Wine Dealer Convicted of Selling Counterfeit Bottles

A California wine dealer described by prosecutors as the operator of a “fake wine factory” was found guilty of scheming to sell counterfeits of rare vintages purportedly worth more than $1.3 million to collectors including billionaire William Koch.

Rudy Kurniawan, the 37-year-old merchant, was convicted by a jury today in Manhattan federal court of mail and wire fraud. A prominent dealer of what was thought to be rare and expensive wine, Kurniawan was accused by the government of defrauding collectors, auction houses and others from 2004 to 2012.

During a one-week trial before U.S. District Judge Richard Berman, Koch served as a witness in the government’s case, testifying that Kurniawan was the source of more than 200 bottles of wine that he now thinks are phony. The collector, brother of billionaire energy executives Charles and David Koch, has mounted a legal campaign against counterfeiting in the industry and said he hired more than a half-dozen experts to find fakes in his 43,000-bottle cellar.

“Nine years ago, I set out to shed light on the counterfeit wine market,” Koch said in a statement forwarded today by a spokesman. “I hope Rudy Kurniawan’s conviction, the ongoing efforts of the federal authorities and my continued commitment to expose wine fraud will change the industry for the better and protect consumers.”

Working out of his home in Arcadia, California, Kurniawan effectively operated a “counterfeit wine laboratory,” mixing newer wines and pouring them into empty bottles for rare vintages that he obtained from sources such as a New York City restaurant, the government said in a revised indictment filed in April 2013. Kurniawan used a laser printer and vintage rubber stamps to make labels and had devices for corking and sealing the wine, the government alleged.

French Wineries

The wines Kurniawan sought to imitate included decades-old vintages from prestigious French wineries such as Chateau Lafite Rothschild, Chateau Mouton Rothschild, Chateau Latour and Chateau Cheval Blanc that sold for $10,000 or more a bottle, according to the indictment.

In one instance, Kurniawan used a $250 bottle of California pinot noir to create a fake 1940s or 1950s vintage of Domaine de la Romanee-Conti, the most highly regarded wine producer in Burgundy, France, according to the government.

He rose to prominence as a wine seller by offering tastings and “flaunting his alleged expertise at detecting counterfeit bottles,” prosecutors said.

Along with peddling fake wine, Kurniawan was also convicted of defrauding a New York financial firm when seeking a $3 million loan. Kurniawan, an Indonesian citizen, lied about his immigration status, double-pledged works of art as collateral and failed the tell the firm that he owed more than $7.4 million in personal debt, according to the government.

Sentencing Scheduled

Kurniawan faces as long as 20 years in prison on each of the fraud counts, according to prosecutors. He’s scheduled to be sentenced April 24.

“Rudy Kurniawan perpetrated a vintage fraud scheme, not only peddling counterfeit wine, but concocting, bottling, and labeling what he foisted on his victims,” Manhattan U.S. Attorney Preet Bharara said in a statement.

Kurniawan’s lead lawyer, Jerome H. Mooney, said his client is planning to appeal the conviction over issues concerning a search warrant in the case. Mooney said that prosecutors exaggerated the extent of Kurniawan’s alleged wine fakery and downplayed the prevalence of phony wine in the market.

“The so-called lab, it’s just not capable of turning out huge amounts of wine,” Mooney said in a phone interview. Wine collectors “want to blame him for everything that’s going on. The whole fine wine market and all of the players have been operating in this don’t-ask-don’t-tell syndrome where they really don’t want anybody to say anything’s wrong because they know they’re all buying bad wines.”

Kansas ‘Hick’

Founder of West Palm Beach, Florida-based Oxbow Carbon & Minerals LLC, Koch described himself in testimony as a “hick” from Wichita, Kansas, and a “hoarder” of fine wines. Since starting the investigation into his collection, Koch has identified hundreds of likely fakes, including four bottles of wine sold as the former property of Thomas Jefferson costing a combined $400,000, according to his testimony.

In April 2013, Koch won $12 million in punitive damages in a lawsuit against wine consignor Eric Greenberg over allegations that he made fraudulent representations about the authenticity of certain bottles that Koch had bought. The legal battle had cost $17 million, Greenberg said during trial. Koch also sued Kurniawan in 2009 in California state court in Los Angeles.

The case is U.S. v. Kurniawan, 1:12-cr-00376, U.S. District Court, Southern District of New York (Manhattan).

Before it's here, it's on the Bloomberg Terminal.