Tulip Fever: John Fox, the end of the affair

Or more depressingly, just thair-bubble_1319ae beginning.

Tulip Fever, the South Sea Bubble, Bernie Madoff; it has been seen many times before.

Quite an animated exchange this morning  (not quite as animated as this on Vinous) with a London colleague because the FBI have now confiscated defunct Berkeley wine store Premier Cru’s computers, in an effort to find out what exactly happened to client’s paid but undelivered $70 million wine orders.

A logical and reasonable action. In this exchange I am being criticised for my sympathetic attitude to John Fox, and my belief that his demise is probably more owing to incompetence than criminal intent. In any event, time will tell.

Rudy Kurniawan had criminal intent; as did Ron Wallace and certainly Bernie Madoff.

But Premier Cru had been in existence and trading in the wine market for thirty years. That makes it a very long term criminal plan and I just don’t buy it. John Fox, from personal experience always bought early and bought big. He also paid late. That was his major error.

In my first wine trading job, back in 1998, at the infamously incompetent and naïve Dijon négoçiant Vintime, I cancelled a 400,000 franc order of Dominique Laurent 1996 on him. He had to buy it back, and did, from another trader in Paris at a 25% surcharge.

The problem with buying big is that you have to pay for it, and do not necessarily sell all the stock. Thus, your inventory rises and your cash flow diminishes. To cover the hole, you offer more wine to gain orders and create cash flow. But all of the wine ordered is not sold, so the “paper” inventory gets bigger and the cash flow more stretched. Extend that over thirty years and you start to get the picture. It’s bad management, not criminality.

There is a scene in the Barings Bank film, Rogue Trader, where Euan Macregor just throws more and more “deals” into the ever-increasing financial hole, to cover and disguise, in the hope that his luck will turn. I believe this was the problem at Premier Cru.

And with a business based on un-landed “futures” offers, cash flow started to dry up seriously with the dearth of desireable vintages  from 2011 through 2014. No Bordeaux primeur campaigns to speak of, no super Parkerised Rhône valley vintages and Burgundy’s volume too small to count. If anything, it is probably at this point that intent started to diverge from reality. In short, no cash-cows to pay off wine ordered, to ship it in and then out to clients.

I am criticised for simply stating their latter day clients were foolish, nay stupid. But I will respond this: if anyone had bothered to ask me, or many other more serious players in the US, our response would have been clear, “Barge don’t with pole touch a.”

People in the trade had noted probable “issues” with Premier Cru more than ten years ago. He was always cheaper than anyone else, but hey, as one of Liv-Ex’s directors once told me, with reference to LCB, Farr Vintners and themselves, the best businesses in wine work on high volume and low margin. You can presume that John Fox felt the same.

Other US retailers I deal with have noted the simple fact that, all costs considered, John Fox’s offerings were just too cheap to be viable. That is not necessarily saying he was defrauding, simply that the reality of importing fine wines is more complicated and more expensive than his prices suggested.

Anyone wanting to buy a million dollars worth of wine – yes, one million dollars – should expect to do some due diligence. And so yes, I believe many of his clients were simply foolish. I have been sent the list, and above and beyond the super cretins, there are many creditors ranging from $89 to a couple of thousand dollars; that might be a bottle or a couple of cases. If your bear in mind the size of Premier Cru’s client base and the time they operated, are those figures so shocking?

If there has been criminal action, I have no doubt John Fox will do time, or his partner who I never met. So he should, probably. However, I do not believe Premier Cru’s demise is the result of the same malevolence or deceit that drove Rudy Kurniawan Ron Wallace, or Bernie Madoff.

And lest it be forgotten, nobody died.



About matthewhayesbrognon

Wine Merchant
This entry was posted in VF - Pour encourager les autres and tagged , , , , , , , , , . Bookmark the permalink.

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