The wine investment market has become a breeding ground for unprincipled salesmen charging outrageous prices for wines. JOHN STIMPFIG gives advice on how to avoid wine's dodgy dealers.
If there’s one piece of advice that fine wine investors should never veer from it’s this: only deal with reputable, respected suppliers. As many testify, it could save you a lot of money and possibly heartache too. In the last few years, thousands of investors have been duped of millions of pounds by a rash of dodgy drinks investment companies who have succeeded in ripping off investors. According to the campaigning wine writer Jim Budd, investor losses since 1993 could well amount to between £150 to £200 million.This is the dark and murky downside of the claret investment mini boom. For, while more and more people have been drawn to the potential profits of buying and selling fine wine, various crooks and villains have been equally attracted by these buyers, as well as by an unregulated market, to make quick and easy killings.
Recently, the main area of activity has seen these fraudsters setting up a string of ‘wine investment companies’ offering tempting but bogus returns to investors seeking to diversify from traditional stocks and shares. They then target potential investors (or victims) through current shareholder mailing lists. Invariably the names of these companies sound plausible – Goldman Williams, City Vintners and the Burbridge King Group are three examples of a dozen or so duplicitous traders who are currently operating.
To the inexperienced investor, the sales pitch can be extremely convincing. It focuses on the tax-free benefits of buying asset class wines which, it is claimed, have doubled in value within the last two years. The hard sell also suggests that the wines on offer (typically, blue-chip first growths such as Margaux and Lafite from the 1995 and 1996 vintages) will continue to rise in value at a similar rate. In other words, it’s an unmissable opportunity.
Lies, lies, lies
Except that this boat is so leaky, it’s about to sink like a stone. For while these companies have picked good wines from good vintages, these wines have certainly not doubled in value in the last two years. At best, some have increased marginally, while others have either remained static or actually declined in value. But the real sting in the tale is the outrageous prices being touted by the fraudsters. For instance, Budd quotes a company called Vaz Alexander Ltd, set up last October, which was offering a half case of Lafite 1996 at £2,375, or £4,750 for a round dozen. A quick call to Bordeaux Index will tell you that you can buy the same wine at £1,900. Similarly, The Burbridge King Group has been touting the 1996 Troplong-Mondot at £4,200 a case. Compare this with the £245 price tag at Farr Vintners and the scale of the rip-off is immediately apparent. It amounts to a staggeringly quick and dirty profit of just under £4,000 and a return of more than 1,700%. In some instances, the fraudsters never even bought the wine in the first place. Moreover, almost all the ‘claret web’ companies have the nerve to charge a 2.5% service fee on top.
To catch a thief
Jim Budd believes that ‘selling wine at such an excessive price that claims it is an investment/financial opportunity that cannot be realised is fraud’. To his credit, he has run an award-winning journalistic campaign to put an end to these purveyors of misery.
Budd has set up an a website (www.investdrinks.org) which names and shames the rip-off merchants by listing their crimes and misdemeanours both in the UK and around the world. He has tried to bring them to book with the relevant authorities and in some instances has succeeded. He has also encouraged reputable merchants not to supply the fraudsters. So far, 35 legitimate merchants have pledged to do this, including Berry Bros & Rudd, Corney & Barrow and Christie’s. Some suppliers – Farr Vintners and Bordeaux Index among them – have declined to do so, arguing that fraudsters can always acquire the wines through third parties.
Budd’s site also contains valuable information to help people recover their money. Encouragingly, some people have actually been refunded by certain investment companies, either in part or in full. The site offers advice about how to complain and which relevant authorities to approach. Most importantly, the site has clearly had its successes in eliminating these so-called ‘investment’ companies. Some are no longer operational, having been investigated by the fraud squad. Others have ceased trading, been closed by the DTI or gone into liquidation.
And there’s more…
But it isn’t just top-class Bordeaux. Budd and other journalists, such as Andrew Jefford, have also unearthed a range of Champagne and whisky scams that have parted millions of pounds from private investors over recent years. Earlier this year, four men were jailed for a total of 21 years for conspiracy to defraud investors following two interlinked Champagne and whisky scams. However, the latter was just the tip of the iceberg. Since 1997, the police authorities have investigated up to 30 whisky investment companies operating frauds totalling tens of millions of pounds. The message is clear. Be vigilant and deal with reputable dealers. The fraudsters are still operating and people are still being taken in. Make sure you aren’t one of them.
Next in the series: Head to Head: Jancis Robinson MW versus Gary Boom of Bordeaux Index on ‘wine should not be an investment’.
John Stimpfig is a contributing editor to Decanter
Written by JOHN STIMPFIG