Federal Ponzi Scheme Investigation Follows Bankruptcy for Beleaguered Wine Retailer

While FBI considers subpoenas, Premier Cru’s president files for personal bankruptcy as well
Federal Ponzi Scheme Investigation Follows Bankruptcy for Beleaguered Wine Retailer
Closed in December and in Chapter 7 by January, Premier Cru is now the subject of a criminal investigation. (Tim Pinault)
Feb 10, 2016

The dilemma facing bankrupt Premier Cru, once a titan among wine retailers, boasting customers all over the globe, has taken a turn for the worse. FBI spokesperson Michele Ernst told Wine Spectator that the bureau "is investigating claims of a Ponzi scheme involving the Berkeley, [Calif.], wine company.” Michael Kasolas, Premier Cru's Chapter 7 bankruptcy trustee, confirmed in a Feb. 5 court filing that he is "cooperating with the FBI.”

"The official announcement from the FBI that it has opened an investigation is significant," Jason Hernandez, a former Assistant U.S. Attorney who prosecuted convicted wine counterfeiter Rudy Kurniawan, told Wine Spectator. "It likely means that the FBI is issuing grand-jury subpoenas in coordination with the U.S. Attorney's office.”

On Monday, Feb. 8, Premier Cru's president, John Fox, filed for Chapter 7 personal bankruptcy in the same Northern California federal court where his company filed Jan. 8. Fox listed $50 million to $100 million in liabilities against assets of $0 to $50,000. The filing lists 9,000 creditors, nearly all of them customers of Premier Cru who paid for wine that was never delivered. Three weeks ago, Fox sold his Tuscan-style home in Alamo, Calif., for $3.2 million. His bankruptcy filing lists as his current residence a rental property in Concord, Calif.

Both a retailer and importer of wine, Premier Cru long specialized in selling wine at very low prices to customers willing to wait for "future delivery." By the end of last year, at least 11 customers had sued the firm in federal and local courts after waiting in vain for years for delivery of paid-for wines. On Dec. 10, Premier Cru abruptly closed the doors of its retail shop in Berkeley. In its bankruptcy filing, the firm listed $6.8 million in wine inventory and $70 million in debts. In a hearing on Monday, Kasolas said that the largest unsecured creditor is American Express, which refunded charges made by numerous customers for wines they did not receive.

”If Premier Cru had purchased the wine for which it took customer funds," a lawyer for one of the plaintiffs told Wine Spectator, "then it should have $70 million in wine inventory as well as $70 million in debt. But it has only $6.8 million in wine. Where is the other $63.2 million? In the Cayman Islands?”

About 35,000 bottles of wine remain in Premier Cru's storage facility, according to Kasolas. Most are in "general inventory," but a segregated section contains wine packed in cartons labeled with the names of about 120 paid-up customers. Kasolas said in a filing last Friday that he intends to sell off all the wine, regardless of whether it is in general inventory or labeled for delivery. Before that can happen, the trustee acknowledges that those customers the wines have already been designated for are likely to "assert their interest”—that is, dispute the right of Kasolas to sell off "their" wine. In a sign of Premier Cru's dire straits prior to closing up shop, according to the trustee, only about $200,000 worth of the wine in storage had not already been sold.

Presiding judge William Lafferty summed up the thorny issue of ownership, yet to be resolved, in the initial bankruptcy hearing last month: "What do we have, whose is it, and how are we going to sell it? … We have 9,000 people who ain't never heard of bankruptcy court. All they know is that they've got wine at [Premier Cru] and they thought they could just come and pick it up.” The judge warned that he does not want customers to be "bulldozed" by the trustee's effort to speedily liquidate the debtor.

Kasolas is proposing to establish an online "document room" to be accessible only to creditors. It will list every creditor and the wine he or she owns, as well as postings of all documents related to the bankruptcy. Kasoulas estimates that sending out a 1-page mailing to all 9,000 creditors would cost $5,000 in postage—a prohibitive expense for a debtor that claimed only $20,000 cash on hand. The expenses for administrating Premier Cru's bankruptcy are expected to be at least $25,000 per month, Kasolas estimates. The eventual sale of the wine will provide those funds, which are taken off the top before creditors get anything.

On Feb. 24, Kasolas is scheduled to chair a so-called "341" meeting of creditors, where the two principals of the debtor, Fox and Hector Ortega, must appear and answer questions about the affairs of Premier Cru. Lawyers familiar with the situation say that the two men will likely respond to questions by taking the Fifth Amendment.

“Due to the wide scope and high number of complaints from people who claim to have been impacted by Premier Cru's bankruptcy,” Ernst said, “the FBI has established an e-mail address for individuals to notify us with complaints, concerns and tips: premiercru.complaints@ic.fbi.gov.”

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