Don–I appreciate your perspective, but of course Rudy’s remaining collection WAS sold at auction. Because of the US Marshall’s aspect, it went off to a different auction company rather than one of
the well-known wine auction houses.
I completely understand the perspective of someone like Maureen who refuses to authenticate the bottles in his cellar; she certainly has the right to accept or decline any authentication jobs as she sees fit.
But Mr. Greenberg has the legal right to sell/auction off the wines in his collection. Someone is going to sell those wines for him, whether “we” like it or not. I would rather have those wines sold in auction where the source is disclosed, rather than trying to encourage him to hide them in other auctions or use middlemen to attempt to consign them.
To be clear, I’m not defending the disclosures here, or the level of vetting, etc. But the wines ARE going to be sold, one way or another, and he has the legal right to offer them for sale. The question is how the market should handle them in a reasonably responsible way.
I respectfully disagree, although I will acknowledge this is a difficult area about which people might reasonably have different opinions. The Rudy wines that were sold by the US Marshal’s Service occurred because the Federal asset forfeiture statutes required it, and the proceeds go to the victims of the scheme, not to Rudy, so it’s quite different.
Auction houses are not public utilities. They aren’t required to deal with anyone and they have the right to decline to auction wines for virtually any reason, including the consignor’s prior criminal history or a history of selling counterfeit wines. Eric Greenberg does not have any “legal right” to sell his wines at auction. Ordinarily, auction houses will refuse to deal with anyone who has been convicted of fraud in connection with auction sales or civilly adjudicated to have engaged in fraud in connection with auction sales. Nobody in the auction world, to my knowledge, has ever had the brass balls to try this before. Just imagine what would happen if tomorrow Christie’s announced that they were going to auction 300 pieces of art owned by Glafira Rosales, the art world’s equivalent of Rudy Kurniawan, who was convicted for selling more than 60 fakes that she put forward as the work of Modernist masters like Rothko and Pollock, but which were in fact produced by a single forger in Queens who worked for Rosales. (Yes, I’m aware that the Marshal’s Service also sold some pieces seized from her home which they claimed had been properly authenticated.)
Your suggested ‘rule’ aligns all of the incentives the wrong way. If it were deemed acceptable for auction houses like Zachy’s to sell wines from those previously adjudicated to have engaged in knowingly producing or distributing counterfeits, it in essence legitimizes both the underlying fraudulent conduct and it legitimizes the auction houses wanting to profit from dealing with the adjudicated fraudsters and convicted criminals. It also removes the stigma that rightly comes from having engaged in the knowing sale of counterfeit goods.
If Greenberg couldn’t sell the wines at auction, would he find a way to sell them anyway? Maybe; perhaps even likely. But it’s extremely unlikely he’d be able to sell 7,263 bottles in a single transaction and there’s no way he’d be able to sell them for the same amount he’s likely to receive from selling them through a major auction house. Rewarding those who engage in fraudulent behavior by giving them an opportunity to sell the wines in the most efficient manner which would also likely yield the highest price is ill - conceived in my opinion. You want to reward the criminals and welcome them back to the same market they knowingly attempted to defraud before? Hell No! Just like the securities industry, the adjudicated fraudsters should be banned for life.
Counterfeit goods and products are exploding worldwide. Scanners, computers and laser printers have made producing counterfeit labels that will fool the great majority of people relatively easy. The laws have not kept pace with these technological developments and as a result the sale of counterfeits has just exploded. For example, there is no set of Federal criminal statutes that deals with selling counterfeit products. A few states have such statutes, but most don’t. This problem needs to be fixed and strong criminal penalties put in place.
In most states, a felony conviction of any kind will bar a person from holding a license to sell alcoholic beverages for a period of five to ten years and in some cases (e.g. California) absent relief from the state regulatory authority based on exceptional circumstances, it is a lifetime ban. Most state laws also provide that where a person is convicted for any violation of the alcoholic beverage laws, such person will be barred from holding a license for some period of years. Since alcoholic beverages are controlled substances subject to direct regulation by the states, it should be perfectly permissible for a state to have a law which both criminalizes the manufacture or distribution of counterfeit alcoholic beverages and which also bars any person convicted of such conduct from selling alcoholic beverages to any person for any purpose for either some specified period of years or permanently.
Similarly, state alcohol laws need to be modernized to include provisions which prohibit (both civilly and criminally) the sale of counterfeit alcoholic beverages and provide both a civil remedy for persons injured by the sale of counterfeit alcoholic beverages and provide that, as part of the remedies available, a person found liable for knowing sale of counterfeit alcoholic beverages may be enjoined from selling alcoholic beverages to any person for any purpose for a specified period of years. That’s what I would like to see happen.
I meant to comment on this earlier. The initial two-day Dragon 8 auction in Hong Kong in November of 2015 that I issued a warning about, which included the “Swedish Nobleman’s Cellar,” actually did not do well according to the only published report that I have seen.
Dragon 8’s initial auction was held on November 20-21 of 2015. Day 1 was devoted to art and diamonds and Day 2 was devoted to wine and whisky. Following the auctions, Dragon 8 issued a press release to local Hong Kong press outlets. While Dragon 8 provided total sales numbers for the two days, and listed the sales prices on a few pieces of art work and a cask of Macallan scotch whisky, Dragon 8 did not release the detailed data as to which lots sold or the prices at which they sold. The sale details were not provided to Wine Market Journal, and when the editor of Wine Market Journal specifically requested the itemized sales results so that the information could be included in the Wine Market Journal data base, Mr. Lempert-Schwarz refused to provide it
On November 22, 2015, the Financial Times, in an article entitled “Hong Kong auction season kicks off with underwhelming debut” Subscribe to read | Financial Times, stated in pertinent part as follows:
New auctioneer on the block Dragon 8, both of which signify good luck in Chinese, raised more than HK$200m ($25m) in its inaugural auction this weekend, compared with a reserve estimate range of HK$250m to HK$375m. The number of lots sold in the auction, which included works by Picasso, Warhol and Dali, was not disclosed but founder Gil Lempert-Schwarz said he was “very happy” with the result given it was their debut.
Among the top lots, a cask of Macallan Scotch whisky went for HK$1.35m including fees while a 1965 oil by Pablo Picasso entitled “Personnages” achieved a price of more than HK$50m.
So, the total sales at the two-day auction reached only 80% of the low estimate numbers and 25% of the total revenues came from a single piece of art sold on the first day. Since the reserve figures are generally set at 80% of low estimate, that strongly suggests that many lots offered did not sell. I also suspect that there were a number of “house bids” announced in the room where the price bid was at or below the reserve for the wine.
Despite repeated statements about upcoming auctions, Dragon 8 managed only one more whisky-only auction (in February 2016) and a June 2016 wine and whisky auction which contained only 104 lots of wine. A number of the wine and whisky lots were clearly counterfeit – which I posted warnings about. That catalog also contained the false claim that the “Mighty West Coast Collection” had been “impeccably vetted and inspected prior to being put up for sale, by … Michael Egan from Bordeaux.” Once again, no sale details on the lots offered were made public following the auction.
Happily, Asian collectors figured out Gil wasn’t someone they should be doing business with, and Dragon 8 is out of business.
Don–It’s not “my” rule. There simply is nothing that legally prevents someone in his situation from consigning his wines to auction. If people want to propose legislation to prohibit folks like him from
selling their wines after having been found liable for prior counterfeit sales, then they certainly should do so. But as it stands now, there is no legal impediment to someone in his position from consigning their collection to auction. So yes, he has the legal right to send his wines to auction.
But there also is nothing that compels an auction house to accept his consignment. There is nothing that compels someone like Maureen to authenticate his cellar. And most importantly, there is nothing that requires people to bid on these wines, and I won’t have anything to do with them. And if people feel that what Zachy’s is doing is wrong, they have the right to communicate that to Zachy’s, to decline to bid on these wines, and to decline to do business with them in the future. After all, Zachy’s is putting its own reputation on the line by auctioning off these wines, and the market can certainly tell Zachy’s that they hurt their reputation in accepting this consignment.
It is a blockchain based authenticity and provenance tracking solution which exists for the lifespan of the bottle, and can be used to show potential buyers or insurers both authenticity and provenance information. (Owners names can be encrypted, but the authenticators name -not their company, the actual authenticator’s name- is in the ledger for any bottle they certify.) We have been working on it for 2 years, and are finally implementing it in both the primary (at production) and secondary market situations (TCM Certified Authenticators doing authentication of secondary market or uploading direct provenance wines with accompanying paperwork). Think blockchain based -so an independent, immutable, permanent ledger which lives in the cloud- Car Facts for wine.
And yes, there are individuals and businesses the TCM Certified Authenticators (the team of people all over the world we are training to be independent authenticators) who will be licensed, not my employees, are contractually not to do business with or for. So they will also not simply be mercenaries for hire to the bad players in the industry.
Leanne Kemp of Everledger https://www.everledger.io/ has revolutionized the diamond trade globally using her blockchain certification. She is also somewhat responsible for the influencing the newly launched eBay Authenticate Electronics, Cars, Fashion, Collectibles & More | eBay, to encourage the independent third party authentication of luxury goods, starting with hand bags. Look for wine in about 18 months.
Next Tuesday, I am addressing a meeting of the US State Inspectors General at the International Fraud Awareness Week in Ohio. I look forward to sharing many of Don, and my concerns involving the lack of convictions, and the difficulty law enforcement agencies currently face in bringing and convicting cases that should be slam dunks for fraud and counterfeiting - and would get the bad players out of our industry. It amazes me what people like Kapon and Lazar have and continue to get away with.
This is quite interesting Maureen, I would be very glad if we could eliminate fraud in any business.
I have few questions on how blockchain (I studied this in detail way back in 2010) is fool-proof here. Blockchain in simplistic terms is a distributed ledger system. Think of it as everyone maintaining a ledger of all transactions. Each transaction get encrypted and “gets solved” by other systems to verify the amount and the user. Once this is verified, it gets added to the ledger or to the “chain”. Once a transaction is added to the chain, it cant be reversed.
Not going in to details, but this encryption is only for “goods” or money (digital value stored by a computer) than be encrypted…i.e. it cant be a physical good in the real world.
My question is how does wine, a physical good, get encrypted into virtual world? Well it cant.
Even some how magically it can be, if two of us come together and “authenticate” a fake bottle. It gets embedded in the chain and the integrity of the system is compromised. To give you an example. If I create a fake say a 1945 Petrus, somehow manage to encrypt it and someone (who is in collusion or is ignorant) authorizes it. Well, great now the bottle is “blockchain” authenticated, but still a fake wine. Worse, it gets embedded in the chain and is now is now deemed “block-chain authentic” and every other trusting buyer is compromised.
There are several other issues with blockchain (where it can and cant be implemented) that needs to be addressed, but that’s not for this forum.
The only way this works if the wine gets authenticated right from the winery to the importer to the distributor to the retail merchant and then in secondary markets. That can be fool proof if every player in that chain doesn’t cheat. Now then why we need to keep a distributed ledger anyway? One centralized ledger will do!!
I understand we all seek comfort in authentic goods, but we need to ensure that the process and system of authenticating is not error prone.
I just participated in a panel discussion on block-chain last week in NYC organized by Bloomberg, reminded me of 2000s when Photon Computer was the thing!
On that part we 100% agree. And I’m hoping, that by shining a bright spotlight on what Zachy’s is doing and by warning collectors about what is being sold, who it originates from and that it has clearly not been vetted to the degree that Zachy’s would like everyone to think, the market sends a loud and clear message to Zachy’s and Mr. Greenberg.
Maureen, btw just like art, the only way wine can be authenticated is when experts like you (who cant be “bought” by auction houses) inspect the good and deem it fine. You need experts in real world. Not by random computers solving cubic curve in finite fields!
Respectfully, you are wrong. The blockchain is being used to create ledgers for al kinda of luxury goods. This is why the GIA has moved from paper certificates, to the Everledger solution, as have several luxury brands (Chanel, many LVMH brands…)
The ledger lives in the blockchain, and the item is inputted and attached to its unique ledger.
Many “dumb” products are being authenticated, and having that authenticity tracked via blockchain ledgers.
The blockchain is also being used to track items through many kinds of supply chains, from food, to SAP, to diamonds… it’s not just about Bitcoin anymore!
I’m speaking at the Santa Clara Blockchain Trchnology conference on Nov 30th. If you are around, you should come check it out!
You should also research what Everledger is doing. I think you’ll find you have missed the many important ways the blockchain can be utilized to track and trace authenticity and provenance, and bring transparency to many, like this current opaque wine industry.
Haha, thanks for answering my questions…now I’m even more convinced
It doesn’t matter, who is “implementing” it…Few tech guys and our professors looked into this in great detail even before most blockchain companies came about…and its just a Buzz Word, just like CDOs were (infact it was just predatory lending).
Many of my contacts run tech department for large financial firms and tech companies and I can tell you, they are using it just for marketing (coz it sounds trustworthy) more than real value proposition or tangible output.
Blockchain for luxury goods is not about authentication but rather provenance. You are correct, if a fraudulent bottle enters the blockchain, then it can be compromised. Which is why you restrict entry into the chain to trusted sources. The two trusted sources are a) original manufacturer or b) trusted authenticator.
Could you explain? What if the producer embeds a chip in each bottle. Then I would think at least the bottle is encrypted, so cheating is much more difficult. Of course if somebody then replaced the original wine with something of lesser value there would be a problem, but what would they then do with the removed wine? Seems it would make life more difficult for the forgers, at a minimum.
Even some how magically it can be, if two of us come together and “authenticate” a fake bottle. It gets embedded in the chain and the integrity of the system is compromised. To give you an example. If I create a fake say a 1945 Petrus, somehow manage to encrypt it and someone (who is in collusion or is ignorant) authorizes it. Well, great now the bottle is “blockchain” authenticated, but still a fake wine. Worse, it gets embedded in the chain and is now is now deemed “block-chain authentic” and every other trusting buyer is compromised.
Sure, but no such system is foolproof. If it makes things a lot harder for the counterfeiters, it’s worthwhile.
There are several other issues with blockchain (where it can and cant be implemented) that needs to be addressed, but that’s not for this forum.
The only way this works if the wine gets authenticated right from the winery to the importer to the distributor to the retail merchant and then in secondary markets. That can be fool proof if every player in that chain doesn’t cheat. Now then why we need to keep a distributed ledger anyway? One centralized ledger will do!!
I don’t follow you here. I thought that once it’s authenticated, cheating by those down the distribution chain is very difficult (assuming a chip is embedded in the bottle).
A chip cannot be removed if it covers the closure (either under in case of producers, or over in secondary market applications) and is destroyed if removed or pierced. (Coravins have been reverse engineered to empty and fill otherwise perfect packaging…)
Certification in the blockchain is not a one switch process- we use many of my now 140 points of authentication to complete the bottles profile, including and authenticity measures put on by producers (lot & serial numbers, glass etchings…) including photos and proof of purchase and shipping/storage.
It is a complex set of data that is input, and yes- it’s tied to rfid, photo id, and other unique data to complete a bottles ledger.
There will be audits on the authenticators and licensed vendor users. We are going to constantly innovate to stay ahead of the fraudsters- at least the ledger cannot be messed with like a paper certificate can. And wouldn’t it be nice to click on the bottles offered online and see both the info on the Authentication (date, location & authenticator- or if entered at production) and provenance data, including logistical details, and even, eventually, temperature history…
Very encouraging Don to hear that the publicity actually has had an effect, at least on Dragon 8. Here’s hoping it will impact the Zachys Greenberg sale as well.
I know nothing about block chain but I love Maureen’s commitment to working with/certifying only those authenticators who pledge not to cross over to the dark side. No way to guarantee someone won’t sell out down the road for the right price, but at least they won’t be able to authenticate under her brand.
Maureen, how has the commercialization of this process come together? I’m assuming that each licensed vendor would have a price for his/her authentication services, with an additional fee (either included or embedded) for the cost to support the shared blockchain repository. Is that how the production model is envisioned?
Would there then be a separate access pricing model for someone who is looking at a bottle of wine they want to bid on so that they can check the repository to see if that bottle is represented and the results of the authentication?
The mechanics all sound cool, but the commercialization aspects are important to make it pay. Just curious.
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