Rudy Kurniawan trial: fine piece of background probing by Mike Steinberger

 Evidence of alleged counterfeiting material seized by the FBI 

when they raided Rudy Kurniawan's apartment in March 2012

As the jury in the Rudy Kurniawan trial is due to start to consider its verdict this morning, here is a fine piece from Mike Steinberger to read while they ponder:

'Kurniawan, Connoisseurs, and the Selective Deception Hypothesis

2013 December 17. Mike Steinberger Wine Diarist.com
One of the Rudy memes making the rounds is the theory that he had authentic bottles alongside all the knockoffs and that he was careful not to serve or sell his counterfeit wines to people who were likely to recognize them as such, in particular Allen Meadows. In response to my last post, in which I questioned why Kurniawan’s attorneys hadn’t sought to put Meadows on the witness stand, several people wrote to me suggesting that Kurniawan had used Meadows as part of a pump-and-dump scheme, serving him legit bottles in order to gin up demand for those wines, demand that Kurniawan then satisfied with his fakes. In a comment on eBob yesterday, Robert Parker posited this very scenario (although he didn’t cite Meadows by name). The underlying assumption is that Meadows was much too good a taster to be fooled by sham bottles, and that Kurniawan knew this and plied him with genuine bottles instead. What everyone seems to be forgetting is that there was at least one instance in which Kurniawan is known to have served Meadows a counterfeit wine, and we know this because it was one of the bottles that triggered Kurniawan’s downfall. However, it wasn’t Meadows’s palate that snagged Kurniawan.'

Read the rest here. 

No fakes – another advantage of Loire wines

 1919 Le Mont Moelleux, Domaine Huet 

April 2009: the 1919 – burnished gold but still vibrant and youthful

The on-going Rudy Kurniawan trial for counterfeiting and fraud has been fascinating to follow. As someone who enjoys a glass or so of Loire wine from time to time, it has also been reassuring as well as highlighting another advantage of Loire wines: there are few if any fake old Loires! In contrast Laurent Ponsot (Domaine Ponsot) has suggested that 80% of old Burgundy are fakes. Doubtless in Bordeaux there are a significant proportion of counterfeit bottles of top old Bordeaux.

Although some producers may not always follow AC rules, I would be very surprised if there were many (any?) fake old bottles from fabled Loire vintages. No fakes to date because it hasn't been financially worthwhile and there isn't the same market in trophy wines as there is in Bordeaux and Burgundy. To date the only Loire domaine to my knowledge to have headlined an auction held by a major house is Domaine Huet in a sale organised by Christie's in 2004.   

Following the success of that sale prices of old Huet wines rose considerably and they may be one of the very few Loire estates that might be attractive to counterfeiters. 

Brief reflections on Rudy Kurniawan is my post on Les 5 du Vin this week.       

June 2012: Line up in the cellars of Lamé Delisle Boucard: 1947 to 1893
No sign of Rudy here!

Fakes and fine wine trade under the spotlight as Bill Koch wins

Bill Koch's victory in his case (see below) against Eric Greenberg for knowingly selling counterfeit wine is certain to shine the spotlight on the fine wine trade not only in the US but in other major centres like the UK. The spotlight will surely continue to shine for some time as there is still Koch's case against Acker, Merrall & Condit as well as one against Rudy Kurniawan that now can't proceed until Kurniawan's criminal fraud trial, due to start on 9th September, is over.  

Koch has been awarded compensatory damages of $375,000 and $12 million in punitive damages. The trial judge has yet to rule on Koch's legal costs but Greenberg has already been handed a big bill but his lawyer has said he will appeal. 

Inevitably there will be questions over how extensive are counterfeit operations in the fine wine trade. How careful are merchants in the US, UK and elsewhere in checking the provenance of stock offered to them for sale. Certainly the merchant in Buckinghamshire who bought in December 2011 six bottles of 2007 Ausone that turned out to be stolen from a dealer in Luxembourg appeared not to checked properly the provenance of what they were buying. The Luxembourg merchant had been fooled by a fraudster, who falsely claimed to be the agent for Manchester City star Yaya Toure.   

‘In December a wine merchant in Buckinghamshire bought six bottles of 2007 Ausone from a private individual who brought up the six bottles on a train from London. “He was a hip black guy – between 20 and 30,” said a spokesman for the company. “He said he had a number of footballer friends. The Ausone belonged to a footballer who didn’t want the wine but wanted the money instead.”’

Was this apparently casual approach to establishing provenance as well as title an isolated incident or common practice within the fine wine trade?

(Full story here and here.)    

Are there other practices, such as the 'borrowing' of wines from client reserves, that disadvantage customers that should be stamped out? 

Koch's victory from Wine Spectator: 

'Jury Awards Bill Koch $12 Million in Counterfeit Wine Lawsuit

Court finds that collector Eric Greenberg defrauded Florida billionaire at wine auction

Peter Hellman, Mitch Frank
Posted: April 12, 2013

Seven years into his unrelenting, cost-be-damned campaign to clean up the rare wine business, Bill Koch scored a big victory—a $12 million victory. A jury has found in the Florida energy executive's favor on all counts in his lawsuit against fellow wine collector Eric Greenberg. Koch accused California Internet entrepreneur Greenberg of fraud, making materially misleading representations and false advertising. Koch spent $3.7 million at a Zachys auction of 17,000 bottles from Greenberg's cellar in October 2005, and alleged that 24 of the bottles he bought were fakes and that Greenberg knew it.'
Read the rest in the Wine Spectator here.

See also several recent comments from Don Cornwell on WineBeserkers here. 

Nobles Crus: a question of provenance and the bargain 'independent valuer'

Château Lafite-Rothschild

The Nobles Crus wine fund has an impressive list of old vintages from many of the most distinguished estates in Bordeaux and Burgundy including Pétrus and Domaine de la Romanee-Conti.

There are large format bottles of Pétrus including a 1947 magnum, double magnums and jeroboams from the 1959 and 1961 vintage. From DRC there is an even more mouth-watering range.  Romanée-Conti starts with the 1875 followed by 1915, 1919, 1929, 1934, 1942, 1945 – bottle and magnum, 1953, 1955, 1959 ­– bottle and magnum, 1960 and 1962.  Then from La Tâche, Nobles Crus list the 1938, 1942, 1943, 1945 and 1947.  

Nobles Crus wine fund is unusual in including a significant number of older wines in their portfolio. In contrast the Wine Investment Fund has nothing earlier than 1990, while WAM (Wine Asset Managers) has only 5%-6% of its pre-1990 and then only back to 1982.

Clearly being different can be advantageous but these days where provenance is so important, following the arrest in March 2012 and the subsequent charging of Rudy Kurniawan with counterfeiting as well as the several legal cases brought by Bill Koch, it can bring complications. 

This is likely to make these wines more difficult to sell than recent vintages of Latour or Lafite, for example. It is also likely to take more time because of the need to satisfy potential buyers or auction houses that the wine’s provenance is impeccable. Buyers are mindful of Laurent Ponsot’s (Domaine Ponsot: www.domaine-ponsot.com) claim that ‘80% of pre-1980 Burgundy being sold at auction today is fake’ (decanter.com 14th March 2012).   

Regarding provenance Miriam Mascherin, one of the managing partners of Elite Advisers says: “Christian Roger our fund manager only buys the best wines in their best vintages in perfect condition. We never buy bottles that have been conditioned other than in the domaine directly.  At purchase we do take into account the neck levels as well as a series of other criteria in order to buy only those wines that meet our high level of quality.

“We only buy wine where sources can be proven and blind testing can be carried out.  Any wine that has already been counterfeited is handled with the utmost caution and we would only buy from recognized approved sources.”

It is not surprising that establishing the provenance of old bottles is difficult unless the wine has been sourced directly from the property. Even then it can difficult as records may have been lost, the property changed hands and the people who made and managed the estates at the time are now long since dead.

Take the large format bottles of Pétrus from 1959 and 1961. Christian Moueix, president of Établissements Jean-Pierre Moueix and owners since 1964 of Pétrus is unable to confirm or deny whether there was any Pétrus 1959 or 1961 bottled in large format. 1961 was a particularly small vintage due to spring frost, although of very high quality. Equally Domaine de la Romanée-Conti is unable to confirm or deny whether the estate bottled any of its 1945 in magnum:

An email from DRC (5th October 2012) explains:

‘Nous savons que des magnums de Romanée-Conti 1945 existent sur le marché. On nous a demandé à plusieurs reprises de les authentifier. Il nous impossible de le faire, car n’avons aucune trace des ces magnums dans nos archives que ce soit lors de la mise en bouteilles de ce millesime, ou ultérieurement, comme le voudrait une rumeur selon laquelle, a la demande d’une personalité politique importante, le Domaine aurait fait des magnums avec des bouteilles… Les personnes qui auraient pu porter réponse à cette rumeur sont aujourd’hui décédées. Il nous donc impossible d’authentifier ces magnums.’  

 

Whether DRC could authenticate the other old vintages in the Nobles Crus fund may well be a moot point. This is not to say that these wines are fakes – it just illustrates the difficulty of establishing the provenance of old vintages. This uncertainty also makes it difficult to establish a robust and realistic valuation for these wines, which is further compounded by their rarity. For instance, wine-searcher has no data for double magnums of Pétrus 1959 over the last four years.

wine-searcher – 1959 Petrus double magnum: 'No results for the 1959 vintage' 

Deloitte, the auditors for Elite Advisers owners of the Nobles Crus fund, may have been mindful of this when they added an Emphasis of Matter to their auditor’s report of 2009 for the period 2007-2008 and in the two subsequent years – auditors' report of 2010 and 2011:

‘Opinion

In our opinion, the financial statements give a true and fair view of the financial position of ELITE’S EXCLUSIVE COLLECTION and of each of its sub-funds as of December 31, 2008 and of the results of their operation and changes in their net assets for the period from November 19, 2007 (date of incorporation) to December 31, 2008 in accordance with the Luxembourg legal and regulatory requirements relating to the preparation of financial statements.

Emphasis of Matter

Without qualifying our opinion, we draw your attention to note 2 of the financial statements. The sub-fund ELITE’S EXCLUSIVE COLLECTION – NOBLES CRUS includes wine assets valued at EUR 10,973,119 (100.8% of the net assets) as at December 31, 2008, whose fair values have been estimated by the General Partner in the absence of readily determinable fair values. The General Partner estimates are based on information provided by a limited number of wine merchants and other sources of information, which are in accordance with note 2 of the financial statements.'

Wine Experts Ltd: independent valuer for the sub-fund: Nobles Crus

In the Rapport annuel << Elite’s Exclusive Collection >> 2012 pour l’exercise 2011, Wine Experts Ltd is listed as ‘an Independent valuer for the sub-fund – Elite’s exclusive collection – Nobles Crus’. Wine Experts Ltd was founded on 14th October 2010 and its registered office is at 7th Floor, Hume House, Ballsbridge, Dublin 4, Ireland. Its two directors are Carmel Heverin and Ellis Treacy. The company secretary is Corplaw Ltd. Heverin is a director of 52 companies including Wine Experts Ltd, while Treacy is a director of 55 companies including Corplaw Ltd. Apart from the two directors the company has no employees.

The company's email is filing@pearse-trust.ie. The Dublin offices of the Pearse Trust Ltd are 7th Floor, Hume House, Ballsbridge, Dublin 4. Their website states that the 'Pearse Trust Ltd is an independent advisor on corporate and trust structures.  Our service is distinguished by expertise, transparency and value. Our service excellence allows us to build lasting partnerships with our clients, some of whom have been with us for over 20 years.'

According to the accounts published for the period 14th October 2010 to 31st December 2011 the company’s ‘principal activity during the period was that of an agent in the field of manufacturing wine’. Its turnover was 755€. The administrative expenses were 3,392€ and the company made a loss of 2,637€.

It is not clear what expertise Heverin and Treacy have in providing valuations for fine wine nor to role they play in providing ‘independent’ valuations for the Nobles Crus wine fund. I have asked this of Miriam Mascherin but have not so far had a response. Equally I’m awaiting a response to my question asking whether they have a full provenance trail for the old vintages from DRC and from Pétrus. 

Following the appointment of Wine Experts Ltd as the 'independent valuer', Deloitte have dropped their 'Emphasis of Matter' from the 2012 report. Presumably Deloitte considered that Elite Advisers were getting really remarkable value from Wine Experts Ltd: an independent valuation of the Nobles Crus wine fund that stood at 67,200,503€ as of 31st December 2011 for a maximum of 755€. 

Michel Tamisier, managing partner of Elite Advisers, doubtless considers this a bargain, too. In an article (2nd October 2012) for paperJam, a business magazine and website based in Luxembourg, Tamisier said of the audit of the funds carried out by Deloitte Luxembourg: "Les auditeurs n'ont émis aucune réserve. Les rapports sont nickels. Il n'y a absolument aucun sourci là-dessus."    

Wine fraud: some weekend reading

Labels seized by the US authorities at Rudy Kurniawan's home in Los Angeles  

It has been a bad few months for the fine wine sector, especially Burgundy. At the end of March an unnamed Beaune, but believed to be 63-year-old, Bernard Gras, was arrested after an investigation into false labelling and mixing Burgundy with wine from further south. Then in mid-May Rudy Kurniawan was arrested, charged and detained for alleged massive frauds stretching back over a number of years. Most recently four people, including the two owners, from Labouré-Roi, Burgundy's third largest négociant, were arrested. 

How widespread is counterfeiting is one still unanswered question hanging over the fine wine sector along with the supplementary question: what checks do merchants carry out to check provenance and right of title to the wines they buy?

The good news is that Rudy Kurniawan's arrest and exposure has prompted some good reading from Benjamin Wallace (New York Times magazine), Mike Steinberger (Vanity Fair) and Doug Barzelay (oldvinenotes). Barzelay is particularly interesting as he is a Burgundy collector, met Rudy on a number of occasions and is able to tell part of the inside story.          

Château Sucker by Benjamin Wallace

'Rare-wine collectors are savvy, competitive guys with a taste for impossible finds. The biggest hoax in history took place right under their noses.'

Published May 13, 2012

http://nymag.com/news/features/rudy-kurniawan-wine-fraud-2012-5/

A Vintage Crime by Michael Steinberger

'Collecting vintage Burgundies, Rudy Kurniawan drove the rare-wine market to new heights, then began selling his treasures. Or so it seemed. Michael Steinberger uncorks what may be the largest case of fine-wine fraud in history.'

http://www.vanityfair.com/culture/2012/07/wine-fraud-rudy-kurniawan-vintage-burgundies

The rise and fall of a wine counterfeiter by Doug Barzelay 

June 18, 2012

'With the arrest of Rudy Kurniawan (on March 8, 2012), an extraordinary chapter in the history of wine fraud has begun to close. Two recent articles, Mike Steinberger’s A Vintage Crime in Vanity Fair, and Ben Wallace’s Château Sucker in New York, have ably chronicled the facts as we now know them, though I strongly suspect that further revelations may emerge.'

http://oldvinenotes.com/2012/06/18/the-rise-and-fall-of-a-wine-counterfeiter/

There is also the continuing thread on WINEBeserkers called Rudy Kurniawan Spectrum/Vanquished Wine Auction that was started by Don Cornwell on Saturday 4th February 2012. It now runs to 102 pages.  
http://wineberserkers.com/forum/viewtopic.php?f=1&t=61172


Two alleged Burgundian frauds:

Beaune negociant – 31st March 2012

Beaune Fraude aux AOC Bourgogne : un négociant mis en examen

le 31/03/2012 à 05:00 par Anne-Françoise Bailly

'Jeudi en fin d’après-midi, à l’issue de sa garde à vue, un négociant en vins, dont le siège de la société est à Beaune, a été présenté au Parquet de Dijon, qui a demandé une ouverture d’information au cabinet d’un juge d’instruction. Le procureur de la république Eric Lallemand a confirmé hier que ce négociant, qui possède par ailleurs trois boutiques en Saône-et-Loire, avait été mis en examen pour « tromperie sur la nature et la qualité substantielle des produits », « pratiques commerciales trompeuses », « achat et vente de produits sans facturation conforme », et « utilisation frauduleuse.'

http://www.lejsl.com/saone-et-loire/2012/03/31/fraude-aux-aoc-bourgogne-un-negociant-mis-en-examen

An interesting discussion here from La Passion du Vin on the wines of Bernard Gras. 

Fraudes sur les vins : Labouré-Roi dans la tourmente.

le 13/06/2012 à 05:00 par GILLES DUPONT

'Quatre dirigeants de la maison de négoce nuitonne Labouré-Roi ont été placés en garde à vue la semaine dernière par les gendarmes. Ils ont été entendus sur une impressionnante série de tricheries.' 

http://www.bienpublic.com/cote-d-or/2012/06/13/fraudes-sur-les-vins-laboure-roi-dans-la-tourmente

Finally Doug Barzelay looks at how wine frauds might be reduced. 

Wine Fraud (oldvinenotes)

February 15, 2012

A few years ago, after having played some role in exposing the attempted sale of a substantial number of fake Ponsot wines at auction, I recounted that story, with indignation, to a friend of mine who is a senior executive at a consumer products company. Why, he asked, was I surprised that people were faking expensive bottles of wine? “They’re out there faking our toothpaste.”

http://oldvinenotes.com/2012/02/15/wine-fraud/

Mike Steinberger's Wine Diarist: remarkable job on Rudy Kurniawan alleged counterfeiting

 Photos of material found at Rudy Kurniawan's home

Mike Steinberger on his Wine Diarist site is providing remarkable coverage of the allegations against Rudy Kurniawan, who was arrested on various charges in Los Angeles last week including wine counterfeiting. 

See here, here* and here. * This post includes some remarkable comments in particular from Paul Wasserman, who worked for Rudy at The Wine Hotel, a wine retail and storage business in Los Angeles, and by Laurent Ponsot, who started the unravelling of Kurniawan's alleged counterfeiting.

See also Eric Asimov in the New York Times and a round up of related stories on Dr Vino. Last week I posted some earlier links here to the story.   

Rudy Kurniawan’s arrest – links to the story and problem of counterfeiting

Rudy Kurniawan’s arrest yesterday by the FBI in Los Angeles on charges of fraud and counterfeiting looks very likely to be the wine scam story of 2012 at the very least if he is found guilty. It also assumes that there will be no other high-profile counterfeiting arrests in the near future.

Kurniawan’s arrest certainly further shines the spotlight on the problem of fine wine fakes, which has been receiving growing attention recently. To date dubious wine investment companies appear not to have dabbled in fakes for understandable reasons. It is much easier to rip off customers by overcharging them or to take the Bordeaux Wine Trading Company/International Wine Commodities approach and not buy any wine and just trouser clients’ money. High level counterfeiting is likely to require more work and expertise.

Here are some links for anyone wanting to catch up on Rudy Kurniawan and on those who helped expose him:

Report of Kurniawan’s arrest in the NewYork Times

winebeserkers' thread that warned that there were alleged Kurniawan fakes in a February 2012 auction in London.

Mike Steinberger’s Wine Diarist that has a copy of the complaint filed by the Federal Prosecutors in New York. It makes pretty amazing reading. Allegedly Kurniawan has been an illegal immigrant in the US since 2003 when he was ordered to leave the country.

Jancis Robinson MW has long followed this story as well as highlighting the problem of fakes in the fine wine sector. See here and here.