$100 Million Counterfeit Wine Market

AW Partner Jane Brennon, ISA CAPP sent me the following article from Forbes on the growing counterfeit wine market, estimated to at $100 million or more. Luxury items, as appraisers know is a growing market segment, and fine wine is part of that.  As new money and collectors flow into a market, it can also typically bring in fakes, frauds and counterfeit items.  This Forbes article gives a good summary of what is going on within the upper end of the wine market, including selling though dealers and auction houses.

Forbes reports (for the complete article, follow the source link below)
There are no even vaguely reliable numbers compiled on the value of bogus fine and rare wines that change hands every year (as opposed to the industrial-scale counterfeit bottling of more commonplace wines said to take place in the Far East). Egan’s ballpark estimate is around $100 million. But most of them go undetected, or unprosecuted, partly because, as Russell Frye discovered, “it takes very deep pockets to pursue someone who is selling fake products.” (For that reason Frye ended up settling out of court with the vendor who sold him the ersatz bottles.)

Unfortunately for several big-time wine counterfeiters and the auction houses and retailers that sold their bottles, that deep-pocketed someone arrived on the wine scene: billionaire William Koch. Koch’s estimate of the size of the counterfeiting market tops Egan’s (“My out-of-the-air estimate,” he says, “is that several hundred million dollars’ worth of fake wine is being sold every year”), which is bad enough in the abstract, but it came home to him personally. “I bought a lot of fake wine at auction–that’s where I got most of it–but I’ve even bought fake wine at charity auctions! I’ve been given fake wine as a present.”

This rubbed Koch the wrong way. Very wrong: He has now spent, by his estimate, more than $30 million pursuing wine fraudsters. As he says, “It just bugged me that there was this code of silence. The auction houses and the resellers don’t want to know it’s fake because they are making a gross margin, and then when the collectors get it they don’t want anyone to know they have fake wine because it devalues their cellar–they want to dump it, get rid of it.”

When he began to have doubts about a large consignment of dazzling rare wines bought through Zachy’s in New York, Koch turned to Egan to break “the code.” And the Wine Detective went to work: “I told him, sorry, but all the wines you’ve shown me are fake.”

There were bottles with wrong corks–a château name printed in the wrong direction–and doctored labels (a glue expert would later determine that some had been attached with Elmer’s). Remembers Koch, “Michael used his superb access to the châteaux to get harvest records, which were very useful. [For example] I had bought seven or eight magnums of Château LaFleur 1947, and it turned out there were only five ever bottled!”

Looking on in the Cape Cod courtroom were spectators watching Egan’s testimony with uncommon interest: agents from the FBI and lawyers from the Southern District of New York’s U.S. Attorney’s office. They soon contacted Egan and put him to work on a made-for-the-tabloids counterfeiting case.

In what appears in retrospect an impossible-to-miss echo of the Hardy Rodenstock scandal in Germany, a man with a hazy, unverifiable past–in this case an Asian expat named Rudy Kurniawan–burst onto the scene with a bottomless trove of wines no one even knew still existed. A charmer with an authentically impressive palate, Kurniawan, like Rodenstock, established himself by throwing astounding, bacchanalian tastings at his own expense. And once again the wine establishment–Robert Parker, Burghound’s Allen Meadows and many others–joined in the chorus of praise.

Kurniawan had pulled off some very public coups–including a $25 million auction sale–and perhaps untraceable numbers of private sales to collectors by the time the FBI raided his Los Angeles home in 2012. The raid netted, among other smoking guns, 20,000 fake wine labels and a cache of empty top-end wine bottles that Kurniawan had bought from sommelier friends, some of them marked right on the glass with the formula he would blend in them to fabricate the original wine.

As Egan quickly realized, the man was a student of the art: “This was a very sophisticated operation. He had actually scanned the original importer’s back labels from, say, the 1950s and 1960s, and had those printed professionally.” But even the cleverest criminals trip themselves up. Egan’s sleuthing discovered, for example, that the label on a bottle of 1929 Roumier Bonnes-Mares bore an all but imperceptible watermark (“Concord”) that he traced to an Indonesian printing company established in 1983.

At the trial last December that ultimately convicted Kurniawan of fraud, Egan was able to draw on his years of experience to verify that, on various assignments, he had personally examined and determined to be fake 1,077 bottles of wine attributable to Kurniawan. The 267 bottles the FBI had seized from his home or rounded up from other sources–all of them fakes, Egan testified–were only the tip of an otherwise invisible iceberg. As Egan puts it, in regard to the market in general: “There is a lot of fake wine about, and a lot that has yet to come to light.”
Source: Forbes

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