John Fox, the wine store proprietor who admitted to conducting a Ponzi scheme for two decades, was sentenced in federal court yesterday to six and a half years in prison. Fox, 66, owner of the bankrupt Premier Cru, stood in a San Francisco court room, shackled at the ankles and wearing dark red prison garb inscribed Alameda County jail on the back, as Federal Judge James Donato pronounced the sentence.
"This was a long running empire of deception that Mr. Fox carefully tended to for years," the judge said.
"I wish I could go back in time, and undo all the damage I caused, but I know I can't," Fox told the court, according to a local reporter in the court. "I want to serve my time in prison, and when I get out, I hope to pay back everyone." As part of his plea agreement with the Justice Department, Fox has agreed to make restitution of $45 million to at least 9,000 customers who never received the wines they paid for. Fox said that he hoped to take computer courses while in prison so that he can start a new business when he gets out and begin to pay back his victims.
Fox cofounded Premier Cru in 1980 with Hector Ortega, who managed the wine warehouse. Their handsomely designed store in Berkeley, Calif., was replete with custom furnishings and Flemish-style tapestries on the walls, all of which have since been sold off in a bankruptcy auction. The store attracted many customers with offers of highly collectible European wines that were typically priced lower than the competition's offers.
The wines were often sold as "pre-arrival," meaning Premier Cru did not have them in stock. Delivery was promised within six months to two years, but Fox admitted to FBI agents, according to a sentencing report, that "these representations were false, and I knew they were false at the time I made them. Instead, I knew that I could not or would not obtain many of the pre-arrival wines sold by Premier Cru." Fox estimates that he sold about $20 million worth of such "phantom wine" between 2010 and 2015 alone.
Fox also falsely promised suppliers that he would pay them for wine orders within 30 days. Instead, he "embezzled money from Premier Cru's business accounts that I should have used to pay suppliers … or diverted money coming in from current customers to obtain wine for prior customers who had never received their wine," according to the sentencing report.
For example, Wine Spectator spoke to proprietors of two shops in New York state who said that Fox purchased wine at full retail price from them. At one shop, Fox had a case of expensive Bordeaux of expensive Bordeaux sent directly to a customer who was pressuring him to deliver and who had paid a lower price for it as a pre-arrival.
By fall 2015, in an apparent effort to raise cash, Fox slashed Premier Cru's regular low prices on highly sought-after wines by 40 percent during weekend web sales. One Burgundian winemaker, Laurent Ponsot of Domaine Ponsot, was surprised to discover that Premier Cru was offering some of his grand cru wines at prices that were lower than he had originally sold the wine to wholesalers and importers.
Meanwhile, at least 11 customers had filed lawsuits against Premier Cru in state and federal courts over wine they had not received. The shop was abruptly shuttered early last December and filed for Chapter 7 bankruptcy on Jan. 8. Fox declared personal bankruptcy two weeks later, listing $50 to $100 million in liabilities.
The lawsuits had already attracted the attention of the FBI and federal prosecutors. In August, Fox agreed to plead guilty to a single count of wire fraud in connection with the scheme. Federal guidelines call for a sentence of up to 20 years, but the Justice Department agreed to the minimum sentence in return for Fox's cooperation in unraveling the scheme and his agreement to go to jail immediately rather than ask for release on bail.
During yesterday's hearing, Judge Donato rejected a request by a lawyer for one of Fox's victims, who lost $669,000 in the scheme, to impose a stiffer sentence.
Before being sentenced, Fox met with prosecutors four times to provide details about his scheme. In one of those meetings, held at Premier Cru, Fox used the firm's computer system to show investigators examples of wines he had sold fraudulently.
Fox also admitted to using Premier Cru's funds to make mortgage payments on his house, pay his daughter's college tuition, pay his personal and his wife's credit card bills, pay membership costs at two private golf clubs and pay for the purchase or lease of expensive cars, including "Corvettes, Ferraris, a Maserati, and various Mercedes Benzes," according to the sentencing report.
Ironically, despite having conned so many people out of money, Fox fell prey to another scam, according to the report. He disclosed to federal agents that he made $900,000 in payments via Paypal "to women I met online." Fox alleged to agents that, after he had consensual sex with one of those "dates," a young woman in Seattle, she blackmailed him, saying that she would tell his wife and family if he did not pay her. Fox estimated that he paid the woman roughly $10,000 per month from 2014 until mid-2016.
One day last July, he placed a call to her from the FBI office in Oakland. She did not answer but called him back immediately. In their recorded conversation, she "continued to demand extortion payments," according to a police report and warned that he was behind on his payments to her.
Fox is eligible for a sentence reduction of 54 days for each year of good behavior, meaning that he could be released from prison in 2021.