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Koch V. Greenberg: Plenty of Punches, No Knockout Blows

After two weeks of testimony, the trial over 24 bottles of alleged counterfeit wine rages on in federal court

Peter Hellman
Posted: April 9, 2013

Near the end of the second week of testimony in Bill Koch’s wine fraud lawsuit against Eric Greenberg, expert witness James Martin, a materials analyst hired by Koch, stepped off the witness stand and approached the jury. “Let’s do a little show and tell,” Martin said. Handing an ultraviolet flashlight to a juror, he asked her to shine it on a bottle labeled as Château Latour 1928. Instantly, the pale ivory label fluoresced bright blue. “Now shine it on my white shirt,” Martin said. It, too, fluoresced bright blue. Both the paper and the detergent residue in his shirt, Martin explained, contained optical brightening agents that were activated by the ultraviolet light but “weren’t used until about the 1950s”–decades after the label was supposedly printed. The ink on the label and the glue used to affix it to the bottle were likewise unavailable at the time of bottling, according to Martin's analysis. His conclusion: This wine was counterfeit.

That Latour is one of 24 purportedly old and rare wines at the center of this trial, all of which bore “anachronistic” markers. Martin compared them to if “a photo were to show J.F.K. using an iPhone.” Koch, the billionaire founder of Oxbow Corporation, a natural resources company, said that he purchased the wines at a Zachys auction in 2005, paying $355,810. All 17,000 bottles offered at the auction were consigned by Greenberg, a West Coast entrepreneur.

After more than two weeks, the jurors in Koch v. Greenberg have heard lengthy testimony about the inner workings of the wine auction world. There have been plenty of ugly revelations. It's not clear yet, however, which side is being more persuasive. The crux of Koch's argument is that Greenberg knew he had counterfeits in his cellar but, feeling duped by the people he bought them from, decided to pass them on to other unsuspecting collectors. Greenberg has vehemently denied he intentionally tried to sell any fakes and says auctioneer Zachys should have weeded out any problem bottles. What's more, he's arguing that Koch's suit is a waste of time and money—a rich man's squabble.

Koch bought 2,669 bottles at the Zachys sale for $3.7 million. The catalog described the sale as “the best of the best." “Being an obsessive collector,” Koch testified, “I wanted the best of the best.” Only later did he learn that at least two experts had told Greenberg that his cellar was sprinkled with fakes. The first alert came from Greenberg himself, who told Koch in a 2007 phone call that many of his rarest wines were sourced from a New York dealer with a dicey reputation. Koch then embarked on exhaustive testing of the rarest bottles. They range from an 1864 Latour to rare magnums of 1921 Pétrus and Lafleur. Based on the test results, he’s suing Greenberg for fraud and for violating sections of New York’s general business law aimed at protecting consumers.

The trial is unfolding in a large courtroom in Lower Manhattan. Koch, 72, and Greenberg, 48, sit each day at the far ends of adjacent tables before presiding Judge J. Paul Oetken, separated by a phalanx of opposing lawyers. More lawyers and paralegals spill over to the oak benches in the audience section, giving the feeling that this is a high-profile criminal case, not a civil action over 24 bottles of wine. One of Koch's lawyers, John Heuston, prosecuted Kenneth Lay and Jeffrey Skilling of Enron. Each day, the 24 bottles at issue are trundled into the courtroom in Styrofoam cartons from a secure holding area where they are kept refrigerated.

The bottle which first raised Koch’s suspicions that he had been sold fakes at the Zachys auction was a magnum of Pétrus 1921, purchased for $29,500. After the auction, Koch asked Zachys for information about the magnum’s provenance. Jeff Zacharia, president of the firm, e-mailed back that the unnamed consignor had purchased the magnum “either from a top collector in Toronto or out of Europe from English royalty.” Unsatisfied with that response, Koch pressed Zacharia, who put him in direct touch with Greenberg.

Claiming he was unable to track where he'd acquired specific bottles, Greenberg could not identify the source of the 1921 Pétrus, but said that it might have been Royal Wine Merchants, a New York firm that had sold him “a tremendous amount of fake wine.” Koch was startled to hear Greenberg tell him that Royal had sourced rare wine from German dealer Hardy Rodenstock—Koch was already suing Rodenstock over his 1988 purchase of four bottles of wine that Rodenstock falsely claimed had once belonged to Thomas Jefferson.

Greenberg also told Koch that during a visit to his cellar in a San Francisco suburb in 2002, Serena Sutcliffe, London-based head of Sotheby's wine department, had been dismayed to learn that bottles she suspected of being counterfeit had come from Royal. Greenberg threatened to sue Royal, but settled with the firm in 2004, returning some fake bottles for a refund but keeping the majority.

Jaime Cortes, Greenberg's former house manager, testified on the fourth day of the trial that, after dinner one evening, Greenberg told him that he had settled with Royal. Cortes asked, "Do you mind if I take a couple of bottles for all the hard work I've done?'" Greenberg's response, per Cortes: '"What they did to me, I'll do to someone else.'" Greenberg's team accuses Cortes of being unreliable—under cross examination, Cortes admitted that he had sent an e-mail to a Koch aide offering "info that will help you bring that asshole down." When he left his job with Greenberg, he expected a bonus of "$25,000 to $30,000," but received only $2,500.

Despite being a major buyer of collectibles at auction, Koch expresses contempt for the fine print at the back of sale catalogs, in particular the disclaimer that all lots are sold “as is.” He doesn’t bother to read any of the fine print, he testified, because “it’s a license to steal.” Under New York law, the “as is” clause can be nullified if a seller has “peculiar knowledge” about property being offered which is purposely not revealed to purchasers. Koch claims that Greenberg had peculiar knowledge of the fakes in his cellar, but did not reveal what he knew to Zachys or to bidders like himself.

During his two days of testimony, Greenberg asserted that he had not kept Zachys in the dark about problematic bottles in his cellar. “I told them about Royal Wines,” he testified. “I showed them Royal Wine boxes. I told them I had fake wines in my cellar. They had rejected wines from me all the way along.”

Jeff Zacharia testified that he had first visited Greenberg's cellar in November 2002, prior to Zachys' first auction of Greenberg's wine in 2003, and it was then that he learned of Greenberg's problems with Royal wine fakes. Zacharia claimed that Greenberg did not tell him that any wines from Royal were involved in the 2005 auction, however. 

Koch hopes that if this trial ends in his favor, it will be an overdue step toward ridding the auction business of bad practices and bad wine. Greenberg, even if he wins, has a quite different opinion. “I think this is a horrible waste of taxpayer money," he said when asked on the stand if he was upset at Koch. "It is a pathetic thing that two wealthy people are sitting in court wasting taxpayer resources.”

John Rodrigurz
Washington DC —  April 10, 2013 8:16pm ET
I'm with Mr. Koch on this one. Find it hard to believe Greenberg didn't have knowledge that he was selling counterfiet wines.

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