gets made. As she said, “when you find that a borrower has lied to you in one respect, it’s a reasonable assumption that they will have done so in others as well.”
The government took Ms. Chu through all of the particulars of the loan documentation as they related to indebtedness. Rudy represented and warranted in writing that the only indebtedness he had was the $6 million dollars in mortgage loans and the $1 to $2 million in estimated tax liability. He also signed documents covenanting that he would not take on any additional indebtedness nor pledge the assets securing the loan to anyone else. Ms. Chu insisted that Rudy had never mentioned the fact that he was indebted to Acker Merrall in an amount in excess of $8 million all lent to him prior to December of 2007 (as substantiated by the detailed charts in the Acker Merrall consent judgment discussed previously in this thread and copies of which are included in the thread.) She also spoke with John Kapon at the request of Rudy. Kapon confirmed that Rudy had sold millions of dollars worth of wine through Acker, and gave Rudy an unqualified recommendation, but she stated that he failed to mention anything about the fact that Rudy was indebted to Acker in an amount in excess of $8 million at the time. Ms. Chu testified that had Fine Art Capital known that Rudy had an additional $8+ million of indebtedness to Acker Merrall, either the loan would never have been made or it would have been made on very different terms.
With respect to Rudy’s annual living expenses, Ms. Chu testified that if she had known that Rudy was really spending millions of dollars per year on personal expenses, Fine Art Capital would either not have made the loan or would have made it on very different terms. She pointed out that the principal risks of the loan were that Rudy was not a US citizen and that he had no regular source of income other than selling assets that he owned. She said that a material change of living expenses would have changed the equation. The only significant concession seemingly obtained in cross-examination was that one of the credit reports contained a notation on Rudy’s Amex account indicating that he had a $1.8 million dollar credit limit and that his highest previous payment amount had been $450,000. But Ms. Chu had a ready answer for this. She pointed out that entrepreneurs like Rudy frequently charge large sums of business expenses on their AMEX accounts and that Rudy had told her that one of the purposes of this loan, in addition paying his estimated taxes was to obtain working capital for the new wine business that he was forming. She insisted that she had discussed the matter with Rudy and that he told her that his annual personal expenses were $150,000 per year.
Editorializing a bit, the defense cross-examination conducted by Vincent S. Verdiramo was too lengthy, largely unfocused and contained way too many ill-considered questions. In the latter instances, the witness, who was both very intelligent and a bit feisty and not afraid of combat with the cross-examiner, made Mr. Verdiramo look absolutely foolish. In particular Mr. Verdiramo spent much time and effort building a line of questioning emphasizing that the value of the art securing the loan was more than twice the amount of the loan, with an admitted loan to value ratio of 43.6%. When Mr. Verdiramo got to the punch line, Ms. Chu said that in the entire time she’s worked for Fine Art Capital there hasn’t been a single art loan made with a loan to value ratio above 50% (i.e. where the value of the collateral was less than double the amount of the loan). She insisted that artwork is extremely volatile in value, even for recognized names and that Rudy’s portfolio of works was rated at 3, which is the second highest volatility rating and considered the most risky from a lending stand point. She gave the example of Damien Hurst (two of the 24 works of art securing the loan were from Damien Hurst) where following a relatively recent auction at Sotheby’s the value of Hurst’s works had dropped by 45%. The jury ended up laughing over this exchange at Mr. Verdiramo’s expense.
Truly Hardy
The government’s second witness was Truly Hardy of Acker Merrall. Mr. Hardy has worked at Acker Merrall since 1999, Acker’s second year in the auction business and he first met Rudy in late 2001. Hardy’s responsibilities are for client relations, auction catalog production and distribution and auction day activities. Much of what Mr. Hardy did was to lay out the foundational facts regarding the auctions at Acker and to authenticate the auction catalogs, sale documents and several of the bottles sold at “The Cellar” (or “Cellar I”) sale in January of 2006, “The Cellar II” sale in October of 2006, and the April 25, 2008 sale at which the fake Ponsot wines were “immediately withdrawn” according to Mr. Hardy.
In the process of authenticating the documents the government introduced several emails sent to John Kapon by Rudy Kurniawan where Rudy insisted that various changes in the Cellar I and Cellar II catalogs be made. One of the statements that Rudy insisted be placed in introduction to the Cellar II catalog was a statement that Rudy built his collection by buying cellars in the US and Europe and that he “personally visits these cellars” before buying to assess provenance. (Obviously that would have been impossible for Mr. Kurniawan with respect to European cellars given his immigration status.) Although the defense (Jerome Mooney) spent considerable time trying to suggest that Mr. Kurniawan’s interest in the content of the catalog was no different than what any other consignor in his position might have, I strongly suspect that the purpose of this evidence was to enable the government to prove that Rudy had lied about visiting the cellars and that he had direct involvement in the catalog content for the purpose of establishing that he directly participated in or directed the mailing of catalogs containing fraudulent representations about the wines, including their claimed authenticity.
Among some of the interesting facts elicited from Mr. Hardy were that Rudy received several million dollars in advances from Acker on the Cellar I and Cellar II auctions. The amounts advanced to Rudy came from other Acker customers, including at least $2,000,000 in December of 2005 from Robert “Bob” Bishop (who runs multiple hedge funds), and $1,000,000 from Roy Welland, another Acker customer who apparently owned Cru the former NY restaurant where many of the wine orgies Mr. Kurniawan and Mr. Kapon are known to have participated in occurred.
The Cellar I sale generated $10.5 million in total sales including the buyer’s premium with a net to Rudy of $7,312,740. The Cellar II sale generated more than $26 million including buyer’s premium, which remains the all-time record auction sale, with a net of $15,950,530.00 going to Rudy Kurniawan. Interestingly, Truly Hardy took pains to say that Rudy was not the sole seller in the Cellar I and Cellar II auctions. He did not identify who the other consignors were, but did suggest that, for example on the Cellar I sale, the total auction proceeds not attributable to Rudy Kurniawan would be less than $200,000. I was surprised that neither side pursued this vigorously. I strongly suspect, based on information that came from other Acker “single seller” auctions such as the Don Stott sale that these “other bottles” were bottles owned by Acker Merrall which were placed under “The Cellar” banner.
The government authenticated various sales invoices from the Cellar I and Cellar II auctions about which I’m sure we’ll here more later in the trial. These included substantial sales to Michael Fascitelli in Cellar I and Cellar II, sales to Don Stott, Bill Koch and Eddie Milstein. The defense (Mr. Mooney) spent a lot of time on cross-examination emphasizing that the named éindividuals were all extremely wealthy and considerably older than Rudy Kurniawan.
The government got Mr. Hardy to authenticate the bottles sold in the Cellar I and Cellar II auctions. Both the jury and the members of the media (when the jury was excused) were allowed to inspect the bottles. I’m sure we will be hearing more about these bottles in the days to come. In addition to the Ponsot bottles, I saw, for example, the purported bottles of 1923 Roumier Bonnes Mares marked with Domaine Ancien Belorgey on the label. (Christophe Roumier is expected to testify that Roumier did not begin estate bottling until 1924 and that Roumier had no access to grapes from Domaine Ancien Belorgey until the 1950s.) I also saw a Methuselah of 1971 Romanée Conti from Cellar II (Lot 2199) which sold for $85,000 which had a rather obvious Aigu on Propriétaire where it should not. Some of the 62 Romanée Contis (Lot 2174 from Cellar II) appeared to lack the necessary Aigu on Romanée Conti on the green colored appellation controlée line. There was also a bottle of 1962 Romanée Conti from the same lot which had the capsule removed and the vintage date was 1963 rather than 1962 (N.B. 1963 was one of the worst burgundy vintages in history.) These 1962s were returned by Ed Milstein after the sale based on believed lack of authenticity. There were other defects with some of the other bottles as well, which I’m sure will be discussed at length later in the trial, so I’ll refrain from discussing those now.
Some 16 different Ponsot bottles were authenticated. Some of these bottles had Acker Merrall auction stickers on them and some did not. With respect to the bottles that lacked stickers, Mr. Hardy testified that they had been removed by Acker from the auction before the sale and were not included in the catalog. Once again, neither side asked why or sought any details.
Jerome Mooney’s cross-examination of Truly Hardy was somewhat more successful than his colleague’s was. To my surprise, Jerome Mooney seemed to imitate Jerry Spence (a very well known Wyoming based attorney) in virtually every respect – voice, intonation, overemphasis of certain words and the use of folksy language. The similarities were so striking that I could imagine he must have practiced this for hours until he had it down. (I have no idea of course, but the resemblance was TRULY remarkable.) Mr. Mooney sought to establish some of the themes from his opening statement on cross-examination. In particular he established that the identified buyers of the wines in the Cellar I and Cellar II auctions were extremely wealthy and all considerably older than Rudy Kurniawan. (Before you ask, no, no one referred to Rob Rosania or any of the younger buyers at the Cellar I and Cellar II auctions.) Mooney also seemed to lay some subtle ground work establishing that back in 2004 Acker was the number 4 auction company behind Sotheby’s, Christie’s and Zachy’s and Acker was definitely “not the 800 pound gorilla at that time.”. One of Mooney’s more effective points was showing that Rudy sold 4,269 bottles of various sizes in Cellar I and 7,970 bottles of various sizes in Cellar II, and yet there were only 20 or so bottles on the table in front of the jury.
James Wynne
The final witness of the day was supervising FBI agent James Wynne. His testimony was adjourned and he will resume testifying on direct examination tomorrow (now later this morning). Mr. Wynne has been describing the arrest of Rudy Kurniawan and what the FBI found when it executed the warrant. The jury was shown some 25 photographs of what was found during the search. About 40% of those photographs have appeared earlier in this thread. I’m hoping to be able to obtain copies of the other photographs from the US attorney’s office in the next day or two to be able to share some of them here. Among the new photographs were some showing more completed bottles and more unlabeled bottles in Rudy’s kitchen, drawers and cabinets full of labels, corks, glue, ink and printing supplies.
The jury was also shown some 25 separately numbered exhibits of what the government found in the house. This included the recorking machine found earlier, a funnel and Ah So bottle opener, a large supply of older labels removed the drawer in the kitchen, a bag full of various types of strip labels, bags of corks, multiple bags with vintage date stamps to stamp the corks, multiple bags of special rubber stamps imprinted with the domaine name and/or logo and other information to reproduce the cork stamping, and several additional bags of brand new labels in thick stacks of old and rare vintages (including 1920 Petrus, 1947 Petrus magnums, 1961 and 1982 Lafite, 1961 Latour, Roumier Bonnes Mares and Musigny labels, 1947 Cheval Blanc, DRC Richebourg, multiple vintages of Chateau Lafleur). Again after the jury went on break, the judge invited the members of the media to inspect these items ourselves. The labels included two stacks of 1961 Chateau Latour labels with the set on the left being completed labels and the set on the right including only the two lines of red colored print that would normally appear on the label.
The most amazing exhibits of all were the multiple bags of rubber stamps used to produce the cork branding – including domaine names, logos and vintage dates for multiple domaines. This included, in several instances, information stating that the bottles were rebouchaged at the chateau on a certain date. Among those I saw was a 1947 Chateau Petrus indicating that the bottle was Rebouched at the Chateau in 1977. There were many of these types of stamps. I don’t have to tell you I think that this was my worst fear come true. Proof beyond any dispute that Rudy had been producing fake versions of the printed corks – confirming, once and for all, that the mere fact that a bottle has a cork with the properly imprinted information does not demonstrate that a wine is necessarily authentic. Worse yet, perhaps, was the realization that bottles sold with claims that they were rebouchaged at a given chateau or domaine on a given date may not be reliable despite the printed cork so stating. Welcome to the brave new world.
The trial will resume in about 5 hours. It’s going to be a short night of sleep for me.
Thanks Don for taking the time to put this up.
This is fascinating.
Thank you; great write up. Do you have a sense of how long the trial will last?
Good to see Acker made nothing out of Kurniawan…lol.
Thanks Peter for answering my newbie questions! The trophy comment is quite amazing considering the amount of money exchanging hands! wow!
Well, maybe not THAT far, but it seems to me that being a rich and arrogant sucker and sap ought to be at least a misdemeanor, punishable by a little community service, like cleaning John Kapon’s stemware! Koch, Fascitelli and Milstein have to be three of the least sympathetic victims in the long history of victimization. That can never legally vindicate Rudy, but it might make it hard for me to throw the book at him…
Mark:
It’s supposed to go into the middle of next week. I’d say a week from today, or maybe a week from tomorrow.
Off to court…
Seems like they were all on board, as long as there was money to be made.
Paul…I did not quite undestand your message and your remarks : lol.
No offence is intended but just curious.
To be clear - Don Cornwell did not said the above message.
Don Cornwell just reported what a witness said. The witness is Mr.Truly Hardy who works for Acker. So logically speaking wouldn’t it be better for him to say that Acker made nothing out of Kurianwan ( and distance themselves from someone who is on trial ) ? 
My estimation is that Paul is expressing frustration that Acker is not on trial, or even under investigation, or even subject to fines, for their involvement in these massively fraudulent transactions - knowingly or unknowingly.
Don–Thanks for the summary. And I certainly share your concerns about how widely the alleged counterfeit bottles might have circulated given the evidence produced in court.
Bruce
Thanks…Todd.
Now I understand better…
Kudos to Don for the excellent summary. It is terrific to have, and saves us from a tedious reading of transcripts. Like don, I am in fear of the effects of counterfeiting. And I remain convinced that eventually, for the most expensive bottles, a chain of custody from original purchase will determine value. And without such a trail, sale will become increasingly difficult, as it already is in the art world.
This thread/trial makes me glad for two things:
- I could never afford, nor would ever pay, for wine that would be worth counterfeiting;
- I buy wine direct from the winery as often as possible (which is like 99% of the time)
It is amazing the amount of effort that goes into “faking it”. If Rudy would’ve put that much effort into a legit enterprise, he would likely still have made a boatload of money, and all without losing all that weight in jail.
Don’s gotta be happier than a kid in a candy store on ‘free candy’ day.
was the ponsot a part of the cellar auctions?
i wonder why defense didn’t attach acker merrill’s ‘recollection’ that they ‘immediately’ withdrew the lot?
if they catch acker merrill glossing over details on one or few things, they can paint the whole testimony as glossing over real details, no?
Yes, Todd essentially has it.
Peter, I wasn’t attributing the quote to Don, just highlighting part of his quote from his post, a different thing.
It’s worth here though considering Rudy’s overall impact on the top end of the market in all of this:
He was a major part of the big “con” as it now appears to have been, where many of these “fake” bottles that were either drunk or sold over those years and the atmosphere or “buzz” created around them seem to be central to the prices for the same going ballistic, and thus the spin off for Acker, and other auction houses was a veritable bonanza…mega sale after mega sale, and if fakes apparently were being sold largely, those huge commissions and buyers premiums don’t make for a good picture for their reputations.
Even if they actually did nothing wrong (although I think that lack of due diligence alone in the process means that they should really have some sort of culpability), a number of the auction houses still would made massive money out of all this as a flow on effect, and the market will never be the same as a result as once the genii is loose, it aint going back in the bottle…
Yes Paul has it. All auction houses are profiting today from the buying bubble started and for some time fueled by RK. Prices for paid today for DRC (for instance) are significantly inflated by his actions - of-course they would still be higher now than before he started, but it is a question of magnitude. All auction houses, even if totally innocent, are now making their 20% cut (or whatever) from a RK inflated value…