Dr Vino's wine blog

William I. Koch, the billionaire wine collector at the heart of the story The Billionaire’s Vinegar (buy on amazon), has taken yet more legal action in the world of fine wine. In an extensive complaint lodged in Los Angeles court last week, Koch makes some significant allegations. The complaint is available here as pdf and it makes for great reading. In the name of fairness and balance, these are simply allegations and it will be interesting to see how it all plays out. Whether or not you are into the fine and collectible wine market, these are fascinating developments as the cast of characters expands beyond those in The Billionaire’s Vinegar.

Koch alleges that five bottles he purchased through Acker Merrall & Condit were fake. The bottles were: 1947 Château Pétrus, a bottle of 1945 Comte Georges de Vogüé Musigny Cuvée Vielles Vignes, 1949 Lafleur, and two bottles of 1934 Domaine de la Romanée-Conti. Koch paid Acker $77,925 for the five bottles, purchased through private sales and auctions. He now claims they all came from Kurianwan but that source was not stated at the time of purchase.

Koch maintains that Kurniawan was the source of two Acker auctions in 2006 hailed only as from “THE cellar.” The two auctions grossed over $35 million. The complaint points to this LA Times profile of Kurniawan, which describes his preferred wardrobe is jeans and gray tshrits but that he has a Bentely and a Ferrari. The article also says that he got into wine only in the year 2000 but had already amassed a cellar of 50,000 bottles and that, “Since he started buying, prices for rare wine have skyrocketed.”

In reference to the two 2006 auctions, the filing says, “Buying and selling the same wine at the same time could also be an effort to manipulate wine prices, a scheme to pump up the price and then dump wine into the inflated market.”

Koch’s filing also states that Kurniawan owed Acker and Acker clients $10.4 million as of a November 2008 court proceeding. Acker accepted fine art and wine as collateral. Emigrant Bank also lent Kurniawan $3 million, according to the filing, and sued Kurniawan to get it back.

The filing also elaborates on sales of magnums of 1982 Le Pin and 122 bottles of red Burgundy from Domaine Ponsot. However, both sets of wines were withdrawn after winery principals raised doubts about the authenticity of the wines. Jancis Robinson has since called Laurent Ponsot “Burgundy’s Sherlock Holmes.” But where Kruniawan got those bottles remains unknown.

And to think that the movie rights for The Bilionaire’s Vinegar have already been sold! Looks like they’d better get working on the sequel already…

One thing we’ve learned the past few weeks is that markets love a good bottom. As the stock market has bounced off a low on March 9, the financial news is full of bottom talk–”the bottom is in,” cried euphoric trader! “Baby’s got back,” shouted another! (Oh, wait, that wasn’t from the trading pits.)

The wine auction market followed other asset prices in a sharp descent over the past six months. The theory that wine was a different type of asset class, immune from corrections, has suffered.

But in three auctions last weekend, the market showed signs of stabilizing. In Chicago, Hart Davis Hart sold 100% of lots for $2.2 million, toward the high end of estimates. In New York, Christie’s sold 95% of lots for an aggregate of $1.27 million. In Hong Kong, Acker Merrall boasted over 95% of lots sold for $4.36 million gross. Press releases for all three talked about how “it seems the wine market has sprung to life” (Christie’s), how it “sizzled” (Acker), and “it’s been a long
time since I’ve seen such spirited competition as we saw today” (Hart Davis Hart).

In my casual observation of a catalog, it seemed to me that the estimates were priced according to the recent sell-off, that is to say, lower. I even submitted a couple of low-ball bids, below the low estimates, and was not successful.

So has the wine auction market touched bottom? While it was the first place to pick up deals in the fall as the economy took a nose dive, it seems to be perking up now. But is this a false dawn? My guess is that it pretty much follows the equities markets and the macroeconomy.

“I guarantee you all these prices will be significantly higher this time next year,” John Kapon, president and auctioneer at Acker, Merrall is reported to have said between bids at an auction last December. The buyers who paid $8,000 for six bottles of the ’61 Dom Perignon and $22,000 of for eight bottles of the ’66 Cristal might be wondering if that was a money-back guarantee.

Prices of all kinds of assets have declined precipitously since last December. Wine appeared somewhat immune as recently as September but evidence is now emerging that prices for collectible wines are entering a correction after many years of strong growth. The Liv-ex 100 Fine Wine Index fell 12.4 percent in October.

A close observer of auctions told me yesterday that two recent sales only sold 35 and 43 percent of lots. And some lots are going for well below the low price estimate. At another auction, someone else told me that a case of 1998 Grand Cru Chablis sold for $60. Even though there’s a risk of premature oxidation with that wine, $5 a bottle certainly seems like it’s worth a flier. Such a low selling price indicates that there was no reserve.

While many shops may have locked in higher costs, making them unwilling or unable to discount, some specialty shops do broker private collections too and can have faster turnarounds than auction houses. Provenance is always an issue with mature wine, so feel free to ask where the wines came from.

But some sellers at auction may be eager to liquidate making the secondary market may be the best place for wine deals this fall. Of course, if the global economic malaise continues into next year or beyond, declines in fine wine prices could continue. So you may not want to step in and catch too many falling magnums.

Some upcoming auctions: Zachys, Nov 6-8; Acker, Merrall Nov 7; Christie’s Nov 17 and 21; Sotheby’s Nov 22; Hart Davis Hart Dec 5.

Master of Wine Charles Curtis joined Christie’s auction house this summer as head of the Wine Department in North America. Trained as a chef, he entered the wine trade in 1994 and most recently was with LVMH. I caught up with him via email.

Christie’s Wine Department had $71 million in sales worldwide last year, the bulk coming in Europe. On November 29, they will resume live auctions in Hong Kong. For the complete calendar, see the Christie’s Wine Department web site.

1. How is the financial turmoil affecting the fine wine market?
Like all industry leaders, Christie’s is watchful of the unfolding situation in the financial markets, Read more…

The wine of the moment, everyone agrees, is 1982 Chateau Lafite-Rothschild. Jamie Ritchie, Sotheby’s North American wine department head, observes that “it now regularly brings $25,000 to $30,000 a case. The rise shows the strength of Asian buyers.” Last year you could have purchased a case for only $11,000. [Bloomberg]

Will 2008 be kind to the wine auction market? Have your say in the latest poll! (Check prices for a bottle of Lafite 1982 at retailers)

poll now closed

The pace of events in the best wine story of the year has just quickened. Earlier in the year, the Wall Street Journal had a page one story revealing the billionaire Bill Koch had assembled evidence of fraud in the auction market and was preparing to turn it over to the FBI. The New Yorker followed with a fascinating story of “The Jefferson Bottles,” which laid out even more details about the story, which included such characters as Koch, described as a billionaire sheriff trying to right wrongs, an elder statesman in the world of auctions who was either culpable or gullible, and a fraudster named Hardy Rodenstock who was known fro throwing elaborate parties and perhaps being a superb blender of old wines into fraudulent bottles.

Now, the WSJ goes back to the well and reported on p. A16 on yesterday that Bill Koch has sued Zachys and collector Eric Greenberg in federal court in New York. Koch bought $3.7 million from a Zachys auction on October 28, 2005 that was sourced to Greenberg’s cellar and now alleges that 11 of those bottles were fakes. Zachys declined to comment and Greenberg’s attorney called the allegations “absolutely false.”

But now Howard “wine under $20″ Goldberg rides in with the revelation on Decanter.com that it was Eric Greenberg’s cellar that was auctioned this past weekend by Acker, Merrall. Acker had previously not named the collector who was selling, instead referring to it as “the man with the golden cellar.” It fetched $15.6 million including commissions.

Related: “Has the wine auction market peaked?” [Dr. V]
See the official court papers via scribd.com

Devise a strategy for all that surplus wine! This month in Chicago and New York, I’ll be leading classes on collecting, the wine auction market and how to strategize for investing or enjoyment. Both locations will have tastings of collectible wines.

We’ll do one marathon session at the University of Chicago on Sep 29. (details and registration)

Starting on September 25, we’ll spread it out over three Tuesday evenings at New York University’s Torch Club. (details and registration)

Only five spots are left in Chicago and a few more in NY so sign up now or never! Hope to see you there.

“I’ve bought so much art, so many guns, so many other things, that if somebody’s out to cheat me I want the son of a bitch to pay for it,” he told me, his color rising. “Also,” he said, smiling, “it’s a fun detective story.”

Indeed it is. That was billionaire Bill Koch as quoted in the fantastic New Yorker story about potential fraud in the fine and rare auction market. The story surrounds Koch’s four bottles of 1787 Lafitte (sic) allegedly from the cellar of Thomas Jefferson. He acquired them for $500,000 total and, upon learning that their origins could not be verified, he has now spent $1 million in investigative and legal action.

Great stuff–consider the article by Patrick Radden Keefe an absolute must read. It’s got a great cast of characters ranging from a dead president, the billionaire sheriff, the possibly gullible and definitely eager auctioneer, the gumshoe, the man with a hidden past, prone to excess going by the name of Hardy Rodenstock…All written in the classic, thorough, and engaging style of the New Yorker. Pass the popcorn and savor it like a glass of 45 Lafite–a real one.

There’s a fascinating section about just how easy it is to perpetrate fraud in high-end wine since many of the wines are never opened, instead simply displayed. And when they are opened, a lot of times those pulling the corks don’t know what a certain wine should taste like, thus they can easily be defrauded, or it is many years after purchase, and the statute of limitations has passed.

Oh yeah, the rest of the issue is “the Food Issue.” Might as well pick it up and read the whole thing over the holiday weekend.

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The recent turbulence on Wall Street has caused some pain: Bear Stearns is laying off 240 people, the easy money of the yen carry trade is drying up, and bonuses are rumored to be only 25 percent of what they were last year if the year ended today.

How does this affect the auction market for collectibles? Billionaire Eli Broad recently told Bloomberg that he thinks prices will decline for the high-end art market. As the fall auction season kicks into high gear, auctioneers must be wondering if the same fate awaits them for wine.

I think not for three reasons. First, there’s gotta be a pretty limited number of people who would pay $100 million for Damien Hirst’s diamond skull, while fifty cases of 1982 Lafite can be broken down to 50 different buyers if need be. Even 25 percent of last year’s bonus still buys a lot of wine. Ferrari? Maybe that gets the ax, but wine stays.

Size matters too: total US wine auction sales last year were $162 million, strong growth year over year, but at the rate of a skull, that doesn’t even add up to an entire diamond encrusted skeleton should Hirst ever do one of those. The $1.7 trillion hedge fund industry may be down, but it’s by no means out. And if you’re trading down from big ticket art, why not shift into lower-ticket but still investment-grade wine? There are a lot of new empty cellars in Greenwich, CT and beyond just waiting to be filled up.

Finally, it’s tangible. At the end of a day trading, going home and sitting in the 55 degree cellar and looking at the wine is fun. It’s there. It’s real, unlike many mortgage backed securities or derivatives thereof. And alluring. It might even make you want to uncork a bottle. As Napoleon is reputed to have said, “Champagne. In victory you deserve it; in defeat, you need it.”

What do you think about the market for collectible wines this fall? Have your say in the comments below.

Select wine auctions fall 2007: (after the jump) Read more…