* Estate sues customers out wine, cash for bankrupt wine shop
* Citibank settles credit cards, PayPal sued over fees for dates
Wine buyers stiffed in the multimillion-dollar Ponzi scheme that ran from a Berkeley, Calif., wine shop are now defending themselves in clawback lawsuits the bankruptcy trustee filed.
Some 4,500 people paid Premier Cru $45 million for European wine, which never arrived for most of them.
Estate trustee Michael Kasolas has filed about six dozen lawsuits against former Premier Cru customers since December. The suits allege what few refunds and bottles they received were transfers made when the store was already insolvent and thus fraudulent.
“The wine and winery bankruptcies I have been involved always seem harder than regular business cases,” Ron Oliner, a restructuring partner with Duane Morris LLP in San Francisco, said Feb. 26.
“This has been a pretty notorious case locally, and while the court-appointed professionals are doing their jobs in tough circumstances, nobody is going to [be] happy,” Oliner said in an email to Bloomberg Law. “Clawbacks are a part of life in bankruptcy. They are never easy to explain to laymen, and to wine connoisseurs especially.”
Premier Cru’s recordkeeping was so poor, the government alleged in the criminal case, “the precise loss amount of defendant’s 20-year scheme will never be known.” It filed for bankruptcy in January 2016.
Wine importer John Fox was sentenced last December to 78 months in prison and ordered to pay $51.5 million restitution following his guilty plea to embezzling and using funds for personal uses.
Among those personal uses was spending $900,000 for women he met online, payments for which were transferred via PayPal Holdings Inc. The trustee’s adversary proceeding against PayPal seeks to recover $119,312 in funds transferred during 2009-15.
The trustee has settled or compromised with 18 defendants, including a $600,000 settlementapproved Jan. 2 with Citibank N.A. over $1.58 million in credit card charges Fox and his wife, Abigail, made in the seven years prior to the bankruptcy filing.
Attorneys with Wendel, Rosen, Black & Dean LLP in Oakland, Calif., representing trustee Michael G. Kasolas couldn’t be reached for comment.
Lots of Bad Feelings
A trustee suing those who got out early is basically standard operating procedure in Ponzi scheme cases, said Bennett Young, a partner with Jeffer Mangels Butler & Mitchell LLP in San Francisco. Young represents William Hui, a Premier Cru wine creditor who didn’t receive any wine and has a large unsecured claim.
“The notion is that any ‘profits’ are fictitious because the funds result from money taken from a new investor. The wrinkle here is there aren’t really ‘investors’ looking for ‘profits,’ just wine buyers looking to get the wine they paid for. So it is a little different,” Young said in a Feb. 26 email to Bloomberg Law.
Other recent bankruptcies in the wine industry that involved fraud resulted in similar clawback situations, “with lots of bad feelings all around,” David Balter, an attorney with the Napa Country law firm Dickenson, Peatman & Fogarty, told Bloomberg Law Feb. 23.
Premier Cru sold, and oversold, thousands of bottles of wine that were marketed to customers seeking hard-to-get European wines.
A broker will make an arrangement to get a lead time of six months or so to sell wine say from the Burgundy region in France before it is released to the public, said Daniel Posner, National Association of Wine Retailers president and owner of a White Plains, N.Y., wine shop.
“Premier Cru was really great at capturing that marketplace” even as its pricing went from a few percentage points below cost to 30 percent less than what others charged raised flags in the small world of high-end wine buyers and sellers, Posner told Bloomberg Law Feb. 23.
What Fox really operated during the scheme was what prosecutors called a $20 million “phantom wine” fraud, reselling the same bottles, and not delivering the product or refunds.
Individuals hurt by Premier Cru’s fraud may get some help from a nationwide law firm. Peiffer Rosca Wolf Abdullah Carr & Kane PLC is investigating corporate entities that may have assisted Premier Cru in the fraud to supplement what is obtained for individuals in the bankruptcy court, Alan L. Rosca, a partner in the firm’s Cleveland office, told Bloomberg Law Feb. 26.
The case is In re Fox Ortega Enterprises Inc. dba Premier Cru, Bankr. N.D. Cal., No. 4:16-bk-40050, order authorizing European process server filed 2/23/18.