Update 2/6/16: The FBI has launched a criminal investigation into Fox Ortega Enterprises, which owns Premier Cru.
Court documents filed by the bankruptcy trustee on Feb. 5 disclosed that “the FBI is investigating this matter.” Previously, the FBI had only acknowledged it was taking calls from disgruntled customers.
Original story: As John Fox, the co-owner of the embattled wine retailer Premier Cru, was struggling with his company’s enormous debt, he asked if he could charge $25,000 on his IT technician’s credit card.
Brian Nishi, a computer expert who had worked for Fox for 20 years, agreed, according to court documents filed in U.S. Bankruptcy Court. But when Fox could not repay Nishi, he gave him $25,000 worth of wine instead, according to court documents.
For that reason, the U.S. Trustee for Region 17 is objecting to the hiring of Nishi to help search through a secret computer that Fox may have used to keep track of his debts. Tracey Hope Davis wrote to bankruptcy judge William J. Lafferty that Nishi, who was also Premier Cru’s in-house tech specialist since 2008, had a conflict of interest.
Judge Lafferty has not yet ruled on the motion, but that request is one among hundreds that he is expected to decide as the Premier Cru Chapter 7 bankruptcy case winds its way through court. The next hearing is Feb. 8 at 2 p.m.
The company, owned by Fox Ortega Enterprises, whose proprietors are Fox and Hector Ortega, filed for bankruptcy Jan. 8 claiming it had $7 million in assets and owed $70 million to 9,200 creditors. Among those owed funds is the city of Berkeley, which is out $175,000, according to court documents.
Other creditors include some high-profile wine collectors, such as Arthur Patterson, a partner in the venture capital firm Accel Partners. He is owed $836,000, according to court documents. Patterson may have consigned some wine to Premier Cru for sale. But most creditors are owed just a few thousand dollars each.
Premier Cru was founded by Fox in 1980 and operated in Oakland and Emeryville before relocating to University Avenue in Berkeley. Premier Cru sold wine at that store, but the bulk of its business was online. It attracted customers intrigued by Premier Cru’s prices, which were often 10 to 15% lower than industry norms.
Fox abruptly shuttered the store in December 2015, stating on the store’s phone message that Premier Cru was shifting to online sales only. He made that move after at least seven people sued the company for not delivering wine for which they had paid $3 million, according to court documents.
The crumbling of a wine firm that had once been among the most prominent in the field, and one with liabilities ten times higher than assets, has former customers wondering if Premier Cru was running some sort of pyramid scheme. The company specialized in buying wine futures for clients, which required them to deposit thousands of dollars for wine that would be delivered in the future, after it aged in barrels in France. Numerous clients claimed in lawsuits and in wine chat-rooms that they could not get their futures delivered, nor could they get a refund.
After news broke that Premier Cru had filed for bankruptcy, disgruntled customers started calling the Alameda County District Attorney’s office. The call volume got so large that the DA asked the Federal Bureau of Investigation to start fielding calls. The FBI is doing so, but has said this is part of its standard procedure. The FBI has not indicated that it is conducting a criminal investigation.
On Jan. 28, Michael G. Kasolas, the trustee overseeing Premier Cru’s liquidation, and his attorney, Mark Bostick of Wendel, Rosen, Black & Dean, told Judge Lafferty that they had discovered Jan. 26 that Fox had a separate computer at Premier Cru with emails and documents. After Fox’s attorneys did not turn over the computer, Kasolas and Bostwick both asked Lafferty to require Fox to turn over the device.
“The answer [to] the question ‘What happened to the money?’ is likely to be contained in that computer,” Kasolas wrote in a motion.
After Fox complied with a court order to turn over the computer, Kasolas asked that he be allowed to hire Nishi to extract relevant information from the device. As Nishi had developed and maintained Premier Cru’s electronic record-keeping services, “he has a thorough understanding of its unique functions… [and] capabilities.”
Kasolas said he thought Nishi could run records on individual bottles of wine and trace their costs, locations, pending sale orders, the date they were picked up or shipped, and other information.
Nishi is owed $2,500 in back wages, according to court documents, but is willing to waive that debt in order to work for Kasolas for $100 an hour. (Nishi has already been doing some computer forensic work for Kasolas.) Bankruptcy law does not allow creditors to play a significant role in the liquidation of a business.
Kasolas also noted that Nishi had let Fox and Premier Cru charge $25,000 on his credit card but said the debt had been repaid in wine 90 days before the bankruptcy filing, so it should not be a factor in the court’s decision.
However, Davis, the U.S. Trustee, is arguing that the debt should be a disqualifier.
“The transfer likely allowed Mr. Nishi to receive more than he would receive in a Chapter 7 liquidation,” Davis wrote in a motion. “Under these circumstances, Mr. Nishi may not be employed in this case unless and until the preference is resolved.”
Judge Lafferty said at a Feb. 2 hearing that he would be satisfied with Nishi’s involvement if Nishi returned the $25,000 worth of wine, according to an audio file. He may make a ruling on Nishi’s involvement on Monday.
Fox has already sold some of his personal assets to pay down his debt, according to court documents. Premier Cru owed The Community Bank of the Bay, a secured creditor, $936,033. Fox sold his house on Las Quebradas Lane in Alamo for $3.2 million on Jan. 21, according to Zillow. He paid about $700,000 of the proceeds to The Community Bank of the Bay, which is now owed $150,000 to $200,000, according to court documents. Fox bought the house, which was sold in a foreclosure sale, for $2.3 million in 2010, according to SF Block Shopper.
Related:
Berkeley’s Premier Cru files for bankruptcy (01.11.16)
Shop Talk: The ins and outs of Berkeley businesses (12.22.15)
Berkeley store sued for not delivering $3M worth of wine (10.29.15)
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