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.
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.
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…
Sabretts and Vega Sicilia
Wines from renowned collector Steve Verlin’s estate are being sold this weekend in Chicago at Hart Davis Hart. He sounds like he was quite a character based on this preview tasting in New York: “In keeping with Verlin’s quirky preferences, the Sabretts [hot dogs] were served at Monday’s dinner with the 1968 vintage of Spain’s most honored wine, Vega Sicilia Unico. There was also popcorn popped in truffle oil partnered with a classic champagne, Krug 1985, and Krispy Kreme doughnuts were washed down with Chateau d’Yquem 1976.” [NY Sun]
Bordeaux sighs in relief
After getting damned and slammed by Jancis Robinson, Bordeaux catches a break from Robert Parker for the 2006 vintage. He hails it as “superior to 2004.” The Medoc lives to see another day, St. Emilion can raise their head in public but Pomerol is the belle of the ball since the wines from there are “excellent across the board.” Dry white Bordeaux bounces back from irrelevancy as the Parkermeister joins J Ro in praising the wines this vintage. But RP only hands out three potential top scores, to Mouton Rothschild, La Mission Haut Brion, and Bellevue Mondotte of St. Emilion. Needless to say, none of those were on the Jancis short list.
Caution: fragile. May be fake
Have you ever objected when the sommelier at a fancy restaurant uncorks your wine and tests a sample himself? Then don’t buy wines from the 18th century, which now post-Rodenstock, are getting downright molested. Quote: “A combination of nuclear isotope analysis and gamma radiation and proton beam tests conducted by experts from the universities of Bordeaux and Manchester will be used to confirm the age of each glass bottle in the Antique Wine Company collection. The wine itself � extracted by hypodermic needle through the cork – will be subjected to molecular and chemical analysis.” [Decanter]
Cameron Hughes, in the house
Yesterday’s post about American negociant Cameron Hughes sparked a comment frenzy–including several by Cameron himself. He elaborates on the differences between his wines and private labels at grocery stores, his sales techniques, and even offers readers of this site 50 % off shipping using a discount code. See the comments.
The FBI may be targeting the big boys, but does Eric Asimov sound the death knell for winecommune.com and winebid.com?
Ordinary wine lovers, even those who buy a few cases of great wines each year, are unlikely to be affected by scammers, unless they buy old wines or buy their wines from secondary sources, like brokers or through Internet auctions. [NYT]
The most frequent question I get via email from readers of this blog runs something like this: “I found _____ (wine name, vintage, quantity) in my ______ (Great-Aunt’s/grandmother’s/own) ____ (basement/attic/garage). How much is it worth?/Where can I sell it?/Is it drinking OK?”
I told this to a friend the other day and he said, “But are there any good names there? It might be worth a chance.” Then we devised a business idea for Caveat Emptor Wine Co., specializing in wines of unknown provenance. “The wines weren’t ours, but the risk is yours” could be the tag line. Needless to say, we have not contacted an an attorney to start the corporate filing yet.
But some other notable collectors have contacted their attorneys. And they’re not looking to start an LLC. They’re looking to stop fraud in wine auctions and have the wine’s seller or a broker accept responsibility. Needless to say, the main auction houses do a better job at assessing provenance than Caveat Emptor Wine Co. But how much they should stand behind their lots (and cases of wines sold through fine wine stores) is a question that is now getting a public airing before a grand jury in New York City.
The Wall Street Journal reports on page one that federal prosecutors have issued subpoenas to Christie’s, Zachys and some rare wine collectors in a probe into wine fraud at auction. In what might cool off the red-hot secondary market for fine wine sales, successful businessmen and wine collectors Russell Frye and William Koch are also taking action. Roll the tape:
Mr. Koch filed a civil suit last year in federal court in New York, alleging that a German wine merchant, Hardy Rodenstock, forged bottles of wine he claimed had belonged to Thomas Jefferson and had been discovered in a bricked-up cellar in Paris. Mr. Rodenstock also claimed to have other extremely rare wines, including a cache belonging to Czar Nicholas II of Russia, Mr. Koch alleged. Those allegations were detailed in September in a page-one story in The Wall Street Journal. In a Jan. 19 court motion, an attorney for Mr. Rodenstock denied the claims and deflected responsibility to the merchants who sold them directly to Mr. Koch.
“It’s not just Rodenstock,” Mr. Frye continued in the WSJ article. “Counterfeiting is a big problem, especially in the high end. These networks need to be exposed,” and merchants must be accountable, he said.
But fraud is just one problem, estimated at five percent in the WSJ story. So add to that, say, five percent corked, x percent improperly stored, y percent drunk too late–and small wonder the excellent old wines are just so…excellent!
We wine lovers generally think about how to turn our money into wine. But apparently there are those who think that wine can turn into money.
The Wall Street Journal had a big story on page B1 over the weekend about the new phenomenon of wine investing (no free link to the story, “Fine Wines No Longer Just Tempt Collectors”). In London, the Fine Wine Fund has been set up with the goal of investing in wine. They charge fees similar to a regular fund for alternate investments with a two percent annual management fee and 15 percent of the profits.
Is making money out of wine a panacea? Post your thoughts in the comments! One thing is for sure: while the story doesn’t mention the size of the Fine Wine Fund, if a lot of money sloshes into the relatively small market for investment-grade wine, prices will likely go to even more eye-popping levels. Let’s just hope that some corks get popped along the way too.
* * *
Steve Bachmann was quoted in the story talking about inefficiencies in the wine market. You can check out his thoughts on how to value wines on his blog, The Wine Collector. He’s also the CEO of Vinfolio, a fine wine retailer.