John Fox, the man behind troubled wine retailer Premier Cru, will plead guilty this week to criminal charges that will likely send him to federal prison, Wine Spectator has learned. During a sealed proceeding in June, federal prosecutors charged Fox with one count of wire fraud. According to an agreement with the U.S. Justice Department, Fox will surrender to federal marshals tomorrow; Thursday he will appear before a federal magistrate and is expected to change a previous plea from not guilty to guilty.
The FBI began investigating Fox earlier this year, after Premier Cru filed for bankruptcy, frustrating thousands of angry customers who paid the store for wines that were never delivered. Several former customers had filed lawsuits against the Berkeley, Calif., store, which was known for offering great deals on wines that the store labeled “future arrivals.” In its bankruptcy petition, the firm declared $70 million in debt, mostly unfulfilled orders paid for by almost 9,000 customers in 45 states and 18 countries. It had less than $7 million in assets, mainly wine in its warehouse space.
The Oakland-based U.S. Attorney charges that Fox conducted a fraudulent scheme, offering wines he didn’t have and using customers’ money to secure wines he owed other clients. The prosecution alleges this plan was carried out “from about 2009 to about 2015.” But the charges stem from a single undated wire transfer of $102,271 from “H.W.M.L.” in Hong Kong to an unnamed Northern California bank. (Before the bankruptcy, a Hong Kong collector with those initials, Lawrence Wai-Man Hui, filed a lawsuit against Premier Cru, charging that he paid more than $981,000 for 1,591 bottles of wine, of which fewer than 100 were delivered.)
“The prosecution has selected one clear-cut example of wire fraud,” a former federal prosecutor who has followed the case told Wine Spectator. “But all of Fox’s relevant conduct in relation to the scheme will be counted against him. There is no such thing as a federal statute criminalizing Ponzi schemes. Bernie Madoff wasn’t convicted of masterminding a Ponzi scheme. The charge was mail and wire fraud.”
The charge was filed June 28, but because Fox was concerned for his safety, the U.S. Attorney agreed to seal the proceedings until the arraignment.
In lieu of a grand jury indictment, Fox is being "prosecuted by information,” having agreed not to contest the charges. “There were undoubtedly conversations back and forth before June 28 that we will never know about,” said the former prosecutor. “Basically, ['prosecution by information' means that ] you are caught. You are laying down all your arms and you saying, ‘I did it and I am sorry for it. I understand I have to go to prison. But please have some mercy on me.’”
The sentencing process, including a report from the probation department, will begin once Fox pleads guilty. He faces up to 20 years in prison and a fine of up to $250,000. He will likely be required to make restitution to the thousands of disgruntled customers who will never get the wine they paid for.
Fox petitioned for personal bankruptcy one month after his company. He quickly sold his house for $3.2 million. Two expensive cars, including a $90,000 Corvette he bought one month before Premier Cru went under, have been repossessed by lenders. Much of his furniture was sold off at a thrift store. It’s unclear how much he will ever be able to pay back.
His customers also face little hope from bankruptcy proceedings for Premier Cru itself. On Aug. 30, bankruptcy judge William Lafferty is expected to approve the bulk sale of the wine in the warehouse behind the shuttered shop—more than 75,000 bottles. Trustee Michael Kasolas had hoped to find a buyer who would pay at least $5 million, but the only bidder so far, Spectrum Wine Auctions, is offering $3.2 million.
Higher bids may still come in, possibly in the courtroom. "We really hoping for higher bids on the bulk sale before the 30th," said Mark Bostick, an attorney for the trustee. "This is an opportunity to get some very fine wine at a reduced price." The proceeds, after the deduction of legal and administrative costs, are to be distributed to creditors. As unsecured creditors, former Premier Cru customers are unlikely to receive more than a few pennies on the dollar.