Headlines about the most recent high profile counterfeit wine scandal read like the chapters of a crime novel: A Vintage Crime; Wine Fraud Case Takes Another Twist; Counterfeiter Sentenced to Ten Years. Rudy Kurniawan, an Indonesian immigrant who at one time owned one of America’s most fantastic cellars, is also one of the largest counterfeiters of fine wine in history. In the early 2000s he was in his early twenties and spending a million dollars a month on wine, accumulating some of the grandest labels: Ponsot, Domaine de la Romanée-Conti, Roumier, Lafite, Mouton-Rothschild, Pétrus.
In 2006, Kurniawan began cashing in on millions of dollars worth of wine. In that year The Cellar I and The Cellar II, two wildly successful auctions held at Acker Merrall & Condit, together grossed over $35 million and secured that auction house’s international reputation. Eventually suspicions were raised—if something sounds too good to be true, it probably is—and Kurniawan was arrested in 2012. The FBI discovered a counterfeiting “factory” in his southern California home, which was littered with thousands of fake labels, capsules, corks and a re-corking device, empty bottles and recipes for concocting counterfeit blends.
The Kurniawan story is sensational, but how deep does the problem of wine fraud and counterfeit go and how do sommeliers fit into the story? Why aren’t more sommeliers talking about fraud? And what’s our responsibility to clients? To find out more, I interviewed Maureen Downey, one of the world’s top wine authenticators who worked with investigators on the Kurniawan case. It was in the spring of 2000 that Downey, then a sommelier working for auction house Morrell & Company in New York, began noticing fake wines. “You expect a bottle of Pétrus to have a certain weight,” she explained. “I reached for a bottle of 1982 Pétrus and almost threw it to the ceiling, it was so light. I started really looking at it and comparing it with other bottles of Pétrus and I began to notice differences. It was a revelation.”
Since then, Downey has dedicated her career to publicizing wine fraud and exposing counterfeiters. In 2005 she founded Chai Consulting, a private wine collection management firm that provides services to clients around the world including wine authentication. She’s assisted authorities in prosecuting wine counterfeiters and their vendors in several fraud cases. This year she launched winefraud.com, a website dedicated to providing educational resources—for a price—about wine fraud and counterfeit both to collectors and trade members. With it, she hopes to raise awareness of wine fraud, creating a transparent marketplace for consumers and helping vendors protect their brands.
Wine Fraud in All its Forms
Although counterfeit wine cases have been the most highly publicized, wine fraud exists in many forms. First, there’s adulteration. This is what happened in Austria in 1985 when producers used diethylene glycol, a toxic substance used in the production of antifreeze, to make their late harvest wines taste sweeter. Adulteration made headlines last month when Italian authorities raided 17 different wineries suspected of using a “magic potion” of prohibited additives to enhance the aromas of their wines. IP infringement is another form of fraud affecting the wine industry, particularly in China. Cheap bulk wines are labeled to look nearly identical to high-end, expensive bottles like Opus One; a bottle of “Penfoids” sports the same white label and red-lettered script as Penfolds.
A recent example of misappropriation, another type of fraud, occurred this year when several people were arrested for their involvement in a scheme to sell mislabeled bulk wine in Canada. More than a million liters of Italian table wine was shipped to Ontario, where it was manipulated to taste like Chianti. It was then bottled in Canadian glass, labeled as Chianti and distributed throughout Quebec.
There have been several recent scandals involving wine storage fraud and theft as well. In the last year, a string of wine thefts took place throughout the Bay Area, most notably a break-in at Thomas Keller’s Michelin three-star property The French Laundry on Christmas Day, 2014. Thieves stole $300,000 worth of wine—but they weren’t just any bottles. They chose particularly rare and expensive bottles like Screaming Eagle and DRC. Downey theorizes that in theft cases like this, someone is paying the thieves to steal particular wines. “Those wines were stolen to order,” she says, explaining how she believes the wine is then passed on through a chain of brokers until a buyer eventually bites. There have also been incidents of theft from wine storage facilities. In October of 2005, a wine storage warehouse in Vallejo was set on fire. The owner of the company, Mark C. Anderson, pleaded guilty to arson—police believe he had stolen nearly $1 million worth of wine from his clients and set the blaze himself in an attempt to cover up his crime.
Counterfeit wines are another piece of the wine fraud puzzle. Counterfeiters work on three main types of fakery. Authentic bottles can be refilled with another wine or blend of wines. Bottles can be recreated using fake labels, corks and capsules. Beyond this, there are so-called “unicorn” wines—wines that producers never made. “Unicorn wines are wines that only exist in the minds of the counterfeiter and the person consuming it,” Downey says. Unicorn wines could be bottles from a vintage the producer didn’t make or from vineyards a producer didn’t source from.
Counterfeit wines first came under the spotlight in the 1980s with the famous “Thomas Jefferson” bottles. Hardy Rodenstock, a prominent German wine collector, claimed to have discovered several 18th-century bottles purportedly owned by our third president, all engraved with the initials “Th. J.” Rodenstock consigned several of the bottles to Christie’s, where they were purchased by a number of wealthy collectors. One of the bottles, a 1787 Château Lafite, was sold in 1985 at a Christie’s auction to the Forbes family for an astounding £105,000, the equivalent of $156,000 and the most expensive single bottle ever sold at the time.
A Billionaire’s Crusade
Billionaire Bill Koch, founder of the Oxbow Energy Group, became interested in Rodenstock’s wines and in 1988 purchased four of the Jefferson bottles from Chicago Wine Company and Farr Vintners, a rare-wine dealer based in the UK. In total he paid almost $400,000 for the bottles. A self-described “compulsive collector,” Koch owns several million dollars worth of art and antiques. When the Boston Museum of Fine Arts approached Koch in 2005 to put on an exhibition of his historical collections, Koch’s staff began researching the bottles’ provenance. The Thomas Jefferson Foundation at Monticello in Charlottesville, Virginia, told Koch’s staff they believed the bottles had never belonged to Jefferson.
Koch hired a retired FBI agent named Jim Elroy to investigate. With the help of a former Scotland Yard inspector and a former MI5 agent in Germany, Elroy discovered that Hardy Rodenstock was an alias; his real name was Meinhard Goerke. Elroy hired scientists in an attempt to age the wine inside the bottle, but the most damning evidence against their authenticity arose when a tool expert examined the engravings on the bottles and concluded that the initials “Th. J.” had been made with a modern dentist’s drill.
In addition to collecting, Koch also has a penchant—and resources to spare—for lawsuits. Benjamin Wallace, a New York-based journalist and author of The Billionaire’s Vinegar, a book about the 1787 Lafite that became the world’s most expensive bottle of wine, agrees: “There aren’t that many people who have the resources that he has, plus his motivation and almost enjoyment of suing people.” When Koch learned in 2006 that his Jeffereson bottles weren’t entirely genuine, he sued Rodenstock, alleging that he knew the bottles were fakes and was running a wine fraud scheme. Koch won a default judgment against Rodenstock, who refused to participate in the trial.
When I spoke with Wallace earlier this month about the subject of counterfeit wines, I asked if he thought the Rodenstock scandal had been the tip of a wine counterfeit iceberg. “Rodenstock at that time was by far the most ambitious and large scale, high-end counterfeiter,” he said. “I don’t think that I thought there were other Rodenstocks around the world that just hadn’t been uncovered. But in time,” he paused, “there was another Rodenstock—Rudy Kurniawan.”
Dr. Conti
Rudy Kurniawan has been described as the Bernie Madoff of the wine world. Nicknamed Dr. Conti for his love of DRC, he was known in the wine community for being able to find fine and rare wines that hadn’t been seen on the market in years—nearly extinct bottles. He held lavish wine events, opening tens of thousands of dollars worth of wine. At one four-day event at the restaurant Cru in New York, Kurniawan spent more than $250,000. At his request, staff at Cru returned dozens of empty bottles to him with instructions to preserve the sediment.
In 2008, Acker Merrall & Condit held an auction at Cru. Up for sale were 97 bottles of Domaine Ponsot consigned by Kurniawan, several from Clos Saint-Denis including vintages from 1945-1971 that the domaine never produced (the first Clos Saint-Denis from Domaine Ponsot was produced in 1982). Laurent Ponsot, the proprietor of the domaine, took notice and the unicorn wines sparked an investigation that resulted in Kurniawan’s eventual arrest in March of 2012. Kurniawan was convicted of fraud in 2013 and in 2014 he was sentenced to ten years in prison and ordered to repay $28.4 million to the wealthy wine collectors who purchased his counterfeit wines.
Bill Koch again found himself on the wrong end of a counterfeiting scheme. Koch alleges he purchased over $2 million worth of fake wines originating from Kurniawan. He testified at Kurniawan’s criminal trial and sued him in civil court. The civil suit was settled out of court this July for a reported $3 million. As part of the settlement, Kurniawan has agreed to tell everything he knows about counterfeiting in the wine industry. “I give Koch credit for filing all these lawsuits,” Wallace tells me. “Most collectors were either embarrassed that they might have been conned or were self-interested, not wanting their collections devalued by a revelation that they contained fakes.”
According to a 2013 CBS interview with Koch, the billionaire has spent more than $25 million on lawsuits against alleged counterfeiters. Koch says 421 bottles of fine and rare wine he purchased through several vendors, totaling about $4.5 million, have turned out to be fakes. He’s made it his personal mission to punish the fraudsters who fooled him.
The Crusade Continues
In 2007, Koch sued Eric Greenberg, founder of the Internet company Scient Corp, accusing him of fraud. Greenberg was the sole consigner for a Zachy’s auction in 2005 at which Koch purchased 17,000 bottles. Twenty-four of these bottles were later discovered to be counterfeit. In 2013, Koch won his case against Greenberg, with the jury awarding him $379,000 in damages. The jury also awarded $12 million in punitive damages, but this amount was later reduced by U.S. District judge J. Paul Oetken to just over $900,000. Oetken stated, "The jury found that Greenberg had shamelessly defrauded customers with 'garbage.’ Yet his conduct did not cause a particularly egregious harm: he was dealing in luxury goods marketed to a sophisticated and wealthy subset of the population. The harm was strictly economic, and the victims were far from vulnerable consumers. These facts merit a relatively low award of punitive damages."
I spoke with Frank Martell, Director of Fine and Rare Wines at Heritage Auctions in San Francisco, and asked what he thinks about Bill Koch’s slew of lawsuits. “I applaud the effort,” he responded. “There’s an element to wine counterfeiting that becomes very difficult to prosecute. There’s not really anybody who gets hurt. The people who have bought counterfeits are typically people who can afford to take the loss. So it’s not a victimless crime, but it’s not far from that. So without Bill Koch putting the investment into punishing these people, it probably doesn’t happen.”
The real harm, one might argue, is what’s happened to the fine and rare wine market as a result of the operations of counterfeiters like Rodenstock and Kurniawan. Martell says that when Rodenstock was operating, auctions weren’t the norm in the US and the proportion of buyers affected was very small. “Rodenstock was producing things that were so rare, so unique, that it really didn’t affect anybody unless you were buying imperials of 1921 Pétrus, and that’s a very narrow group of people,” he says. “Rudy on the other hand came at a time when the auction vehicle was far more prolific, the audience was far, far larger, the capacity to produce these things was much, much greater, and it has done real damage. It’s sort of a cutting edge thing.”
Downey agrees. “Kurniawan created a marketplace for these wines that don’t exist,” she says. “He would have these big dinners and his supporters would write about the wines. They created this huge excitement around these wines that didn’t exist, which drove prices up. But we haven’t seen prices come back down.” Wallace emphasizes that these counterfeiters have also altered the atmosphere of the fine and rare wine market as a whole. “All you need to spoil the market is that one major culprit—once that doubt is injected, it could apply to any bottle out there,” he says. But Martell offers an alternative perspective: “I actually see this being a very healthy con. Everybody who’s buying super rare wines is approaching it with a healthy degree of skepticism.”
Who’s Responsible?
So where does the responsibility lie for authenticating fine and rare wines? I ask Downey if there are laws in place for auction houses, brokers, or even restaurant sommeliers to authenticate the wines they purchase and sell. “Nope,” she says simply. “Absolutely not.” But how, when dealing with millions of dollars worth of fine and rare wine, can both a vendor and a buyer be so lax about provenance and authentication? I think back to the CBS interview with Koch in which he displays some of the counterfeit wines he’s unwittingly purchased. “Here’s a nice old bottle,” he says, holding up an oddly shaped, squat black bottle with a label that reads 1737 Lafite. “But look at the other side.” The back label reads 1737 Château Lafite-Rothschild. “The Rothschilds didn’t own Lafite in 1737.” How could someone paying so much money for wine at auction overlook these kinds of details?
It’s easy to look the other way, for a variety of reasons, Wallace says. Personal embarrassment or fears of having your cellar devalued motivate some collectors to keep quiet about potential counterfeit bottles. But there are other reasons, too. “Often wines are being poured that you’re not paying for and so you don’t want to bite the hand that feeds you,” Wallace says. “Wine journalists, especially, would go to these tastings. Everything would be comped, and they would write favorably about the wines.” This served to endorse the wines and those consigning them. Auction houses, too, would avert their eyes to potential counterfeits, or risk losing the consignment to a rival auction house. “In the case of auction houses looking at a potential consigner’s collection, if they were to say they thought a certain percentage of the wines were fake, the consigner would likely go to a rival auction house. So if you want to keep the consignment, it’s in your interest to overlook those wines that seem dubious.”
Not to mention that wine fraud and counterfeit have the potential to make fraudsters vast amounts of money. “It’s so lucrative that we’re finding it in all phases of the market,” Downey tells me. “We’re finding it in bulk wines, in the twenty-dollar wines. There’s fraud at all levels.” Martell agrees. “There are two angles that appeal to counterfeiters and one is greed,” he says. “Money’s money. If you can take $15 of components to produce a $1,000 bottle, it’s a compelling argument. That’s a very profitable venture.” He says he also believes counterfeiters enjoy the thrill of deceiving. “On the other hand, you have people who approach it for the thrill. Can I get away with it? Can I fool these people? I knew Rudy pretty well and for him, I think he approached it almost as an art.”
Fraud and the Sommelier
So how do sommeliers fit into the story of wine fraud and counterfeit? Why isn’t fraud and counterfeit a part of our community’s dialogue or curriculum? Does our community lack the tools for fighting counterfeit or are we just blissfully unaware? As buyers we’re responsible for providing our clients with healthy bottles. So what’s the best method for fighting against fraud and counterfeit, particularly in restaurants?
Downey believes restaurants are one of the weakest links in the authentication chain. The publicity of counterfeit scandals has increased public scrutiny of auction houses, and she believes many auction houses have become effective authenticators. “Most auction houses have really cleaned up their game,” she says, but in restaurants sommeliers don’t often have access to the volume of fine and rare wines needed to become effective authenticators. “Working at an auction house you see several million dollars worth of fine and rare wine every month, and when a counterfeit comes by you can recognize it. At a restaurant, you might only get two bottles of Cheval Blanc. So many sommeliers just haven’t touched enough old and rare wines, real or fake, to be able to tell the difference.”
Martell agrees and points out that authentication isn’t an exact science. “There’s nobody who’s infallible,” he emphasizes. “There’s nobody you can guarantee to get it right 100% of the time. As technology changes, counterfeiters are getting more sophisticated and you’re constantly chasing this moving target. Some of the fakes Rudy was producing were really sophisticated.” Counterfeiting takes advantage of and mirrors the complexities of fine wines and authenticating bottles is as complicated as fine wine itself. One must take into account history, looking for anachronisms in the labeling or packaging—such as an AOC statement on a bottle of wine produced before 1936 or the lack of the legally required container size on a French bottle after 1932.
Authenticators also look back at the chain of provenance as well as the many tiny details of the glass, label, capsule and cork. “There’s not one smoking gun, especially when you’re looking at older bottles,” Martell explains. “It’s only by looking at these things over and over that you learn which bottles have the corks horizontally printed, vertically printed, where the vintage is supposed to be. Then things get even further complicated when you take into account that a lot of these really prolific winemakers didn’t have tons of money in the old days and were war-torn. You’re not looking for one problem; you’re looking for a preponderance of problems. It’s all stuff that you really only figure out by touching bottles and crawling through cellars, understanding what a label looks like when it’s moldy rather than scratched up with dirt to artificially show age.”
How can those of us working as sommeliers in restaurants best protect against fraud and counterfeits infiltrating our beverage programs? Downey believes we must use the same approach we do on a daily basis when it comes to wine: educate ourselves. Martell agrees and emphasizes integrity on the part of those responsible for selling wine—seek the help of reliable authenticators if you’re unsure about a bottle and purchase only from reliable vendors. “Our clients at Heritage are trusting us to provide them with a good drink. If we’re not certain that it’s a good drink, we just don’t sell it.”
Sommeliers should approach fine and rare wines with a degree of skepticism. “It would behoove a sommelier who’s dealing with really high end wines to spend a bunch of time just looking through Google images,” Martell says. “Look at ten vintages of La Tâche. There is a vintage where the accent over the ‘a’ started and there are vintages when that wasn’t there. You need to know those things if you’re going to sell those wines. If you don’t sell those wines, then it just comes back to making sure you buy from reliable sources.”
Effective authentication requires a number of techniques. Downey emphasizes paying attention to both old and new technology when authenticating. This is also a combination producers should rely on in order to protect their brands. “Simply relying on new technology isn’t an answer,” she says, citing the case of Prooftags that have begun to peel off bottles, allowing potential counterfeiters to refill them with fake blends. “The number one thing producers can do to make sure their wines don’t get counterfeited is use extensive production techniques, especially printing,” she says. “It’s really hard to successfully copy an offset letterpress-printed label. Embossing is really difficult to counterfeit as well. Araujo labels are a perfect example. It’s embossed on many levels, even the hills are embossed. Embossing is a very expensive and costly process, just like using letterpress printing or metallic ink. The more expensive the print method, the harder it’s going to be to duplicate. And I think that’s going to be more effective than simply relying on some new technology.”
The Future of Wine Fraud and Counterfeit
Downey, who has combed through the evidence crucial in convicting Kurniawan, estimates that he sold about $130 million worth of counterfeit wine. “If you calculate that amount today, that means there’s about $550 million worth of counterfeit wine on the market.” Wasn’t it all destroyed, I ask? “What got taken off the market in the US, I firmly believe was resold in Asia,” Downey asserts. “Because right at the same time the heat was rising on the whole Rudy issue, Hong Kong opened up. So there was a great opportunity for vendors to take all of the problem bottles that people in the US were starting to wise up to and dump them on an unassuming Asian market.”
In July 2012, Michael Steinberger wrote an extensive article on the Kurniawan scandal for Vanity Fair magazine. “Collectors on both coasts are known to be holding millions of dollars’ worth of wines procured from Kurniawan,” he reported. “It is feared that many of these bottles will be sold in Asia, where money is abundant and there is often less scrutiny. In recent years, Hong Kong has eclipsed London and New York as the richest wine auction market, and it has apparently also become a popular dumping ground for counterfeits.”
China is responsible for much of the world’s counterfeit products, with wine at all price points increasingly being targeted. Modern technology has made counterfeiting cheap to perform and the newer, less informed Asian market is an easy target. Nick Bartman, a contributor on winefraud.com, has spent twenty-five years investigating counterfeiters, often in China. “Imagine how the unscrupulous vulture business community in China might see wine as a trick not to be missed,” he says on the website. “An exponentially growing market of customers with comparatively little knowledge, a product with indefinable precise properties and traceability, and many thousands of foreign brands to purloin.”
Again, education will be key to the fight against wine fraud and counterfeiters and sommeliers must play their part in educating themselves and their clients. “There’s got to be internal pressure from the industry that’s dedicated to stamping out fraud,” Downey tells me. “I hope we can create a community of people who educate themselves and take the time to make sure that clients are getting authentic wines,” she pauses, adding, “because counterfeiting didn’t end with Rudy.”
Good job Erin. Education is key indeed.