Premier Cru files for bankruptcy

JimHow · Post by **JimHow** » Sat Feb 13, 2016 3:31 am

The 2002 Duhart was only $29, from Zachy's.

Ah, 2002 Bordeaux. Such innocent times. The early days of BWE. Pre-John Kapon. Pre-Premier Cru fraud. Pre-the worst that Parker had to offer. Pre-Rudi. Sigh.

Blanquito · Post by **Blanquito** » Sat Feb 13, 2016 4:11 am

Yeah, the 2003 Duhart Milon was $28 from WineX. I tried a bottle in April 2006 and bought more for $32 in stock. Do you see that Duhart Milon is usually north of $80 now?

It's nice to think back to more innocent times and prices. Maybe they'll be another bust in the wine market as China belt tightens and the rest of the global economy catches the contagion (if that's not too circular).

JimHow · Post by **JimHow** » Sat Feb 13, 2016 4:20 am

I remember one afternoon about 7 or 8 years ago. I checked the NH Liquor website. They had suddenly released like 20 cases of 2005 Lafite. They were putting it on sale, it was like $580 per bottle (after 20% discount). It was the height of the insanity. It was late afternoon on a weekday. The 20 cases were in the Nashua store. I emailed Ben Nelson in Chicago. It was the only time that that scam artist returned my call in like the last 10 years. All of a sudden he was my best buddy again. Jim! he said. Buy it all up! I called my bank. I was ready to cash in some CDs. I was going to buy like $100K of Chateau Lafite…. I was a madman for about 16 hours. I decided to sleep on it. The next morning…. It was all gone. Sold out. Crazy.

stefan · Post by **stefan** » Wed Feb 17, 2016 2:22 pm

I heard from Chase. They denied all claims prior to July 1, 2014 but credited my account for those after that date subject to review. That is a bit less than half of my disputed charges, all of which were made on a Chase MasterCard.

JimHow · Post by **JimHow** » Wed Feb 17, 2016 2:27 pm

Well that's pretty good news.

AKR · Post by **AKR** » Thu Feb 18, 2016 11:51 pm

stefan wrote:I heard from Chase. They denied all claims prior to July 1, 2014 but credited my account for those after that date subject to review. That is a bit less than half of my disputed charges, all of which were made on a Chase MasterCard.

That is a remarkable outcome. Great news. That advantage of the big banks wearing some of this hit is that they will now pursue Fox to the ends of the earth.

And it may not seem like it, but if you had taken store credit, and taken delivery of whatever overpriced dreck they had during the summer (like some of us did) you might have effectively worn a 50% haircut anyways:

One previously bought desirable wine of value of $100 for $50 cash outlay to PC, realizes the game is up, and switches to in stock. Only thing available is a $25 wine, for $50 in price. One switches out, and in theory is flat on dollars, but they have worn an economic 50% hit, getting $25 in value for $50. So it turns out maybe one is not really much worse off than having taken in stock. Of course one could not know a priori that Chase would have resolved the issue that way. Most people were not reading Visa/Mastercard interchange rulebooks six months ago.

Blanquito · Post by **Blanquito** » Fri Feb 19, 2016 1:22 am

That's good news, Bill. 50% back is more than I would have guessed anyone would get back from a cc company.

I used my remaining ~$1500 owed to me to get in-stock wine last September, and for what I selected, I paid around a 10-20% premium over the cheapest on wine-searcher pro. Funny thing, I ended up happier on the whole with what I got (a selection of champagne, Bordeaux blanc, Ridge geyserville, high end Barolo, etc.) than what I was still owed, even though I wasn't getting a screaming deal on anything. By early September, the in-stock selection was depleting rapidly though (various posters on other boards were periodically updating the rapid hemorrhaging of SKUs), so I pounced. Most of what I took was down to a final few bottles, so much that I ended up with 30 different individual wines in my shipment.

stefan · Post by **stefan** » Fri Feb 19, 2016 2:00 am

>>
And it may not seem like it, but if you had taken store credit, and taken delivery of whatever overpriced dreck they had during the summer (like some of us did) you might have effectively worn a 50% haircut anyways.
>>

That and the fact that they had mostly swill in stock is why I did not do that. But I did guess that I would get some things before they went bankrupt. In retrospect I should have entered disputes with Chase then, but I knew what a hassle that would be ("you first must try to work it out with the merchant. Has the merchant not delivered on time? Etc, etc, etc.") Moreover, suppose I got credit for the items that did come in the fall? I wanted the wines more than I wanted the money (which mostly will go to my kids after Lucie and I adjourn to That Great Tasting Room in the Sky, while I had some chance of enjoying some of the wine in this plane of existence).

Patrick, had I been in your position I would have done the same. But I would really have had to search hard for $1.5K of wines in stock that I would like to have, and virtually nothing that I would have bought absent the pressure.

Blanquito · Post by **Blanquito** » Fri Feb 19, 2016 3:14 am

stefan wrote:Patrick, had I been in your position I would have done the same. But I would really have had to search hard for $1.5K of wines in stock that I would like to have, and virtually nothing that I would have bought absent the pressure.

Literally a week (or less) after I traded for in-stock stuff, there was next-to-nothing left worth having at nearly any price. I owe that to Arv and Dale, really.

JimHow · Post by **JimHow** » Thu Feb 25, 2016 1:21 am

As predicted, Fox went in and pled the fifth at his creditors meeting.
I don't understand how the court can order a discharge if the principal doesn't answer questions.
Which goes back to my original question: Did the bankruptcy lawyers not think through that there were potential criminal charges and that he might have to invoke the fifth?
I'm sure I must be missing something obvious here.

DavidG · Post by **DavidG** » Thu Feb 25, 2016 1:27 am

What would the alternative to filing for bankruptcy have been? Just keep digging a bigger and deeper hole until, what? Lights off, repossession of the property for non-payment? Eventual criminal charges? Can creditors force a company into involuntary bankruptcy? Keep in mind you're talking to a non-lawyer who learned everything he knows about bankruptcy from wine geeks playing lawyers on the Internet.

JimHow · Post by **JimHow** » Thu Feb 25, 2016 1:51 am

As Bobby Dylan once said, When you ain't got nothing, you got nothing to lose.
Why then, the rush to file?
There are two bankruptcies here.
The first one filed was a corporate bankruptcy. The corporation is just a person on paper. If the corporation owes $70 million, then just dissolve the corporation and let the creditors get their judgments and seize whatever property they can.
As I expected, a second -- personal -- bankruptcy was filed. Because clearly the creditors would seek to pierce the corporate veil and go after John Fox personally. John Fox IS Premier Cru.
But even in the personal Chapter 7 Fox is saying he has nothing. So why the rush to file? If he had any money in bank accounts (or anywhere else other than exempt assets like retirement accounts) in excess of $400 (or whatever the I'm sure minimal exemption level is in CA) it was going to be seized by the trustee anyway.
So why not wait and see how things flesh out on the criminal side?
Perhaps they were trying to get a discharge before a criminal conviction in the hope that that might help them avoid the charge that the debts were incurred fraudulently and therefore are not dischargeable in bankruptcy.
But what good is that if you have to plead the fifth and can't answer questions in either the corporate or personal bankruptcies?
I don't see how a judge can grant orders of discharge if the principal in the corporate bankruptcy, who is also the debtor in the personal bankruptcy, can't answer questions because he is pleading the Fifth Amendment.
Maybe I'm wrong -- maybe the judge can still order a discharge in each case -- but I don't see how both of these cases are not going to be dismissed if PC and Fox don't answer questions under oath. And Fox hasn't even filed his Financial Statement yet. That statement is going to require a ton of information about where the money has been going. Likewise, Schedule B -- heretofore not filed -- is going to require him to disclose ALL of his assets.
Again, I'm sure I must be missing something very obvious here.
What is amazing me is that this case is advancing civilly and criminally almost exactly the way I guessed it would, but I still can't believe it is proceeding this way.
I guess I just don't understand if Fox was going to lose it all anyway -- whether he filed for bankruptcy or not -- why then the rush to file for bankruptcy?
Seems to me he is now risking:
1. Dismissal of the corporate bankruptcy.
2. Dismissal of the personal bankruptcy.
3. Possible criminal bankruptcy fraud charges.
4. Possible perjury charges.
5. Problems with the IRS and other tax authorities, with possible criminal consequences arising therefrom.
6. Possibly disclosing information in the bankruptcy proceedings -- either through statements or through schedules and other documents filed under oath -- that could come back to bite him in the criminal case. For example, it appears that this whole business about the secret computer has come out through the probing of the bankruptcy trustee rather than the criminal investigation.
Will there be other illegal activity unearthed if the trustee does his job aggressively and digs deep into what has been going on?
Sometimes the best thing to do is nothing: Don't make a bad situation worse.
The more this goes on the more I have to scratch my head.
Why the rush? There would always be time to file a bankruptcy later on, even from a jail cell if necessary.

DavidG · Post by **DavidG** » Thu Feb 25, 2016 3:56 am

Thanks for laying it out Jim. So Fox would be less exposed if his legal strategy was similar to his wine delivery strategy: delay, delay, delay.

AKR · Post by **AKR** » Thu Feb 25, 2016 4:52 am

JimHow wrote:As Bobby Dylan once said, When you ain't got nothing, you got nothing to lose.
Why then, the rush to file?
There are two bankruptcies here.
The first one filed was a corporate bankruptcy. The corporation is just a person on paper. If the corporation owes $70 million, then just dissolve the corporation and let the creditors get their judgments and seize whatever property they can.
As I expected, a second -- personal -- bankruptcy was filed. Because clearly the creditors would seek to pierce the corporate veil and go after John Fox personally. John Fox IS Premier Cru.
But even in the personal Chapter 7 Fox is saying he has nothing. So why the rush to file? If he had any money in bank accounts (or anywhere else other than exempt assets like retirement accounts) in excess of $400 (or whatever the I'm sure minimal exemption level is in CA) it was going to be seized by the trustee anyway.
So why not wait and see how things flesh out on the criminal side?
Perhaps they were trying to get a discharge before a criminal conviction in the hope that that might help them avoid the charge that the debts were incurred fraudulently and therefore are not dischargeable in bankruptcy.
But what good is that if you have to plead the fifth and can't answer questions in either the corporate or personal bankruptcies?
I don't see how a judge can grant orders of discharge if the principal in the corporate bankruptcy, who is also the debtor in the personal bankruptcy, can't answer questions because he is pleading the Fifth Amendment.
Maybe I'm wrong -- maybe the judge can still order a discharge in each case -- but I don't see how both of these cases are not going to be dismissed if PC and Fox don't answer questions under oath. And Fox hasn't even filed his Financial Statement yet. That statement is going to require a ton of information about where the money has been going. Likewise, Schedule B -- heretofore not filed -- is going to require him to disclose ALL of his assets.
Again, I'm sure I must be missing something very obvious here.
What is amazing me is that this case is advancing civilly and criminally almost exactly the way I guessed it would, but I still can't believe it is proceeding this way.
I guess I just don't understand if Fox was going to lose it all anyway -- whether he filed for bankruptcy or not -- why then the rush to file for bankruptcy?
Seems to me he is now risking:
1. Dismissal of the corporate bankruptcy.
2. Dismissal of the personal bankruptcy.
3. Possible criminal bankruptcy fraud charges.
4. Possible perjury charges.
5. Problems with the IRS and other tax authorities, with possible criminal consequences arising therefrom.
6. Possibly disclosing information in the bankruptcy proceedings -- either through statements or through schedules and other documents filed under oath -- that could come back to bite him in the criminal case. For example, it appears that this whole business about the secret computer has come out through the probing of the bankruptcy trustee rather than the criminal investigation.
Will there be other illegal activity unearthed if the trustee does his job aggressively and digs deep into what has been going on?
Sometimes the best thing to do is nothing: Don't make a bad situation worse.
The more this goes on the more I have to scratch my head.
Why the rush? There would always be time to file a bankruptcy later on, even from a jail cell if necessary.

That all makes a lot of sense.

Perhaps Fox's motivation was this: file for BK and (somehow) get all the debts cleaned up/discharged, and use that (successful?) bankruptcy discharge as a way to persuade criminal investigators that what happened was business incompetence/mismanagement/misfortune rather than a deliberate fraud. So perhaps this was a gambit to avoid a criminal prosecution.

But of course all these were interlocking Gordian knot problems and even if there was a way to solve one problem it wouldn't cleanly solve the others. And realistically he was unlikely to have been forthright with any of his lawyers, so they are probably discovering the situation / factset as they proceed as well.

Assuming he follows the Ron Wallace template I would have thought his base case would have been about 4 years* more of some kind of freedom (albeit with little money and lots of legal travails) and then a decade in prison, or more. And 15 years from now, when he's "free" he'll probably be 70something, and eligible for Social Security, Medicare, or the safety net programs. Perhaps then he'll just revert to his wine scamming/brokering ways on the sly, hoping people will have forgotten about him, and that his intrinsic hustling skills will be provide for him.

* that may be less given how much attention the FBI seems to be devoting to this, at an early stage.

DavidG · Post by **DavidG** » Sat Feb 27, 2016 1:54 pm

Arv, what you say makes sense as well. Ultimately I think Fox ends up in jail, the wine in the warehouse gets auctioned, the trustee, attorneys and others working for the trustee get whatever money is left, and the customers get only what their credit card companies are willing to refund them, but nothing from PC.

I'm still of the opinion that there will be no recovery of a hidden stash of funds. At least not tens of millions. It would be nice if there was enough recovered to pay off at least a percentage of the amounts owed, but that's probably wishful thinking.

Here's a report on the creditors meeting in which Fox said nothing, plead the 5th.

JimHow · Post by **JimHow** » Sat Feb 27, 2016 2:08 pm

I agree with your assessments.
I read that report. What happened at that creditor's meeting is absolute insanity to me.
His lawyers obviously know a million times more than any of us about what is going on but everything that I have seen percolating into the public sphere really makes me question what kind of representation he is getting, especially on the bankruptcy side, but also on the criminal side. Were his bankruptcy lawyers and criminal lawyer not communicating before this meeting? As I asked weeks ago, how can he ever expect to proceed with either a corporate or personal bankruptcy if he's unable to answer questions under oath? I'd be curious to hear what Howard has to say, but I am completely at a loss as to how they are going to avoid dismissal of both of these bankruptcy actions.

JimHow · Post by **JimHow** » Sat Feb 27, 2016 2:10 pm

Also, from his picture, I definitely remember meeting him, we had a brief discussion the day I was in the store buying the 1955 Gruaud Larose. He was kind of a snotty prick. I remember the girl saying: "Oh! You're Jim How!" It was funny.

JCNorthway · Post by **JCNorthway** » Thu Mar 03, 2016 3:00 am

Interesting filing responding to Amex request for documents.

http://docs.bmcgroup.com/en/384/20160302-3.pdf

AKR · Post by **AKR** » Thu Mar 03, 2016 4:53 am

JCNorthway wrote:Interesting filing responding to Amex request for documents.

http://docs.bmcgroup.com/en/384/20160302-3.pdf

Sounds like they are making some half hearted attempt to verify that customers weren't indeed shipped wine, and now seizing the opportunity to demand a refund, assuming that the real records will be lost to the ether.

I guess the numbers are big enough that some auditor must have asked what the checks and balances are on the customer claims.

I would note that I've only used chargebacks / warranty stuff a few times - and Amex made it absolutely painless. One time a brand new $300 phone broke (dropped on floor) a few days after it was purchased. They issued a credit without even blinking. Didn't need the phone carcass or anything. Just trusted us.

Perhaps the numbers bandied about here are at the point where Amex is employing the old Gipper aphorism: Trust but Verify.

JimHow · Post by **JimHow** » Sun Mar 06, 2016 10:20 pm

These fancy cars that Fox purchased -- including that $100k Corvette bought during the months leading up to the bankruptcy -- scream out to me that there was some sort of mental illness or impaired judgment going on here. This wasn't just some bad business decision-making.

JCNorthway · Post by **JCNorthway** » Sat Apr 23, 2016 12:14 am

I heard from my Citibank MasterCard that they are crediting my account for the amount of purchase that I did not receive (about $1,000). They told me they have "thousands of customers" who did not get wines that were purchased.

Related, in recent emails I get about court filings, some customer with over $300,000 of undelivered wines is contesting the sale of remaining wines to raise funds, indicating that many of the bottles proposed to be sold are his. Interesting. And just today I got a notice of intent to sell personal items on consignment - total value of about $14K. That should help.

JimHow · Post by **JimHow** » Sat Apr 23, 2016 12:24 am

That's good news Jon, that was the GPL case?

JCNorthway · Post by **JCNorthway** » Sat Apr 23, 2016 12:27 am

Yes, it was 2010 GPL. And based on some comments I've seen here, perhaps I'm better off with the credit than the wine.

JimHow · Post by **JimHow** » Sat Apr 23, 2016 12:28 am

Based on my tastes of Marcus's bottle at the convention, you aren't missing out on much.

Blanquito · Post by **Blanquito** » Sat Apr 23, 2016 1:44 am

Looks like AMEX is trying to renig on purchases made 540 days before the bankruptcy, despite no such cutoff in their cardholder agreement. Class action lawsuits could be coming.

stefan · Post by **stefan** » Sat Apr 23, 2016 3:44 pm

Chase MC is doing the same, Patrick.

AKR · Post by **AKR** » Sat Apr 23, 2016 4:48 pm

Grand VIn up in the Northwest gives a 2% discount when buying futures, if one pays by wire or check.

I think that's the best model - it clarifies that one is wearing the credit risk of the merchant

And it saves a little money.

If the credit card protection is a 'bullet proof' vest, made out of tissue paper, why pay up for the worthless protection.

It's like insurance that is sold for 'peace of mind'.

F that. I pay for insurance - I want willingness and ability to pay claims in a timely fair fashion.

Peace of mind? I can put on a Yanni album and some aromatic candles.

Chateau Vin · Post by **Chateau Vin** » Wed Aug 10, 2016 10:36 pm

Looks like the hammer is falling on John Fox...The Justice Dept is after John Fox...

http://www.berkeleyside.com/2016/08/09/ ... -to-fraud/

JimHow · Post by **JimHow** » Wed Aug 10, 2016 11:12 pm

Thanks for posting CV, I was wondering.

I wonder if he's going to be sentenced tomorrow.

JCNorthway · Post by **JCNorthway** » Thu Aug 11, 2016 12:23 am

I assume there are about 9,000 people (as in creditors) who will not be feeling a lot of sympathy . . . .

JimHow · Post by **JimHow** » Thu Aug 11, 2016 1:05 am

As far back as ten years ago I was wondering how this joker was going to escape this fate.

I wonder how much time he's gonna get.

AKR · Post by **AKR** » Thu Aug 11, 2016 1:42 pm

I thought Ron Wallace of Rare LLC ended up getting something like 11 years after various parole violations, attempts to circumvent restitution etc. The cycle from his initial fraud to entering the corrections system was a long time.

The mills of justice grind slowly, yet surely.

DavidG · Post by **DavidG** » Fri Aug 12, 2016 6:12 am

John Fox plead guilty to one count of fraud in return for a maximum sentence of 6 1/2 years in prison.

The judge called his operation a Ponzi scheme running from 2010-2015. Fox also admitted that he began cheating customers in 1993 or 1994.

Details here.

JimHow · Post by **JimHow** » Fri Aug 12, 2016 1:45 pm

It still seems all surreal to me. For at least ten years I've felt this guy was doing exactly what he was doing. But there was that little part of the brain that said, no, come on, he really can't be doing this, so blatantly, right? And for at least a decade I've felt the guy was looking at about 5 to 10 years if he was in fact guilty of this stuff. And as it turns out, he was every bit as corrupt, and more, than what we thought. An absolutely crazy case. How could he possibly think he would get away with all of this? Buying and leasing these $100k+ cars even as late as late last year. Clearly this guy has some very serious mental and/or substance abuse issues.

When the judge and prosecutors speak of a Ponzi scheme from 2010-2015 I'm assuming they are referring to that time frame only because of a six year statute of limitations.

Blanquito · Post by **Blanquito** » Fri Aug 12, 2016 2:48 pm

Love the detail that he spent $900,000 over this time on women he "met online". Sounds like code for prostitution, unless membership rates at match.com have gone way up in the last 7 years... Lends credence to your mental illness/substance abuse theory.

DavidG · Post by **DavidG** » Fri Aug 12, 2016 5:19 pm

In the "only in today's social media world" category: Someone has been posting on Wine Berserkers the last few days claiming to be a 22 year old ex-girlfriend of Fox'. Says she only dated him for his money, didn't know about embezzlement until she read about it recently online.

AKR · Post by **AKR** » Sat Aug 13, 2016 2:49 pm

Sounds like that 'girlfriend' will be looking for a new sponsor for her Krug sprayathons.

=====

Don Cornutt of WB posted an analysis of the Federal sentencing matrix, along with public / known facts of Fox's actions. He suggests that a pre-sentencing report could rationally come up with a recommendation that is longer than what the prosecutor and defense attorney have agreed upon. (The judge is not party to that agreement).

Of course I hope that happens, but I don't hold out much hope.

And it doesn't seem like any other persons are getting sanctioned, when I strongly believe that many others at PC were involved in various levels. (Bernie Madoff's scheme ended up with a dozen or so various persons serving time and/or disgorging ill gotten gains, as an example)

DavidG · Post by **DavidG** » Sat Aug 13, 2016 3:40 pm

I saw that analysis. I also wonder whether the prosecutor would ever bring other charges, or if this was the easy slam-dunk case and that will be the end of any criminal proceedings against Fox.

JimHow · Post by **JimHow** » Sat Aug 13, 2016 3:44 pm

I have to believe this is a global resolution, and that the judge is in on it.
Looks like he'll do about 5 and a half years with good time, may also get out earlier into a halfway house program.

sdr · Post by **sdr** » Sun Aug 14, 2016 2:47 am

JimHow wrote: . . .may also get out earlier into a halfway house program.

Do you have to be impaired to want to spend $900K+ on 22 year old Asian chicks, er, mature women?