John Fox, once a leading wine merchant, was escorted into an Oakland, Calif., courtroom by federal marshals last week, shackled hand and foot. In a low voice, Fox, 66, pleaded guilty to a single count of wire fraud in connection with a massive Ponzi scheme he operated at Premier Cru, the Berkeley shop he cofounded with warehouse manager Hector Ortega in 1980.
Fox had faced up to 20 years in prison, but as a result of his plea agreement, his maximum possible sentence has been reduced to six years and six months. A probation department will now begin preparing a sentencing report, which the judge will consult when he makes his decision.
Fox has also agreed to provide restitution of at least $45 million to Premier Cru customers who pre-ordered wine they will never receive, as well as to other creditors. As part of his plea agreement, Fox provided the court with a detailed recital of his misdeeds at Premier Cru and also in his personal life. (A copy of his plea was obtained by Wine Spectator.) It detailed a scheme to take money from customers for wines he didn’t have yet, sometimes diverting that money to fancy cars, a multimillion dollar home and even women he met online.
Fox explained that most of his wine sales were "based on the premise that Premier Cru would contract to buy wine from Europe … and then sell it to customers before it arrived in the United States." Delivery was promised within two years.
But Fox admitted scamming these customers in two ways. The first was to "falsif[y] purchase orders for wine that I had not contracted to purchase and enter them into Premier Cru's inventory for sale." Fox could then offer the wine on Premier Cru's website below market price. This practice began in 1993 or 1994, according to Fox. From 2010 to 2015, customers paid approximately $20 million for these "phantom wines." In his second scam, Fox said he "diverted money coming in from current customers to obtain wine for prior customers who had never received their wine."
Fox also admitted to using his company business accounts and credit card to pay personal expenses. These included home mortgage payments, his wife's credit-card bills, his daughter's college tuition, membership fees at two private golf clubs, and the "purchase or lease [of] expensive cars (including Corvettes, Ferraris, a Maserati and various Mercedes-Benzes)."
Fox also admitted to spending "more than $900,000 on women that I met online." He paid them via PayPal.
Sometimes, when customers complained "repeatedly or forcefully," Fox said that he arranged to deliver wine that they had ordered by taking it from stock being held for other customers or else by purchasing it from rival retailers, "usually at prices much higher than those for which I had sold the wine in the first place." This was all done, Fox said, "to conceal my ongoing fraud, to lull customers into a false sense that Premier Cru was a legitimate business, to cause these customers to continue to purchase wines from Premier Cru, and to prevent them from complaining to law-enforcement authorities."
The inevitable end, resulting in Premier Cru's bankruptcy in January and Fox's personal bankruptcy one month later, was hastened by a spate of lawsuits filed by disgruntled customers in state and federal courts last year. At the time of Premier Cru's bankruptcy filing, Fox estimated that 4,500 customers had paid at least $45 million for pre-arrival wines they had not received. From 2010 onward, he admitted, he pocketed about $5 million from his scheme, and "made additional money in the years prior to 2010."
Attention in the Premier Cru debacle will now turn to the bulk sale of the 78,000 bottles in the warehouse behind the shuttered shop in Berkeley, scheduled for Aug. 30.