Wine investment scams are a subject that many working in the industry would not liked talked about. This is not necessarily because it happens all that often, but because they are hard to identify. As investing in wine has increased in popularity, so has attempts at fraud. Scams can be sophisticated but also achieved using plain old hard sales tactics.
Key Takeaways
Why do wine scams happen
Find out how the biggest scammer succeeded
How you can protect yourself
Is wine a real asset?
In so much as it is a tangible asset, then wine is a real asset. As it has value, i.e. someone will pay for it, it is an asset. Therefore those who suggest that wine has no value are going against the facts. The value of wine is no scam. From an accounting perspective it would probably be best to consider it a long-term asset, i.e. It would take years before you would ideally like to sell it. There is nothing stopping you from selling it quickly at a substantial discount, which in this case would class as a current asset. Although nothing is stopping you from selling your wine a few months after you bought it, it’s greatest value will often be attained 5-10 years down the line.
Why are wine investment scams prevalent?
The truth is few drink the best wines in the world. As a result few are able to distinguish whether the wine they are drinking is just good, or actually an outstanding one. How good a wine is also subjective, it is the opinions of so called ‘experts’ who give good wine value. The problem is not all experts agree.
Investing is an art, not a science
The above adage can be included when describing wine and the value of individual bottles. As we will see, one famous scammer took advantage of this lack of uniformity due to his pallet and knowledge.
The most famous of wine investment scams
Arguably the most famous wine investment scammer was Rudy Kurniawan, who defrauded wine collectors with tens of millions of dollars. Rudy was genuinely knowlegeable about wine. So much so he was able to identify good wine and place it in the bottle of outstanding wines. Wine connoisseur were not able to spot them as fakes when they were sold at auction in places like Sotherby’s. He was caught when two separate wine lovers become independently suspicious. Rudy started selling Bottles of Clos St Denis from Domaine Ponsot of vintages between 1945 and 1971, yet the family behind this wine had only started making it in 1982. It does not say much about the wine buyers knowledge that they did not realise themselves! Bill Koch, a billionaire collector also got suspicious and through his hiring of a private detective sued Rudy.
How do you know if a wine broker is legitimate?
You do not, you have to do the work to find out. If something does not add up, dig deeper. You may have found a scammer! One area you should definitely be cautious of is cold callers. Examples of older investors getting defrauded litter the internet. There are some basic checks you can do.
Visit the registered address of the business
Does the registered business address look relevant for the size of the order you are buying. Do the size of the premises back up on claims the sales team have made in terms of bottles shipped?
Research the company
Has the company only recently been created? This would be an automatic red flag. You may find, that once it has received your money it disappears. If it has been trading for over a decade then it is likely to be legitimate. Why not check the companies accounts on companies house?
Perform an online search
Has the company been in the news for the wrong reasons? Bad customer service such as not answering calls should worry you. Equally if all the reviews are supremely positive then they are probably fake. Use your discretion, if it looks wrong to you it probably is.
Pushy sales tactics
Are you being pushed to transfer large amounts of money to an account whose name does not match the trading name of the wine broker you are dealing with? Are you being told that if you do not buy soon you will lose the offer? Walk away if a salesperson uses such tactics.
Conclusion
Like any investment you should do you your homework. Because the value of wine is subject, you should assign an appropriate level of risk in relation to the value of the investment versus your overall wealth. This is hard to define as everyone’s tolerance is different.
If you are going to start some form of wine investment or whisky investment in the near future, then introduce a margin of safety. This can involve limiting how much you start with, how often you choose to buy, or maybe ensuring that it starts off as a hobby investment. This will ensure your knowledge ‘matures’ at the same rate as your wine. In turn this can help you spot frauds!
Louis is a portfolio manager and a trader who brings a wealth of experience in private banking to The Lazy Trader. A fundamentalist and a trouble-shooter, Louis makes a firm contribution to the trading team.
Louis is a portfolio manager and a trader who brings a wealth of experience in private banking to The Lazy Trader. A fundamentalist and a trouble-shooter, Louis makes a firm contribution to the trading team.
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In so much as it is a tangible asset, then wine is a real asset. As it has value, i.e. someone will pay for it, it is an asset. Therefore those who suggest that wine has no value are going against the facts. The value of wine is no scam. From an accounting perspective it would probably be best to consider it a long-term asset, i.e. It would take years before you would ideally like to sell it. There is nothing stopping you from selling it quickly at a substantial discount, which in this case would class as a current asset. Although nothing is stopping you from selling your wine a few months after you bought it, it’s greatest value will often be attained 5-10 years down the line.
Arguably the most famous wine investment scammer was Rudy Kurniawan, who defrauded wine collectors with tens of millions of dollars. Rudy was genuinely knowlegeable about wine. So much so he was able to identify good wine and place it in the bottle of outstanding wines. Wine connoisseur were not able to spot them as fakes when they were sold at auction in places like Sotherby’s. He was caught when two separate wine lovers become independently suspicious. Rudy started selling Bottles of Clos St Denis from Domaine Ponsot of vintages between 1945 and 1971, yet the family behind this wine had only started making it in 1982. It does not say much about the wine buyers knowledge that they did not realise themselves! Bill Koch, a billionaire collector also got suspicious and through his hiring of a private detective sued Rudy.
