Good point. An FaQ timeline would be a key project for whoever tackles the book.
There’s likely someone among us who has the final offer email sitting in their gmail inbox.
Since some of us (ahem) were warning of a Ponzi scheme on Ebob in 2007, I’m afraid that the explanation is simply that some people never learned the old maxim “If something looks to good to be true, it is.”
Looking back in my email the final offer I received is dated 11/29/15 which is pretty late in the game I think?, it does offer an additional 40% off the ridiculously low prices.
What a wonderful souvenir!
It is all conjecture, but for what it is worth- the “word on the street” during the spring and fall 2009 auction season is that PC was buying up a lot of wine to cover existing orders. There was a brief period after the Wall Street crash when auction prices did take a hit prior to their incredible run-up in 2010 and beyond due largely to heavy buying from the Asian markets.
So, I suspect the inability to cover hurt them broadly- along with the fact by that time the buying audience was diminishing- but as you say John that would leave the likelihood that the inability to get good prices on 09 and 10 as they were released soon after was a major blow.
What really drives me crazy about how long they pulled this off is a very basic reality of the wine business that any collector should realize - cash flow is king. Wine is a cash flow business- especially considering the costs involved in storing it properly while you are responsible for it.
For the kind of volume they were doing by the late 2000s, there should have been a steady flow of reefers coming over with wine on a regular basis. There is not one compelling or even reasonable business reason why they would have any kind of delivery delays outside of seasonal concerns- which buys you 6 months at best.
Back in the day, PC had a good reputation, very large customer base and reasonable prices. It never dawned on me they were buying wine from us to fill orders of wine they never had. I thought they oversold and were picking up a couple bottles, eating the extra cost, all in the name of customer service.
The weak 11, 12, 13, and even 14 Bordeaux vintages does make a lot of sense in explaining how the incoming spigot that was keeping the show running got turned off.
I liked the story of the customer who walked in and started grabbing bottles to settle up unfulfilled orders, and said to call the cops if they wanted. I wonder if that was Paul B.? If so, good for him.
Aside from that, I am still trying to reconcile where all of the money went. I was not a buyer, but it seemed to me that PC put more of an emphasis on selling more ‘pre-arrival’ wines versus Bordeaux futures. Stuff like '89 Haut Brion, DRC and Krug Champagne rather than the latest vintage of Bordeaux. There still must have been buyers for those?
Thanks,
Ed
It was him - about halfway down the page http://forums.winespectator.com/eve/forums/a/tpc/f/6826053161/m/5587028942/p/19
He stated it so in WS.
Actually - PC was purchasing in the secondary market to cover pre-arrivals and futures purchases all the way back in the early 2000’s.
It was scuttlebutt well before 2009, like almost a decade before 2009, with secondary market purchases starting well before 2004 to cover needs.
Those of us that worked in the auction industry-- we were a tiny group in NYC (Kapon was even a close friend of mine from 1996 - 2002!)-- knew the buyers & what they were buying and recognized issues like this & of course we chatted about them over drinks. When you started talking to buyers/clients about what was owed then, and you saw what was being bid on/purchased… it was not rocket-science.
Interestingly- it was John Fox that caught “unscrupulous auctioneers” of false underbidding in the very early 2000’s: he finally questioned why ALL his order bids were met at his max bid, or one lot below his max… I’ll give him credit for that.
When the FBI first started to look into this case - many months before the bankruptcy was filed, and largely because of the action here on Wineberserkers.com - it was very easy to explain that the issue of purchasing futures was fraud, as assurance of provenance as well as availability was the reason people buy futures. I was bummed that the FBI didn’t get more credit in the episode - they had put such a solid case together - Fox had no where to go. Largely because of many berserkers that came out and helped them!
Kudos to all of you that stepped up & helped!
MD
Wow- thank you Maureen. I did not realize it reached back this far. And posts like this remind me of the relative bubble in which I exist in my own part time evaluation business. I go back a long way, but I am fairly local in nature and my clients tend to avoid the auction market. That is a great thing in some respects- and it makes my job easier since the realm in which I work does not even contemplate the secondary marketplace problems that have arisen in the past 15 years. But all the same- I appreciate the fact you have been there and dealt with the marketplace as a whole, and the mastery that you have earned.
This discussion seems like deja vu from about 18 months ago. I think it’s unlikely he has secret, untraceable accounts. If he had them, why not skip town and avoid going to prison until he is 70, or so? Note that he has promised restitution as part of his sentencing, so it’s not as if he can enjoy the benefit of secret accounts after he is released if he remains within jurisdiction of US courts. I also don’t see why it would be any easier to skip town after serving his sentence than before.
As far as where the money went, it’s pretty clear (by his own admission) that he ran the business at a loss for years, floating the loss with revenue from increasing sales of pre-arrival wines that weren’t covered by purchase agreements. As with all Ponzi schemes, his fraud stalled when he couldn’t continue to generate ever greater sales in order to bring in enough revenue from current sales to cover the increasing liability of earlier sales. Where did the money go? Some of it went to the cellars of people who received wine at prices below their cost, some of it went to employ a staff and operate in space the business couldn’t afford, and some of it went to fund his lifestyle (I think this is the least important).
If you look at the offers towards the end of his run, each seemed further below market than the previous offer. He also started cutting special deals with individuals (mostly wealthy Chinese) at prices he could not hope to cover. It’s obvious he was desparate. That’s not a sign of someone who has a secret bank account and a plan to retire in a far off land. It’s also not a sign of a pre-arrival business sitting on a small loss.
-Al
Al- I think you’re exactly right.
Maybe we do need to sing the FBI’s praises more widely when they do prosecute, as such acknowledgement might encourage them if wavering over a different case. They are after all a public body, and there in service of the people, so the people telling them they’ve done a good job should be something they are proud to hear.
Hard to say. I am not sure if they ever talked. But either way- I cannot imagine PC getting into bed with Rudy.
This brings up an interesting, very uncomfortable, but also very viable point that applies to many other areas of collectibles besides wine,
Collectors are far more forgiving of auction houses than of resellers when it comes to the issue of counterfeits. With auction you always have a very clear consignment arrangement, and so it is very easy to put some degree of blame back on a consignor- at the defense of reputation even if not financial outlay in refunding customers.
In retail this “pass” is not given. Customers presume that retailers know their stock and stand behind it 100%. I think this is precisely why guys like Rudy and Rodenstock focused most of their efforts via auction, direct personal private placement, or private placement via private brokers (many of which were amateur players and either did not know better- but should have- or were in on the secret.)
PC was a legitimate business for a very long time, and a damned good resource. I think the sad story plays out much like Enron- a good business model that got ahead of managing itself as an asset driven company, and then increasingly went down the slippery slope that led to ruin. That does not excuse them, but at the end of the day I think in the world of fake wines they were “merely” as guilty as most others in Rudy’s early days of drinking the Koolaid.
*This discussion seems like deja vu from about 18 months ago.
Yes …and agree ![[cheers.gif]](/uploads/db3686/original/2X/0/0ff9bfcdb0964982cd3240b6159868fbdf215b1a.gif "cheers"){kind=small}
Here was what Bill Klapp (deactivated) posted on 2015/09/03 in the Thread : How bad are Preimer Cru’s 35% sale damaging your wallet ?
(((((( Intending no offense (HA!), I am suffering laughing fits at the antics of those like Leve and Zylberberg who persist in making the foolish and demonstrably false assertion that nobody knows what is going on at PC. John Fox knows, but for obvious …))))
Thanks for reminding folks about that… the (bullshit) trope around this story was that John only went crooked relatively recently.
That bit in the article is kinda vague. Clearly he was cheating the system… betting he could buy most of the wines, eventually, for much less than the current market wholesale price. For a long long time that bet worked. We all got our wines when the wholesale purchase price became profitable. The question is when did that bet switch from a winner to a loser for Fox? I don’t think there’s any debate what he was doing was an illegal scam.
The first was to “falsif[y] purchase orders for wine that I had not contracted to purchase and enter them into Premier Cru’s inventory for sale.” Fox could then offer the wine on Premier Cru’s website below market price. This practice began in 1993 or 1994, according to Fox.
Of course; if this was trading stocks in the market thru buys, sells, puts, and calls then it would have been completely legal. It’s all in the context.