The two Englishmen started showing up at investor conferences in 2015, armed with an enticing proposition. Attendees could, via their London-based wine brokerage, Bordeaux Cellars, lend money to wealthy borrowers-in-a-bind who needed fast loans, no questions asked. The lenders would receive interest at the rate of 12 percent, paid quarterly.
Normally, such a high rate of interest meant that the loan would be dicey. Not so, the two men claimed—these loans would be secured with prestigious wines from the borrowers' cellars, transferred in the lender's name to climate-controlled, secure warehouses overseen by Bordeaux Cellars. And the loans would be capped at 35 percent of the wines' market value.
"What happens in case of a default?" asked Stephen Burton, the 57-year-old head of Bordeaux Cellars, at a 2015 conference in Cancun. "We sell the wine, bearing in mind that you've loaned only 35 percent of the value of it. It's very easy to sell quite quickly."
"Lots of customers now are property developers who are short of cash," said Burton's partner, James Wellesley, 55, at a 2017 conference in Las Vegas. "We only lend against investment-grade wine …. We're dealing with mainly French wines, some of the nicer California wines [like] Screaming Eagle."
A third member of the team, Lindsay Gundersen, told attendees at a Las Vegas conference in 2018, "We charge the borrower 16 percent, so they are paying for all of the administration costs …. The insurance, the climate control, etc., is the cost of the borrower, not the lender."
The promise of 12 percent interest to the lender, free of fees, on a secured loan in an era of record low interest rates seemed too good to be true. And it was.
Last week, Burton and Wellesley, CEO and CFO, respectively, of Bordeaux Cellars, were indicted by a grand jury in a Federal District Court in Brooklyn on charges of wire fraud and money laundering. In total, Burton and Wellesley are accused of inducing investors to "invest in excess of approximately $99.4 million in term loans purportedly brokered by Bordeaux Cellars," states the indictment.
"Unlike the fine wine they purported to possess, the defendants' repeated lies to investors did not age well," said Breon Peace, U.S. Attorney for the Eastern District of New York.
Burton and Wellesley (both have used multiple aliases) had already been hit last year with a civil judgment by a London High Court involving the same scheme to rip off at least 161 individuals. The men were ordered to repay more than £56 million in losses by their clients.
The idea behind Bordeaux Cellars, Burton told CNBC business reporter Jane Wells in 2013, occurred to him while reading a Sunday Times article. "There was a pawnbroker over here in London who had a warehouse full of Aston Martins and Ferraris. Literally, people were just driving into this warehouse, handing them the keys for a cash loan. So I just put two and two together, and I thought, you know, we could do this with wine."
The operation that he created, in the tale Burton spun out to Wells, quickly made 200 loans worth $30 million. Burton even claimed that an American going through a divorce put up two dozen cases of Screaming Eagle to get "some quick cash."
But Burton's business plan is a head-scratcher. Why would a person wealthy enough to own two dozen cases of Screaming Eagle, Napa Valley's priciest cult Cabernet, agree to hock their prize wine in order to get a loan at 16 percent interest? Surely there were better options.
In fact, there were no such borrowers. As their business developed, Burton, now with his partner and CFO Wellesley, focused entirely on finding lenders willing to put up cash, falsely claiming that they had borrowers in waiting, according to the indictment.
Furthermore, these supposed borrowers were permitted to mask their identities behind individual corporate shells. More than 60 such shells (the list starts with "Alsop" and "Apple Tree" LLCs and ends with "Zermatt" and "Zug") were registered in Belize but controlled from London by Burton. The reams of paperwork required to be drawn up for the loans, and to allegedly give the appearance of legitimacy, appear to have been done by hired legal hands.
Some of the purported loan money, according to the High Court complaint, was used Ponzi-style, to make interest and capital payments to lenders. The rest was deposited into bank accounts linked to Burton and Wellesley, and was used to purchase wine and "gold, other goods and services."
Apparently flush with cash, Burton became well-known in London wine circles. "Stephen was going around town for years opening crazy bottles," Alex Turnbull, then at the wine firm Justerini & Brooks and currently private client manager at Jeroboams, told Wine Spectator. "I once heard him say with great confidence that he had the largest collection of Penfolds Grange in the world. I told him that I knew people who also had large collections of Grange and said, 'Maybe you should meet them.' He got a bit cagey at that. So I had my suspicions for a very long time, but working in the trade, I found it hard to express them or find anyone to agree with me that it all seemed highly suspicious."
In 2019, the payments of quarterly interest to Bordeaux Cellars lenders abruptly stopped. One American investor sought advice from JustAnswer, a British online legal service. "I have been investing with a company called Bordeaux Cellars in the U.K.," the investor wrote. "In this investment, I am the lender of two loans and each loan is $100,000 …. I am supposed to get the interest payments quarterly and the latest one was due on March 12. I didn't receive the payment and have been trying to contact Bordeaux Cellars several times and there is no response so far."
"I have undertaken a little research," the JustAnswer lawyer responded. He had learned that the two loans were made to LLCs called "Gstaad" and "Pemberley" Investments, both among the 61 similar LLCs registered in Belize and listed in the civil complaint against Bordeaux Cellars in the High Court. Noting that Bordeaux Cellars "has no trading history" and "has not submitted any audited accounts," the lawyer advises the borrower that he has scant recourse to recover his funds.
Apparently, neither the inquiring victim nor the lawyer were aware that on Valentine's Day 2019, Burton had been arrested in a hotel in Kent, England. In his room, the police found two fake passports, expensive watches, bars of precious metals and South African and British currency with a total value of almost £1 million pounds. Six months later, Burton pleaded guilty to possession of fake passports and money laundering and was sentenced to four years in prison.
Wellesley was arrested Feb. 4 and is currently in jail in England. On March 15, the U.S. Attorney for the Eastern District of New York requested his extradition. Wellesley has already twice been convicted and imprisoned for financial offenses.
But Burton is no longer in custody. In 2020, he was released early from prison, apparently due to COVID-19 concerns. His current whereabouts are unknown.
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