Did A $70 Million Wine Ponzi Scheme Just Collapse?

A now-bankrupt California wine retailer that specialized in "future delivery" of expensive wines to customers is now reportedly under investigation by the FBI over claims that it operated a massive Ponzi scheme that duped thousands of consumers.  Wine Spectator Magazine is reporting that Premier Cru, based out of Berkeley, California, is the subject of an FBI investigation looking into "claims of a Ponzi scheme involving the [company]."  Premier Cru filed for bankruptcy protection early last month, which was followed by the personal bankruptcy filing this week by the company's president John Fox.  Already, the collapse has been estimated to be the "biggest wine retail-related default to have ever occurred in America."

Premier Cru, which operated as Fox Ortega Enterprises, sought out purveyors of fine wines by offering attractive prices on rare bottles that often handily beat competitors. The company also specialized in selling "pre-arrival" or "futures" wine, offering tantalizingly low prices on rare wine vintages that were currently bottling and had not yet been bottled.  The waiting period for such wines could range for months or even years, with some customers waiting up to five years to receive their purchased wine.  

The company came under fire last year when nearly a dozen customers filed lawsuits accusing the company of fraud and of operating a pyramid scheme.  Those customers alleged that Premier Cru had failed to deliver millions of dollars in pre-arrival wine and instead offered only excuses and empty refund promises.  Shortly after those lawsuits were filed, the company shut its doors and purportedly transitioned to an online-only sales platform.

In early January, Premier Cru sought bankruptcy protection under Chapter 7 of the U.S. Bankruptcy Code.  In its petition, the company listed assets of $1million to $10 million but liabilities of $50 million to $100 million.  The petition listed the near-entirety of the company's assets as $6.5 million in wine inventory but also disclosed nearly $70 million in unsecured creditors who are suspected of purchasing - but never receiving - rare wines.  A 1,401-page bankruptcy petition lists over 3,950 creditors with debts ranging from $50 to over $100,000.  The list of creditors contains several well-known wine collectors, including Accel Partners' Arthur Patterson who is reportedly owed more than $830,000.  Fox's petition was filed earlier this week, listing assets of $0 to $50,000 compared to liabilities of $50 million to $100 million.  

The court-appointed bankruptcy trustee in the Premier Cru bankruptcy has disclosed that approximately 35,000 bottles of wine remain in the company's inventory, with a small percentage of those bottles segregated for approximately 120 "paid-up" customers.  While the trustee has indicated that he intends to sell off all of the wine - including the pre-sold wine - for the benefit of creditors, he does anticipate that those "paid-up" buyers may attempt to assert their interests.  The judge overseeing the bankruptcy case has cautioned the trustee against racing to liquidate the wine while potential creditors' claims may be asserted.  

The trustee will conduct a so-called "341 Meeting" on February 24th in which creditors will have the opportunity to question Premier Cru principals - including John Fox - under oath about the company's position.  The FBI has asked that interested individuals send complaints and tips to premiercru.complaints@fbi.gov.