Bloomberg News

Billionaire Koch Makes Fake Wine Claim Into Federal Case

March 27, 2013

Billionaire Koch Makes a Federal Case Out of Purported Fake Wine

A bottle of Chateau Lafite Rothschild. Photographer: Dan Kitwood/Getty Images

When most people get a bad bottle of wine, they send it back. When billionaire collector William Koch concluded the vintage wines he bought at auction were counterfeit, he made a federal case out of it.

Koch purchased what he thought were French wines from the Bordeaux and Burgundy regions, some dating to Napoleonic times and the Belle Epoque, he alleged in a 2007 complaint filed in federal court in New York. He claimed that Eric Greenberg, the founder and chairman emeritus of Scient Corp., who’d consigned the wines, defrauded him.

Koch initially alleged that 36 bottles that he bought at New York-based Zachys Wine and Liquor Inc. in 2004 and 2005 for about $500,000 were counterfeit. Last week, he pared back his claims to 24 bottles from Burgundy, for which he spent $320,000, his lawyer, John Hueston, said today in opening arguments at a trial in Manhattan.

Hueston and Greenberg’s lawyer, Arthur Shartsis, traded accusations today and used their turns at a podium to show jurors some of the wines at the center of the case.

Hueston argued that Greenberg was reckless. Before consigning about 17,000 bottles described as “the Best of the Best Collection” with New York-based Zachys Wine and Liquor Inc. in October 2005, Greenberg had been warned by wine experts at Sotheby’s as early as 2002 that some of those in his collection might be fakes, Hueston said.

‘Walked Away’

“The evidence will show you that Mr. Greenberg knew better, he knew about the issues with his collections, issues with his bottles and other concerns, if he had disclosed that information to buyers, Mr. Koch would have walked away,” Hueston said.

Hueston held up a 1.5-liter (50.7-ounce) magnum of 1921 Chateau Lafite Rothschild, one of the allegedly counterfeit wines Greenberg sold Koch. The lawyer passed the bottle to jurors to inspect it as he spoke.

“Despite his concerns, Mr. Greenberg pushed them up for auction without a hint of suggesting that his cellar was infected with fakes,” Hueston said.

Greenberg’s lawyer, Shartsis, told jurors the case was one of “buyer beware.” He said that while Koch had dinner with the owner of Zachys the night before the auction, he paid someone $158,000 to attend the two-day auction and put in bids on his behalf.

‘Extremely Experienced’

Greenberg’s lawyer called Koch an “extremely experienced collector” who has amassed multimillion-dollar collections that include 30,000 to 40,000 bottles of wine, fine art and sculpture, rare paintings, Western artifacts and Native American art. Koch bought the only known photograph of Billy the Kid.

Shartsis said Greenberg relied upon experts at Zachys to review the bottles for sale. The lawyer said the auction house’s sales catalog also included an “as-is” clause, a disclaimer about authenticity and notice that the bottles were available for inspection before bidding.

“As-is means no representation made about the wine, no promises about anything, that’s why they give people a chance to inspect,” Shartsis said. “It’s ‘buyer beware’ and Mr. Greenberg made no promises to Mr. Koch. Mr. Koch is an extremely experienced collector, he’s spent tens of millions of dollars at hundreds of auctions.”

House Stickers

Shartsis questioned whether 22 of the bottles introduced as evidence in the case are even from Zachys. The bottles don’t have the auction house’s sticker on them even though a Koch employee said his boss has a strict rule against removing auction stickers from the bottles in his collection, the lawyer said.

“We’ve got some problems here as to chain of custody,” Shartsis told the jury

While Koch, the founder of Oxbow Carbon & Minerals, has filed other lawsuits over alleged counterfeit wine sales, the case against Greenberg is the first to go to trial.

The panel of six men and two women on the jury include a counselor, a secretary for a New York law firm and a retired moving and storage company employee.

U.S. District Judge Paul Oetken, who is presiding over the case, has asked both sides to attempt to reach a settlement. He told lawyers today that he would speak to them at the end of the day’s proceedings.

‘Six Figures’

Shartsis told the judge yesterday that when his client first learned that Koch suspected the wines he purchased were fakes, he repeatedly offered to reimburse the collector. Shartsis said Koch has rejected Greenberg’s offer to have a public tasting of the fake wines to raise money for charity.

“This case is an embarrassment to all of us,” Shartsis said yesterday, noting that the lawsuit has dragged on for more than five years.

“We’ve spent cumulatively about $14 million on a claim that is probably between $100,000 to $200,000,” Shartsis told Oetken yesterday outside the jury’s presence. “The legal system shouldn’t be doing this -- at all. Particularly when one of the parties years ago, could’ve avoided the costs for both by accepting a full tender.”

‘Misleading Representations’

The suit includes claims of fraud, fraudulent concealment and violation of New York business law for what Koch said were “materially misleading representations” Greenberg made about the wines’ authenticity and provenance.

Brad Goldstein, a spokesman for Koch, declined to comment on the case.

Zachys, which was named as a defendant in Koch’s complaint, settled with him in January 2011 on undisclosed terms.

A separate case that Koch brought against Christie’s International Plc (CHRS) over claims that auction house had “induced” him into buying counterfeit wine was dismissed in 2011.

U.S. District Judge Barbara Jones said Koch knew the bottles were counterfeit and that he bought the wine not because of the alleged fraud but out of a “desire to gather evidence against Christie’s.” An appeals court last year refused to reinstate Koch’s claims.

Koch’s previous claims have included that he was sold counterfeit wine, marked “Th.J.,” that had purportedly belonged to Thomas Jefferson. Koch won a default judgment against German wine dealer Hardy Rodenstock, who’d consigned the purported Jefferson bottles to Christie’s for sale.

The case is Koch v. Greenberg, 07-cv-9600, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net

To contact the editors responsible for this story: Peter Blumberg at pblumberg1@bloomberg.net; Michael Hytha at mhytha@bloomberg.net


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