Alleged Counterfeit Wines Go on Trial

Bill Koch will finally bring a case to court, suing collector Eric Greenberg over 24 rare wines he says are fakes
Mar 25, 2013

After nearly seven years of heated accusations, detailed lawsuits and tireless digging by private investigators, all aimed at rooting out fraud in the world of wine collecting, Bill Koch will watch as one of his cases goes before a jury in a Manhattan federal court room. Koch v. Greenberg was scheduled to begin on Monday, March 25, but has been postponed until the morning of March 26. After seven years, what's one more day?

In Koch’s crosshairs is Eric Greenberg, a California entrepreneur who began collecting wine in the late 1990s, swiftly amassing a 70,000-bottle personal wine cellar. In October 2005, New York auctioneer Zachys held a single-owner sale of 17,000 bottles from Greenberg's collection. Koch spent more than $3.7 million at that sale, focusing on extreme rarities, including Bordeaux first-growths from the 19th century. He now claims 24 of the bottles that he bought are fake.

Koch alleges that Greenberg knew, or should have known, that those bottles were counterfeit. His complaint accuses Greenberg of fraud, making materially misleading representations and false advertising. If Koch wins, he is seeking both monetary and punitive damages, including the $349,000 purchase price of the wine and an unspecified sum spent investigating whether it was counterfeit.

“I buy many collectibles—art, western collections, sculpture, wine," Koch told Wine Spectator. "I want people to know that if they sell me a fake, I'm coming after them.”

In a pretrial deposition, Greenberg testified, “I have never knowingly consigned or sold a fake wine in my life.” Greenberg declined interview requests.

The Gentlemanly Way

The origins of the two men are disparate, but they share a passion for business success and a stubborn refusal to back down. Koch, 72, was born into a Kansas family that was successful in oil and gas. With a PhD in chemical engineering from MIT, Koch founded his own business, Oxbow Corporation, a global natural resources and energy company with annual sales exceeding $4 billion. He also fought his twin brother David and older brother Charles in court for two decades over control of the family company.

Greenberg, 48, grew up in modest circumstances in Las Vegas and has a business degree from the University of Texas at Austin. A self-described serial entrepreneur, he founded two tech companies that went public in the 1990s and was briefly a billionaire on paper before the dotcom bubble burst. He is now CEO of Beautifull, a San Francisco-based health food purveyor. 

Filed in 2007, Koch vs. Greenberg has grown relentlessly in complexity and cost. The electronic docket for the case lists more than a thousand exhibits. At a pretrial conference March 18 at Foley Court House in Lower Manhattan, the “well” in front of the bench was so crowded with lawyers—six for each side, with additional legal personnel spilling over to the first row of seats—that presiding Judge J. Paul Oetken announced that he would transfer the trial to a larger courtroom.

Arthur Shartsis, lead lawyer for Greenberg's legal team, said that his client has spent more than $3 million defending himself and estimates Koch's expenses at $10 million or more—a Koch spokesman, while refusing to disclose the exact figure, said that estimate is "fair." Regardless, it is far greater than Koch could realistically hope to collect from a jury.

The litigation could have been avoided. Shortly after Koch filed his suit in 2007, Greenberg sent him a refund check to cover the cost of the 11 bottles Koch had initially questioned plus interest and other costs. "My plan is to use these bottles in a charity wine tasting for a worthwhile children's cause," Greenberg wrote, adding that this would be "the gentlemanly way to bring this matter to a conclusion." Koch returned the check.

The 24 bottles that Koch is now calling counterfeit range from a bottle of 1864 Château Latour to a magnum of Château Pétrus 1921 and several magnums of 20th century icons such as 1921 Cheval-Blanc, 1928 Pétrus and 1949 Lafleur. The jury will have to decide if the bottles are, in fact, phony. Koch will weigh in with a 113-page report prepared by James Martin, a specialist in forensic examination of materials, who used a range of laboratory testing methods to examine the bottles and found "reasonable scientific certainty" that the papers, printing inks and adhesives used on certain bottles were not used until decades after the purported bottling of the wines. He also found evidence of suspicious tearing and staining of some labels to make them appear older than they are.

Martin's findings only apply to the bottles, not to the liquid within. An attorney for Greenberg at the pretrial conference noted, "Mr. Koch says the bottles are worthless but will not let us open them."

I'm the Only Guy Who's Blowing the Whistle

According to pretrial depositions, the roots of the case go back to April 2002, when Greenberg invited a Sotheby's wine team to visit his cellar in a San Francisco suburb. It didn’t take long for Serena Sutcliffe, London-based head of Sotheby’s wine department, to be troubled by what she saw: some bottles that were clearly fake, others of doubtful authenticity, according to testimony by Sutcliffe. She was further dismayed to learn that for two years Greenberg had been buying wine heavily from Royal Wine Merchants, a New York dealer. "She said, 'Don't tell anybody I told you this, but the guys at Royal are crooks,'" Greenberg testified in a deposition.

In her own deposition, Sutcliffe testified that "doubt is reason enough for us not to sell wine.” She told Greenberg that Sotheby's would not accept any bottles she thought questionable. The next month, Greenberg invited Richard Brierley, then head of Christie's North American wine department, to look over his cellar. Brierley, too, declined to auction some of Greenberg's wine. In the end, Greenberg decided not to go forward with either auction house.

Armed with tips from Sutcliffe on how to detect suspicious bottles, Greenberg selectively examined bottles in his cellar. In May 2002, he filed a claim for $912,301 with insurance company Fireman’s Fund, listing hundreds of bottles that were counterfeit and now worthless—all, he said, sourced from Royal. Greenberg put his loss at between $600,000 and $2.1 million. Informing Greenberg that his policy had expired and, in any case, did not cover business fraud, Fireman’s rejected the claim.

Greenberg, previously friendly with the principals of Royal, now vented his anger at them over the $2 million worth of wine he'd bought from them, much of which now looked to be fake. Jeff Sokolin, a principal of the firm, said in a deposition that Greenberg called him and "said many evil things to me … He threatened my life, threatened to put me away and send me up the river."

Preparing to sue Royal, Greenberg hired a wine appraiser, William Edgerton, to inspect selected wines in his cellar. Edgerton attached a sticker to each bottle he examined, noting whether he judged it to be authentic or fake. Among those was a bottle of Château Latour 1928, which Edgerton identified as fake. Five years later, when Koch also hired Edgerton, he discovered the same bottle of Latour 1928 in Koch's cellar, with his original sticker still attached. The bottle had been bought at the October 2005 Zachys sale for $2,873. Greenberg said that the inclusion of the bottle in the sale was "a mistake."

In February 2004, Greenberg settled his dispute with Royal. He returned 199 bottles valued at $362,937 to Royal, but apparently retained 429 bottles listed on the Fireman's Fund claim. In a deposition, Jaime Cortes, a former house manager for Greenberg, testified that Greenberg told him in 2004 that he had settled with Royal: "And I said: 'Cool. I take it that you won.' And he says, 'Well, better than that. I don't have to take the wine back.' And I said: 'Well, do you mind if I take a couple of bottles as a trophy for all the hard work we've done?' And he said: 'No, what they did to me, I'm going to do to someone else.'" Cortes' testimony carries some baggage: In an e-mail to a Koch aide referring to Greenberg, Cortes said he hoped he could help "bring that asshole down."

The traditional defense by auction houses when confronted by unhappy customers is to point to the disclaimer in the back of the catalog stating that merchandise is sold "as is." But this clause can be blocked, courts have ruled, if the seller had "peculiar knowledge" of facts about the property that was unavailable to bidders. Judge Judith Jones, who presided over this case before Oetken, ruled that the disclaimer did not shield Greenberg because Koch could not have known that two experts had told Greenberg that his cellar contained counterfeits.

In a later decision, Jones ruled that Zachys, an original codefendant in the suit, had also been kept in the dark by Greenberg. In early 2011, Zachys made peace with Koch by accepting the return of 11 counterfeit bottles he purchased at auction from owners other than Greenberg and by agreeing to change the small print in its catalogs to give return rights to customers who discover that the wine they bought is counterfeit.

Arthur Shartsis, Greenberg's longtime attorney, pointing out that Koch could have settled the case early on by accepting his client's offer of a full refund, calls it "the stupidest case in America."

Koch sees it differently. "One reason I'm doing this is that there's a whole code of silence about this wine counterfeit problem," he said. "Collectors and individual sellers don't want anyone to know they have fake wine. They want to dump it on others. I'm the only guy who's blowing the whistle on it."

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