Feb. 8 (Bloomberg) -- I think of the past 10 years as the counterfeit-wine decade.
While the number of fakes began exploding in the mid-1990s, the problem was only widely acknowledged a few years ago and promises to heat up even more in 2010, partly thanks to billionaire collector William I. Koch.
In the past 3 1/2 years, Koch, founder and president of Florida-based Oxbow Group, has sued auction houses, collectors, a retailer and a wine importing company, saying all of them sold wines to him that turned out to be fakes.
“The sun is shining here,” he said by phone from his Palm Beach home, where he keeps his 40,000-bottle cellar. “But my lawsuits are grinding out at a slow pace.”
All have yet to come to trial. Some allegations of auction-house fraud and negligent misrepresentation were dismissed because the sale catalogs contain broad disclaimers that the wine is auctioned “as is” and Koch didn’t inspect the bottles before the sales, according to court documents. Other claims of his remain to be decided. No court has yet judged any of the wines fake.
The collector said he has rejected offers from several defendants to return his money -- he wants to force auction houses to change the way they do business, obtain punitive damages, and even see a couple of people go to jail.
“I’m gearing up to file more in 2010,” said the 69-year-old, sounding charged up at the prospect. Koch’s litigious history includes lawsuits against his brothers over a 20-year period.
Thomas Jefferson’s Wine
His wine-based suits started in 2006, when he filed a complaint on Aug. 31 against German wine dealer and former pop music manager Hardy Rodenstock, who sold wines he claimed had once belonged to Thomas Jefferson. Koch says the “Jefferson bottles” he purchased from retailers supplied by Rodenstock are counterfeits.
Koch’s initial lawsuit was dismissed as the judge ruled the court lacked jurisdiction to try it. Koch refiled two amended complaints in 2008. The wines were authenticated, Rodenstock said in letters to Koch that were attached to the refiled suit.
In 2007, Koch sued Internet entrepreneur and wine collector Eric Greenberg and Scarsdale, New York-based Zachys Wine Auctions. Koch claims 19 wines he purchased -- 11 of them consigned by Greenberg -- were or might be fakes, and that Greenberg knew his wines weren’t genuine.
Charity Wine Tasting
Anthony Coles, Greenberg’s attorney, said in an e-mail that the allegations in Koch’s lawsuit are false and that Koch had declined the offer of a full refund and a charity wine-tasting to benefit children.
In March 2008, Koch sued the Chicago Wine Co. and Chicago-based Julienne Importing Co. and a month later went after New York auction house Acker Merrall & Condit, accusing all of them of selling him fakes.
Acker auction director John Kapon and Devin Warner, president of Chicago Wine Co. said in phone calls they couldn’t comment on the cases. James Ricker, owner of Julienne Importing Co., didn’t respond to a phone message asking for comment. Jeff Zacharia, president of Zachys, didn’t respond to a phone call or e-mail seeking comment.
“It’s a bigger story than an actual problem,” Kapon said.
Last September, Koch filed suit against Los Angeles-based collector Rudy Kurniawan, claiming he was the consignor of five counterfeits Koch bought at Acker. Kurniawan hasn’t denied the claim in any court papers and didn’t return phone calls seeking comment.
Altogether, Koch’s complaints include more than 40 bottles for which he paid almost $1 million. He estimates he’s spent about $5 million in legal fees and on gathering evidence. Two wine experts he hired turned up several hundred suspect bottles in his own collection, he said. That works out to about 1 percent of Koch’s 40,000 bottles.
“Every wine I’ve bought at a charity auction is fake, I think,” he said, chuckling. “I haven’t decided what to do about that.”
Coordinating all this is Koch’s representative Brad Goldstein, who says he’s contacted other collectors, asking them to work with Koch. “I can think of four CEOs whose cellars are inundated with fakes,” Goldstein said. “But we’ve been told they don’t want to get involved.”
It’s easy to see why. Prominent people have reasons to maintain their privacy. As a consequence, wine industry insiders can only guess at how big the problem is.
“Counterfeits have become more sophisticated in the past decade,” said Jamie Ritchie, Sotheby’s senior vice president of wine, North America. “Distribution is broader. In the 1990s we saw mostly Bordeaux. Now it’s Burgundy, too.”
At an April 2008 Acker sale, 22 lots of Domaine Ponsot Burgundies consigned by Kurniawan were pulled when Laurent Ponsot questioned their authenticity. Ever since, Ponsot has been sleuthing to find the ultimate source of these wines.
Russell H. Frye, who settled his own wine-fraud lawsuit against a California retailer out of court in 2008, said he sees new fake-wine players at every level.
“Some auction houses are less willing to offer questionable bottles due in part to the threat of criminal prosecution and civil litigation,” Frye said in an e-mail. Two years ago Frye started Web site wineauthentication.com as a place where wine lovers could report and discuss counterfeits.
Another effect of Koch’s lawsuits, said Marc Lazar, president of St.-Louis-based Cellar Advisors LLC, “is that vendors are now incredibly accommodating about reimbursement if a collector thinks a bottle he’s purchased is fake. The word counterfeit is radioactive.”
But what happens to bottles clients have returned? “That’s ultimately Koch’s point,” Lazar said. “Unscrupulous merchants just sell to someone else.”
Lazar said he sees fewer counterfeits at high profile retailers and auction houses, but that they flourish on the so-called gray market, where brokers with little or no stock buy and sell wines held by others.
These days everyone in the fine-wine business has at least one fake-wine story.
Everett Love, managing partner of Carlsbad, California-based RL Liquid Assets Llc, bought 6 bottles of 1982 Chateau Lafite-Rothschild last year from a Los Angeles broker who’d bought it from another broker in the Bay Area. Love sent them to a client in China, who pulled off the loose capsule on a bottle and discovered the cork was stamped 1981, a vintage that sells for a quarter of the price of the 1982. Love set about getting his money back and trying to track down the source of the wine.
“I believe there is a network in the Bay Area faking wine,” he said in a phone interview.
“The joy and anticipation has been sucked out of old, rare wines like 1921 Chateau Cheval Blanc,” said Robert Schagrin, managing partner of New York’s Crush Wine company, said in a phone interview. I told him I’d never tasted that vintage.
“Neither have I,” Schagrin said. “Though I drank a bottle that had the label.”
(Elin McCoy writes on wine and spirits for Bloomberg News. The opinions expressed are her own.)
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