On Wednesday, December 18, Rudy Kurniawan was found guilty in a federal court of wine fraud. It was the first-ever criminal wine counterfeiting trial in the USA. The prosecution delivered a definitive victory. Now, in the wake of the guilty verdict, we must ponder: What effect will Kurniawan's conviction have? How will it affect the fine and rare wine industry, and what comes next?
After Kurniawan’s arrest in March of 2012, people in the world of fine and rare wine had to come to grips with the reality that he had been making counterfeits – something many in the industry had been whispering, or in my case screaming, about for more than a decade. But too many influential collectors and professionals had refused, rather staunchly at times, to admit there was a problem. They couldn't acknowledge that they had been served and sold fake wines, let alone admit they had been duped by their “friends.” Some resolutely plowed their heads into the sand, clinging to the belief that those of us who were vocal about the presence of counterfeits – and about Kurniawan being a source – were crazy conspiracy theorists. Well, it is time to face the music. Reality can no longer be denied.
This is understandably scary to some, as wines they believed they owned as assets are, following the court case, likely to be worthless. In fact, now that Kurniawan has been convicted, those who bought his wines, either directly or at auction, could leave themselves open to investigation if they try to sell them back into the market. I do not envy them.
For others, Kurniawan’s conviction poses a real bruising of the ego, and I think this may actually be the hardest thing for many to endure. The reality is that many bottles at those big dinners full of “heavy lumber” wines were nothing more than featherweight, styrofoam counterfeits.
“Heavy lumber” is a term coined by the group that closely surrounded Kurniawan. They held extravagant dinners where pornographic quantities of "great wines" were consumed and fawned over. These gatherings effectively propped up Kurniawan's reputation as a leading collector. Members of this group mocked contributors to wine chat forums who questioned the validity of some of the wines.
The next logical question is: Was Kurniawan just the scapegoat, as his defense contended? In a way, yes, he was. But there is no doubt that he was the one making the counterfeits, despite the fact that at some point he must have had help. The 19,000 labels, hundreds of corks, vintage- and serial-number stamps, and the rest of the treasure trove of evidence seized from his “House of Wine Horrors” provide irrefutable evidence of his work. Other evidence that was not made public could shed more light on the amount of help he received, but it was deemed to be overkill in the case against Kurniawan and was thus not entered.
Kurniawan's reputation was created through auction catalogs such as this one from Acker, Merrall and Condit back in 2005. The company's CEO, John Kapon, wrote:
SATURDAY, APRIL 23, 2005
"There is not much that can be said about this collection, outside of the fact that it is one of America’s greatest. Years have been spent carefully acquiring the best of the best of the best, and there is probably not a single, great wine of the 20th century that this collector has not had on multiple occasions ... After many months of quiet persistence on my part, I finally convinced this collector to let some jewels from his cellar go. Upon receipt of the wines, I started a long, careful inspection where I checked almost every cork, cutting those capsules that were not already cut, examining color and all the intricacies of the labels. When I got to the Latour à Pomerol case, I called him and told him that it almost looked too good as the case was in such excellent condition, and despite the corks being branded properly and the labels and capsules being correct, I kept asking questions. Finally he said, ‘Look, just open up a bottle. See for yourself.’ So I did, and it was magic, mature and lush with its chocolaty, plummy Pomerol fruit ... Don’t worry, he actually has just under three cases, all from the same importer and in his possession for decades... You will have to buy them yourself to see and believe."
Billionaire collector Bill Koch, for one, had no idea that the description was of a 24-year-old man – Kurniawan – who had started drinking wine in 2000. He bought that case of 1961 Latour à Pomerol, and it is fake.
Kurniawan himself stated to the Los Angeles Times that he was buying stocks from cellars in Europe and spending millions at auctions. I do not deny he was a large auction buyer, but what he would most frequently do was bid huge in an auction, to make it appear that he was buying hundreds of thousands of dollars worth of wine at a time, then fail to pay his bills. After the auction he would default on the purchase, or re-consign the wines immediately. At any given time he had a “no-bid” status at one or two auction houses. But he had established a perception that he was a big-deal buyer. It was part of a scheme to make him seem legitimate.
Then there is the question of money. Kurniawan told many stories about how his "family" had made their fortune. They had the rights to Heineken in Asia, or his family had robbed banks during the Indonesian collapse of the mid-1990s. He told his friend – and prosecution witness in his trial – Antonio Castanos that his father had left him $50 million. But despite widespread inquiries conducted by the U.S. government, Bill Koch’s investigative team, and Laurent Ponsot of Domaine Ponsot, the truth about his "family" remains a mystery.
Notwithstanding any family assets, Kurniawan was certainly well funded. Documents and evidence presented in court showed that he received substantial loans, including one of more than $10 million.
Yet it appears that he was deserted by his admirers when he was prosecuted. To me, it seemed actually quite sad that this man, who had been "generous" to so many and admired by various collectors, had not one friend, not one supporter, in court.
Are there likely to be more arrests? Might legislation be introduced to prevent counterfeiting in the future as a result of the Kurniawan case? There are still a few sales that the government is keenly interested in. But it may just be up to Bill Koch and his team – who have arguably more resources to commit to this than the government – to look into whether anyone else was associated with Kurniawan in his fraud. But again, auctions are not the only source of counterfeit wines, so any investigators would have their work cut out.
Since King Louis XV of France in the mid-1700s, wine fraud has been a cause of legal action. Louis was so appalled at the rampant selling of Côtes du Rhône wines in Paris cafés that he ordered a royal decree: all barrels of Côtes du Rhône wines must be stamped with the letters “CDR” to combat the fraud. That said, I do not see how the Kurniawan case could prompt new legislation, which is anyway not the answer.
Fine- and rare-wine buyers need to step up and take some responsibility for their purchases. They should research the bottles they are interested in and only buy from reputable sources. If you are going to buy very old and rare wine, and you are not an expert, hire someone who is, who can protect you from buying bad or fake wines. People need to stop believing in "magic cellars," like the one compiled by Kurniawan. Some have suggested legislation forcing auction houses to name consignors, but this would unfairly penalize auction houses and push underground those sellers who want, for legitimate reasons, to remain anonymous. After all, once Kurniawan knew he was tarnished, he found shill consignors to take his place. So for me, legislation would be nothing but a vehicle to more issues of secrecy.
Will crooks be deterred by the Kurniawan verdict? Some will refrain from selling their wares in the United States, where both the government and public are onto their schemes. But others will continue to work through retailers, brokers and auction houses that fail at due diligence. And the scariest prospect is that all the details revealed at the Kurniawan trial might spawn a new generation of counterfeiters. After all, it was made clear that producing fakes can apparently lead to highly lucrative returns without much effort being involved.
In the immediate future, I can see a rush to sell existing counterfeits to unsuspecting victims via brokers and retailers who are not capable of verifying their wines – or who don't care to. But in my view, it's Asia where the biggest danger lies. Ever since the birth of the new wine capital in Hong Kong, dubious auction houses, retailers and vendors have been dumping counterfeit wines in the region. Many Asian collectors do not have the necessary knowledge to detect counterfeit wines, or even an awareness of the issues surrounding fakes. They demand pristine bottles and do not ask about provenance. Such buyers are low-hanging fruit for those who would dump suspect wines. Asia is also a hot bed of producing counterfeits. Kurniawan was having many labels printed in Indonesia, and there is allegedly a “Chateau Lafite Rothschild factory” in mainland China.
In the long term, those of us on the front lines of the fight against counterfeiting will have much to contend with. As printing technology improves, many aspects of wine fraud will get easier for the home-based criminal. New sources are popping up to replace Kurniawan, and when fake wines bought by Asian collectors start drifting back into the market, we are all going to be in a world of hurt. This is probably the #1 sentiment among my colleagues these days.
Kurniawan undoubtedly harmed the fine- and rare-wine market by creating false expectations: The fakes he made were often too good to be true. His old wines looked new, while the reality is that old wines should show their age. But Kurniawan's fakes have so penetrated the market that many collectors take them as examples of what wines should look like. In a strange twist of logic, authentic examples are seen as problematic. Old wines should have some ullage, damp-stained labels, and conditions appropriate for their age. It will take time for some collectors to realize this. In the meantime, those who are well informed can clean up on buying authentic old wines as the market is running scared. Today, many great old wines go unsold or are knocked down at rock-bottom prices at auction, simply because they are in a condition that is age appropriate.
The proliferation of counterfeit wines dumped into the auction market by Kurniawan and his vendors has unfairly harmed trust in the auction industry. Kurniawan sold $35 million worth of wine in two sales with one auction house alone in 2006, and he would have made more at a 2008 auction if Laurent Ponsot himself had not walked into the room to stop the sale of counterfeit wines said to be from his estate.
Responsible collectors should insist on being provided with provenance information on important purchases. The old lines of "I have been buying from this source for 20 years,” or “I have been in the industry for 30 years, how dare you question me?” will no longer fly. Nor will creative catalog entries. Savvy buyers don’t care how long a vendor has been in business, or how long a vendor has been selling from a particular source. Responsible buyers care about receipts, proofs of purchase, and storage history. If vendors cannot substantiate these things they should expect to get less for the wines and smart buyers should walk away. Despite push back – because vendors, especially those with something to hide, give lots of push back – wine buyers should demand the names of the companies where the wines were first purchased, purchase dates (or at least time periods), and photos of the cellars where the wines were stored. In my opinion, this is the future of the legitimate fine and rare market.
Collectors who care enough to ensure provenance will be fine. Those who continue to be lazy, uninformed or overly trusting will not. And those who continue to believe in secret “magic cellars,” trust vendors who do not give real answers, and accept deals that are “too good to be true,” will carry on being defrauded.
* Maureen Downey is an expert on wine fraud and is the owner of San Francisco-based Chai Consulting, a firm which advises collectors of fine wine. The views expressed in this article are her own and do not necessarily represent those of Wine-Searcher.