RUDY KURNIAWAN & GLOBAL WINE AUCTION FRAUD THREAD (MERGED)

WINE TALK
821

Jon:

I had initially deferred the 52s to my colleague Geoff Troy who hadn’t red-flagged them on the list. I had a list of things I wanted to do some further checking on that bothered me, and the absence of signatures, total production and bottle numbers was one of them. 1952 is the year of transition for DRC from the old style label to the new. Geoff says that its his understanding that the 52s didn’t have signatures or bottle numbers. Another person who has been collecting and buying longer than me has confirmed that. I’m still looking for really good exemplars of 52s with known provenance for side by side comparison.

By the way, two of the three lots of 1952 DRC Romanee Conti that were reported as “sold” in the auction room, were cancelled after the sale. Accordingg to the post a page or two back that reported the gavel prices as announced in the room, Lot 129 (12 bottles of 52 RC) was reported as sold for £32,500. It is now listed on the Spectrum website as unsold with £0 bid. Similarly, Lot 130 (3 bottles of 52 RC) was reported as sold for £6,500 before premium and is now listed as unsold with £0 bid.

822

Based on comparing Carrie Dolcon’s post on page 14, Post No 674, which she states is derived from a download of the live results feed during the auction, with the results reported currently on Spectrum’s website, there have been at least 20 (or perhaps 21) lots which were announced as sold in the auction room which have been subsequently cancelled by Spectrum and Vanquish . These include 5 additional lots of DRC (shown in bold) beyond those which were announced as withdrawn before the sale started. [Correction/addition:] As Jon Beagle suggests below, these cancellations are likely due to the fact that the high bid was below reserve.

Here is the list:

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825

Tom:

Romanee Conti’s vines were removed after the 45 vintage. The land was left fallow until 1947 when new vines were planted. There was no Romanee Conti released between 1945 and 1952. The total number of bottles produced and the bottle numbers began to be used in 1953 and the signatures went back on the labels. The 1952 labels are astonishingly spare and thankfully unique. I still don’t have a good exemplar to compare with the 1952 Romanee Conti label but I’ve seen the 52 La Tache.

826

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827

I would assume Don that the reason they are sold at zero is because the reserve wasn’t met, hence a lack of withdrawn statement on the online java script/HTML results.

They may reappear as sold if the buyer and seller can come to an agreement… However, your document states they have been withdrawn, but having some Palmers and Dujac there which were fine, is odd considering what I have subsequently found out unless it is because they have failed to meet reserve.

Normally isn’t reserve not met stipulated if that is the case??

\

I am here: Google Maps

828

After looking at updated results overnight and crunching the numbers, there’s some real irony here–

The Promise Made:

As taken from the February 8, 2012 Spectrum/Vanquish Evening sale Catalog, and signed by Jason Boland (President of Spectrum) & Richard Brierley (Head of Fine Wine Vanquish) Page 3:

“All wines have been carefully inspected and vetted by our international team of experts and
lie in London for this very special sale. Our inspection process for wine of this magnitude required the most meticulous level of detail and the Spectrum Wine and Vanquish team of experts spent many long days and nights in our temperature and humidity controlled warehouses, and on conference calls from California, London, and New York to examine countless high definition images of wine bottles, scrutinizing every fine detail of each consignment.”

The Reality as of February 11, 2012:

Per Spectrum Press Release from its website: “Domaine de la Romanee Conti, through its UK agent Corney & Barrow, has brought to our attention some apparent label discrepancies in this evening’s auction. Through an abundance of caution, and in line with our commitment to excellence in due-diligence and verification, we have withdrawn 13 lots, in order that the issues can be properly investigated, in collaboration with the Domaine and its agent.”

February 8, 2012 announcement at the auction: Eight additional lots (Lots 67-74) were withdrawn at the request of Domaine Comte de Vogue. Lot 30, a magnum of 1961 Latour a Pomerol, was also withdrawn.

The total of at least 22 lots withdrawn represents at least 12% of the net number of lots in the sale. There are an additional 20 lots on which the announced sales were canceled, but that may well be because the high bid was below reserve. I think you can draw your own conclusions about the level of expertise and effort of Spectrum’s “experts.”

829

Jon:

That might possibly be the practice in the UK. Over here, most auction houses report 99% or 100% sold even when they bid in at the auction because reserve wasn’t met. But comparing a few of the reported prices of the live auction results which showed the wines as “sold” with the stated single “estimate” figure, you are more than likely right. I’ll correct my prior post accordingly. Thanks.

830

Well, that’s the quote of the weekend for me…

831

The issue of requiring auction houses to name the consignors is an interesting one, and I see the arguments on both sides. Ultimately, I lean against it for the following reasons:

  1. People are entitled to anonymity on both the buying and selling side UNLESS there’s a compelling reason otherwise.

  2. The vast majority of wine auction consignors are not selling fake wines (at least, not knowingly).

  3. As this case shows, it’s very easy to get around the “suspect consignor” problem through any number of avenues. The
    suspect consignor can enter into an agreement with someone else to be the official consignor, or the suspect consignor can actually sell the bottle outright to someone who turns around and puts it up for auction.

For me, much of the problem would be solved by requiring consignors to disclose to auction houses, and auction houses to disclose in the catalogs, as much of the basic provenance information as is possible and reasonable. I would hope that the auction houses would see it in their collective interests to collaborate on standard rules and policies here on provenance and disclosure. As it is, a consignor can look for the auction house with the lowest possible standards and send the wine there. The potential bidders really have no way of knowing the extent to which the auction house has vetted the authenticity/provenance of the wines up for auction.

Bruce

832

People can and do lie about provenance.

833

Hi Don: yes, just to reiterate how I arrived at that post, I left the Spectrum live bid program open on my computer after the auction and did not close out of it until the next day (after I did the copy/paste described below.)

During the auction, this table appeared (on my computer, at least) as a box/separate table on the lower right-hand side of my screen that scrolled up as the auction proceeded. In other words, after the hammer came down, the final bid price went into the “sold” column, and the screen scrolled up to the next item in the auction. At the end of the auction, one could see all of the prices sold for each item by merely using the scroll bar (not sure if that’s what it’s called). If an item had been/was withdrawn, the sold column was empty – there was no price put in it.

To get these results onto my post, I merely highlighted the table entries in groups of about 5 to 10 rows, copied them, and pasted them into a Word document. I then cleaned up the formatting by eliminating extra columns, changing the font to a more readable one, and taking out extraneous spaces/tabs to make reading easier.

I kept everything as exactly pasted except for two things:

  1. one of the Screaming Eagle items was really wordy/lengthy and did not appear on one line, so I shortened the entry to read Cab Sauv., or something like that.
  2. I added the notation “WITHDRAWN” to those items that were withdrawn either before or during the auction. I checked the withdrawn list with my own notes as the auction proceeded and then verified that I had gotten the correct lots with the list that another person had posted and confirmed.

So, I feel quite confident that the items that I marked as “WITHDRAWN” really were the ones that were actually withdrawn either before the auction or were passed over during the auction by the auctioneer.

Very, very interesting that Spectrum has now, post-auction, apparently withdrawn other lots. Perhaps the winning bidders did some research on their buys, discovered this thread, and then complained?

834

Carrie:

The one item on your post I was particularly curious about was Lot 132 (1945 DRC La Tache). On your post it said “withdrawn.” That was not on the list of the lots that they withdrew prior to the auction and now the Spectrum website says that lot was sold for £7,475.

835

This may be a complete non sequitur, but: I’ve collected early 20th century tobacco baseball cards (mostly T-206) for some time now. There are several independent authenticators in the marketplace, but there is one that is really the gold standard (Professional Sports Authenticators). They have a team of experts that carefully evaluates the card, authenticates it, and then grades the card. They then seal the card in a tamper-proof case with a bar-code. Anyone who wants to buy that card at a later date can access the authentication data, regardless of how many hands the card has passed through.

The result of professional authentication is that a graded card, especially a PSA-graded card, usually commands a significantly higher price (2x, 3x, and even 5x prices are not uncommon) at auction and at retail.

Logistically speaking, I don’t know how you can accomplish reliable authentication of wine. Maybe they can develop a mass spectrometer signature for every wine (though barrel variations might make that difficult) and we can have a team of Don Cornwell-led label and glass experts. Nonetheless, I have little doubt that if you could develop some sort of reliable authentication process, these wines would command significantly higher prices at auction. And can you imagine what you could do for prices if you could guarantee the drinkability of a wine? If you could do that, I suspect you’d see many more trophy bottles being consumed.

836

I’ve found the PSA fetish with baseball cards fascinating for awhile now. It makes sense that with tobacco cards there would be value in the authentication, but what I’ve found fascinating is how the PSA grade functions like a Parker score for modern cards where authentication isn’t an issue. You’ll see dealers selling ungraded cards as “potential PSA 10!” or selling a card with an actual PSA grade of 9 with an encouragement to submit it for re-grading as a potential 10… as though the grade is actually more important than the thing itself - the exact same object being more desirable as a graded 10 than a graded 9. I haven’t paid close enough attention to the precise ratio but I’m pretty sure in some cases that a 10 is more than 2 or 3 times the price of a 9, and the actual physical difference between the two is nearly imperceptible (defined as “mint” vs. “gem mint” or something like that).

I imagine that if someone formed a company that purported to do for wine what PSA purports to do for baseball cards, they’d make a fortune.

837

I checked the piece of paper on which I wrote down the withdrawn lots just now and that was the last one #132.

Perhaps someone else who was watching the online bidding can confirm or not? There were a couple people watching and posting contemporaneously on WB, so hopefully they can chime in.

838

Over the past couple of days, I’ve been doing a considerable amount of research about Spectrum Group International, Inc., the parent company of Spectrum Wine Auctions. Here is what I’ve found:

History of Name and Location Changes

Spectrum Group International, Inc. (“SGI” or “the Company”) is a publicly-held Delaware company which was incorporated in 1981. It has undergone three name changes and has relocated its corporate headquarters twice in the past seven years. SGI’s stock was traded on NASDAQ until 2006, at which time it was delisted.

Prior to September 28, 2005 the Company was known as Greg Manning Auctions, Inc. It was located in West Caldwell, New Jersey. Greg Manning was the at all times from 1981 until September 28, 2005 the Chairman of the Board of the Company and served as either its President or the CEO throughout that time period. From September 28, 2005 until December 30, 2006, Mr. Manning was President, North American and Asian Philatelic Auction Division and also served as First Vice Chairman of the Board.

On September 28, 2005, the Company changed its name to Escala Group, Inc. At or about that time, the company’s headquarters was moved to Bethel Connecticut.

On May 22, 2009, two months after the Securities and Exchange Commission filed a complaint against the Company, Greg Manning and the Company’s former CFO alleging multiple securities fraud claims, and the Company entered into a Consent Judgment with respect to those claims, Escala Group, Inc. announced that the name of the company was being changed once again to Spectrum Group International, Inc. The company’s headquarters were relocated to Irvine, California.

SGI’s Role in an Alleged Fraudulent Ponzi-style Marketing Scheme For Stamps

According to the SEC, in January of 2003, SGI entered into three agreements with Afinsa Bienes Tangibles, S.A. (“Afinsa”), a Spanish company engaged in the marketing of guaranteed-return stamp investment portfolios in Europe. As a result of these three agreements, Afinsa acquired a total of 72% of SGI’s shares and SGI acquired a former Afinsa subsidiary which held approximately $11 million worth of stamp and art inventory. Under the terms of these agreements, SGI and its new subsidiary became the exclusive stamp suppliers for Afinsa.

Thereafter SGI and Afinsa engaged in a series of transactions between the companies which the Securities & Exchange Commission has characterized as “a fraudulent business scheme based upon the secret and dramatic manipulation of collectible stamp values, in which [former SGI CEO Greg] Manning violated the antifraud and reporting provisions of the federal securities laws” in multiple respects. Escala Group, Inc., Gregory Manning, and Larry Lee Crawford, CPA

According to the “Federal Contractor Misconduct Database,” which is published by the Project on Goverment Oversight:

“Beginning in June 2003, Spectrum Group International acted as the exclusive supplier of collectibles, mostly stamps, to Spanish collectibles company and SGI majority shareholder Afinsa Bienes Tangibles, S.A. In 2006, Spanish authorities began investigating an alleged criminal scheme by Afinsa and several officers and directors of SGI, including CEO Greg Manning and CFO Larry Crawford. The targets of the investigation were accused of money laundering, fraud and tax evasion relating to a stamp investment operation. In December 2008, SGI (then known as Escala Group) settled a class action filed on behalf of shareholders who claimed they were harmed as a result of the Afinsa transactions. Under the terms of the agreement, SGI agreed to pay $6 million in cash and $8 million in stock.” 1/ Federal Contractor Misconduct Database

On March 23, 2009, the SEC filed a securities fraud action against SGI (still then known as Escala Group, Inc.) and its former CEO Gregg Manning and former CFO Larry Crawford. A copy of the complaint can be found here: Federal Contractor Misconduct Database The SEC’s accompanying press release can be found here. Escala Group, Inc., Gregory Manning, and Larry Lee Crawford, CPA: Lit. Rel. No. 20965 / March 23, 2009 The complaint accused Spectrum of operating a fraudulent “Ponzi-type” scheme in a conspiracy with Afinsa and its officers and agents, including a “round-tripping” transaction which overstated SGI’s revenues.

On the same day the SEC complaint was filed, SGI entered into a Final Consent Judgment in favor of the SEC which permanently enjoins SGI and all of its officers, directors and agents from engaging in any violation of Sections 10(b), 13(a) or 13(b) of the Securities and Exchange Act, including a prohibition on “mak[ing] any untrue statement of a material fact or … omit[ting] to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading” in violation of SEC Rule 10b-5.

1/ The complaint in the securities class action and shareholder derivative action referred to can be found here: Federal Contractor Misconduct Database

A copy of the settlement agreement referred to can be found here: http://www.contractormisconduct.org/ass/contractors/182/cases/1276/1810/spectrum-group-international-afinsa-securities-class-action_settlement.pdf

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“… a prohibition on “mak[ing] any untrue statement of a material fact or … omit[ting] to state a material fact…”

I am no lawyer, but I wonder if the smokescreen over whether Rudy placed wine in this auction would be considered material…??

840

No, this language only pertains to misstatements or omissions in connection with the purchase or sale of securities. If Spectrum is selling wine and not securities, and does not issue any of its own securities, you don’t have a 10(b) problem.