Bordeaux Wine Enthusiasts

90 days pre-filing.

hm$

Howard it looks like the U.S. Trustee's Office is objecting to conduct by the trustee and the court is spanking the trustee for improperly taking steps to appraise and prepare inventory for sale without court order. Oh man this case is just unbelievable.

So they wanted to take wine that customers bought, arrived in the store, but did not give to the customers who bought it, and try to get the same customers to buy the wine again but at a higher price?

That would be one way of looking at it.

California is a "unique" justice system, to say the least.
That said, it's highly unlikely to me that title to the wine passed to a buyer just because it landed on the warehouse floor and was allocated by PC to Customer A rather than Customer B.
So I imagine it will be up for sale eventually so that all the customers (and other creditors) get screwed equally.

hm$

No doubt the law varies from state to state.

When Carolina Wine Company went bankrupt, there was a lot of wine on hand that was boxed up with specific customer's names on the packages, ready to be shipped. One guy said he could see his name written on boxes through the window of the shuttered store.

The court decided that the wine did not belong to the customers that had paid for it. Instead it belonged to the post-bankruptcy estate, so as hm$ said all the customers/creditors got equally screwed.

This promises to get a bit jucier:

Premier Cru: Trustee asks judge to order wine company's secret computer turned over

Still scratching my head over why the rush to file a corporate bankruptcy. Seems like they were just exposing themselves wide open to stuff like this. Now he's not only jeopardizing his potential criminal case, he could be opening himself up to bankruptcy fraud, which carries the potential for severe penalties.

Most criminals aren't as smart as those portrayed in the movies.

Now Fox files for 7...Geez...

https://drive.google.com/file/d/0BxE5zO ... ef=2&pli=1

Assets: $0 - $50,000.
Liabilities: $50,000,000 - $100,000,000.

JimHow wrote:Assets: $0 - $50,000.
Liabilities: $50,000,000 - $100,000,000.

With that balance sheet they should be listed on an exchange.

WOW................
I guess a container got lost.

I just don't understand how can one who has been in the business for nearly three decades and supposedly running a multi million dollar business has assets less than 50K. Either the money has been squirreled out of country or as Jim said the money might have been blown away in gambling, drugs, etc...

What happened to the proceeds of the sale of his $6 million house?

stefan wrote:What happened to the proceeds of the sale of his $6 million house?

Has the BK Trustee already spent that much? Or are there secured creditors who get that first (as a personal assets, not a business one), so it's not counted as assets?

It's a very incomplete filing. There are about ten schedules plus his statement of financial affairs that will need to be filed like within 10 days or so, this should provide a lot more information.

The house was supposedly 3ish mm. But no net equity even after the sale. (That's sadly typical for the high priced California towns though)

House was probably mortgaged up the wazoo. Think I read that at some point on WB.

Fox named all the PC creditors in his bankruptcy filing. Presumably for protection against claims he anticipates being filed against him personally. He may have bigger problems when the FBI is done with him.

Presumably any claims filed by PCs creditors against Fox would be a form of veil-piercing/alter ego ultimately based in fraud. If so they would be non dischargeable. Nice try though.

I have to admit, I saw the fraud coming over a decade ago, but I never in a million years realized the depth of this crime.
Still, as a criminal defense lawyer, I can see some defenses being raised. Remember, on the criminal side, it is a MUCH higher standard of proof, and criminal intent must be established. Mere bad business practices are not going to be enough to prove a crime. This is by no means a slam dunk for the government.
I wonder how much of this disaster has to do with the construction of their "award winning" <rolls eyes> wine store?
We know that Fox's house sold for $3+ million but, as Arv said, was probably 100% mortgaged.
Arv or anyone else: Do you know anything about the cost and financing details of the "award winning" <rolls eyes> wine store in Berkeley?

Bank of the Bay wrote a 1st mortgage on the store as I remember, and then did a construction loan to renovate the inside, which is indeed beautiful. Then a second was put on it, not sure when, which was supposedly financed with a private mortgage from some vintner up in Napa/Sonoma, I don't remember who. It was supposedly someone who had known Fox for a long time, but clearly some thing was odd if a private loan i.e. non bank originated was being used. Then last summer a hard money lender / pawn shop operator wrote a 3rd on the place, on/about the time PC seems to have settled one lawsuit and patched up things (for a momentary instant) with their replacement merchant card processor.

IIRC there is 6mm or so in mortgages on the store, and a material amount of other liens like property tax, sales, franchise tax etc.

However at this point, I'd think that all of those are now other people's problems, not Fox's.

Bad loans are made in good times.

So if it's not in his house and other personal assets, and it's not in his business real estate and inventory, where the heck is the $60+ million that has gone missing? Did he lose that much money in offering his 40%-off sales over the years? And if so, is this a "crime" or is it just insanely bad business decision-making? Is there mens rea?

JimHow wrote:So if it's not in his house and other personal assets, and it's not in his business real estate and inventory, where the heck is the $60+ million that has gone missing? Did he lose that much money in offering his 40%-off sales over the years? And if so, is this a "crime" or is it just insanely bad business decision-making? Is there mens rea?

It sank in the lost container.

One filing mentioned $19 million in sales last year. If you are 40% under water for 8 years or so, that could add up to $63 million dollars. Still doesn't tell us where the money went. Drugs? Gambling? Expensive toys/diversions? Bad investments? Human nature being what it is, I think it's unlikely Fox has it all neatly wrapped up and hidden away somewhere waiting for his retrieval. Spending money is a lot easier than making it or saving it.

Yep, I would be really surprised if he has anything stashed away, based on his conduct in the past year or two. He pissed it all away. Those forensic accountants are amazing, they'll get to the bottom of a lot of it.

I wonder if the forensic accountants will be able to confirm that PC didn't have firm pricing contracts before making prearrival offers, and if yes, for how long this practice was going on for. Did it really start with 2005 Bordeaux futures en masse as some have speculated or was this PC's practice all along?

I think they were doing it for a long time, but it only really bit them in a huge way when there was a seismic upward move in prices.

Back in the 'good old days' for them, a new WS or WA or whatever would come out, and we lemmings would feverishly rush to buy the anointed wines.

Fox would sell them at the full offer side price, of course with delivery TBD.

And then when the fervor had died down, and the Next New Big Thing had arrived, he'd cover the stuff he'd sold at reasonable prices.

Probably didn't work every time, but well enough, and as long as he had ample liquidity from incoming futures orders, and patient customers, even if he went through a bad stretch, they could pull it out if there was some underlying profitability in that activity.

But things like Yelp, and wine boards, and wine searcher etc. probably all eroded those 'foundations' of his biz model.

And there was a period of time in the early 2000's (a time of particularly glorious offerings from PC) where someone who was flat out stealing from wine storage clients was fencing their goods through PC. Fox & Co. were never implicated in knowingly receiving the stolen wines....but it benefited them. And once that supply route was cut off they became far less compelling as a vendor.

It'll probably cost taxpayers 500k to chase this guy down over the next few years, and then assuming he gets a sentence like Ron Wallace, another ten years in the slammer for 50k per annum. So the total damage to society from these guys isn't really done yet.

Yet if they walk free there's lots of mayhem they are likely to conduct, so society is left with poor choices: bad & worse.

JimHow wrote:So if it's not in his house and other personal assets, and it's not in his business real estate and inventory, where the heck is the $60+ million that has gone missing? Did he lose that much money in offering his 40%-off sales over the years? And if so, is this a "crime" or is it just insanely bad business decision-making? Is there mens rea?

It sank in the lost container.

>>
Do you know anything about the cost and financing details
>>

I spoke with Michael Glasby when I was in Berkeley some time after the new store opened. He said that PC might offer walk in specials to attract local business, but that they intended to remain mostly an internet concern. He said that their costs for the fancy store was actually lower than what they paid in rent for the warehouse in Emeryville, so they did not worry if local business did not increase. (Fox bought at a low point in real estate in Berkeley.)

This should be very interesting to watch as the case develops if the Alameda DA decides to get involve.
In my experience there are two main types of mass fraud perpetrators, those who start honest but are inept and start to defraud in the hopes that their "bad" early decisions are eliminate by good future decisions. They hope/believe that they can make good on every debt. They never do because, they continually make bad business decisions. The other is the person who starts to defraud from the beginning, with no intent of being honest. This person knows the scam and will play it as long as possible.

It's possible this case may be a hybrid of the two, a business who starts legit but at some point realizes that he can't recover because he's in too deep. So instead of closing the business, this person rides the fraud to the very end, which could be years. I have no knowledge of the facts so this is only conjecture and opinion.

stefan wrote:>>
Do you know anything about the cost and financing details
>>

I spoke with Michael Glasby when I was in Berkeley some time after the new store opened. He said that PC might offer walk in specials to attract local business, but that they intended to remain mostly an internet concern. He said that their costs for the fancy store was actually lower than what they paid in rent for the warehouse in Emeryville, so they did not worry if local business did not increase. (Fox bought at a low point in real estate in Berkeley.)

I just have a hard time believing that having seen both places. I think the fancy store was an essential prop to keeping the futures biz rolling along. It's harder to suspect what was really going on if visible, external trappings of "success" are flaunted.

PC is unlikely to be the only store that has stretched its self, and used pre arrivals as a finance stop gap. I'm paring back on that kind of transaction generically.

>>
I think the fancy store was an essential prop to keeping the futures biz rolling along.
>>

I doubt that. Most of the people buying from PC probably never visited either location. If you went into the fancy Berkeley store you almost never saw another customer. That did not present the front that this was a successful business. The physical trappings were irrelevant to their "business".

I'm paring back on that kind of transaction generically.
AKR

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Joined: Wed Mar 18, 2015 11:33 pm

Other than a couple of mags of 2005 Cantenac Brown from Zachy's and a case of 2005 Duhart Milon from PJ's, I have never bought anything on pre arrival from any source.

The 2005 Duhart was a steal from PJs. I got a bunch from them in the low $40s right after Parker's in-bottle 94 pts score. In 2010, I sold 6 bottles for $120 each to an online retailer (lord knows what he then sold them for to China).

I still have that case of 2005 Duhart sitting next to my mixed case of Lafite, both of which I intend to drink in my old age. Yes, I paid like $42 or some such ridiculous price on pre arrival from PJs. Then they called me like literally a week later and said it was in.

I've pretty much stopped buying traditional futures, but mainly because I have enough wine (Stefan's counter example notwithstanding) so I no longer chase new release vintages. Some outfits that I patronize still do prearrivals though, places like Flickingers and the Chicago Wine Co and outfits out of Portland Oregon regularly offer back vintages as prearrivals from Europe. I've never waited as long as even a year though at these establishments on a PA order. If the price is right, I'm willing to nibble on these here and there on hard to find stuff.

The 2002 Duhart was only $29, from Zachy's. The vintage, obviously, but also just before the China syndrome and the whole "anything connected with Lafite" thing. I believe the mags of 2003 Duhart I have cost $75 or $80 dollars. Still have not tried one. But it's true I think 2005 was when the weird stuff began to hit and things went nuts, with Lafite, Beychevellle and even Grand Puy Lacoste going nuts because of dragons, alligators and things like that.

2005 seems to be the year when things started to go nutty for Bordeaux and the global Bordeaux market. I wonder if that is the vintage when Premier Cru started to go under.

I have a 6L of 2002 Duhart. I'll probably uncork it for some future niece or nephew wedding 20 years from now.

stefan wrote:>>
I think the fancy store was an essential prop to keeping the futures biz rolling along.
>>

I doubt that. Most of the people buying from PC probably never visited either location. If you went into the fancy Berkeley store you almost never saw another customer. That did not present the front that this was a successful business. The physical trappings were irrelevant to their "business".

Don't discount the effect a nice, clean, modern, recently acquired storefront might have had on creditors/potential creditors or the trade channel. It could be part of keeping up appearances.