In December 2011, John Fox was all smiles as he held large scissors to cut the ribbon for the grand opening of Premier Cru's new retail store at 1011 University Ave. Photo: Premier Cru
In December 2011, John Fox was all smiles as he held large scissors to cut the ribbon for the grand opening of Premier Cru’s retail store at 1011 University Ave. Photo: Premier Cru
In December 2011, John Fox was all smiles as he held large scissors to cut the ribbon for the grand opening of Premier Cru’s retail store at 1011 University Ave. Photo: Premier Cru

An analysis of the books and inventory of the bankrupt Premier Cru wine company shows that it collected $45 million in wine orders but had no bottles associated with those orders in the warehouse at 1011 University Ave in Berkeley, according to court documents.

In addition, the company had $42 million in customer deposits on hand in December 2014 — most of which was no longer there when the company filed for bankruptcy in January 2016, according to court documents.

Those two startling numbers, along with some statements from a former employee and an accountant hired to examine the records, reveal chaotic business practices at the Berkeley wine company owned by John Fox and Hector Ortega. Those dealings have prompted the Federal Bureau of Investigation to investigate whether Fox ran a Ponzi scheme.

Court documents also show that Fox managed a company that often sold bottles it did not have, mortgaged its building at 2011 University Ave. to the max, and deliberately tried to prevent its bank from attaching some of its funds. In addition, business records were sloppily kept.

“For the most part, I have determined that the Debtor’s books and records were not maintained in a reliable fashion,” Richard Pierotti, a certified public accountant hired by the bankruptcy trustee, wrote in a court declaration.

The revelations about the internal business workings of Premier Cru come as the bankruptcy trustee, Michael Kasolas, charged with liquidating the company, is facing legal challenges to his attempt to sell the 79,000 bottles of wine in Premier Cru’s warehouse to pay off some of the company’s 9,000 creditors.

Kasolas wants to sell that wine to pay off the secured creditors, like the Community Bank of the Bay, which holds a mortgage on the University Avenue building. But a number of former customers are trying to prevent it.

Read more Berkeleyside coverage of Premier Cru.

Citing precedent established by a 2009 case involving the Carolina Wine Company, Kasolas and his attorney, Mark Bostick, contend that the wine in the warehouse belongs to the estate, not the people who purchased it. According to the precedent set by the Carolina case, wine does not become the property of the person who paid for it until it is actually shipped from the warehouse, the attorneys contend.

Eight former customers have filed lawsuits against Kasolas challenging his legal reasoning. Michael Podolsky of Fairfield, Illinois also filed a class action lawsuit against Kasolas on April 27.

The bankruptcy trustee in charge of liquidating the assets of Premier Cru, Michael Kasolas, (left) confers with his attorney Mark Bostick (right) before bankruptcy court hearings began May 1. Photo: Frances Dinkelspiel
The bankruptcy trustee in charge of liquidating the assets of Premier Cru, Michael Kasolas (left) confers with his attorney Mark Bostick (right) May 2 before bankruptcy court hearings began. Photo: Frances Dinkelspiel

These new challenges have further complicated a difficult case. One signal of that difficulty came May 2, when the courtroom of bankruptcy Judge William C. Lafferty was filled with mostly male attorneys in dark suits. Usually, the courtroom is nearly empty.

“Well, well, it’s about time you guys showed up here,” Lafferty said on Monday. “I’ve been in this courtroom for five years waiting for you guys to show up from your San Francisco offices. It took an existential threat to wine collecting to do it.”

Lafferty heard arguments on both sides on the question of selling the wine. He said he will deliver an oral opinion on Friday.

The challenge to the proposed sale of wine prompted the trustee to file new court documents that set out the financial condition of Premier Cru more clearly than ever before. Some of the findings include:

  • Premier Cru often sold bottles of wine more than once. (The bankruptcy trustee characterizes this as “oversubscribed” wine). Premier Cru would alert its customers about a particular wine and sometimes had more customers buying the wine then there were bottles, according to a declaration by Brian Nishi, who worked in IT for Premier Cru and is now assisting the trustee. Normally, this was not a problem because customers didn’t ask that their wine be shipped immediately. It was held in the warehouse, allowing room for float, he said. “Despite having notified one customer that a bottle was on hand ready to ship, the Debtor sometimes sold the same wine to other customers if it appeared the first customer was not asking for their wine to be shipped,” according to a brief filed by the trustee. “If multiple customers ordered the same wine around the same time, and a bottle was allocated to the first customer, but a second customer requested delivery, the bottle might be sent to the second customer if the first customer did not request delivery,” said Nishi. “Later, when that first customer requested their wine, another bottle would be obtained, if it had not already been replaced.” Nishi said there are 22,875 bottles of wine in the warehouse that are “oversubscribed.” He estimated that there was about $18 million worth of wine orders for which the wine was “oversubscribed.”
  • In November 2015, just a few months before Premier Cru filed for bankruptcy, Fox started shifting funds around, apparently in an attempt to keep money away from the Community Bank of the Bay, to which Fox owed millions of dollars, according to court documents. The company had three accounts: a payroll account, a checking account and a wire account. Until that time, Fox would move money that had been sent to the wire account into the checking account. He started to “use the wire account in place of the checking account,” and would use that as Premier Cru’s operating account. “I believe the Debtor changed the use of the wire account to an operating account because the Community Bank of the Bay was sweeping the checking account and applying the funds in the account to the Debtor’s obligations owing to the bank,” said Pierotti.
  • The owners of Premier Cru owe about $6.7 million on the property at 1011 University Ave. The building is currently for sale for $6.8 million. The Taylor Trust, which loaned Fox $3.8 million to buy the building in 2010, filed a notice of default March 14 with the Alameda County Assessor’s Office. If Fox and the LLC he formed to buy the building can’t repay the remaining amount owed, $3.7 million, by mid-June, the building will be auctioned off on the steps of the county courthouse, according to George King, the attorney representing the Taylor family. Other creditors who have mortgages or notes on the building include the Community Bank of the Bay, which is owed around $1.2 million, and Saul Gevertz, who is owned $935,000, according to court documents. Fox also owes $275,772 in back taxes. The bankruptcy trustee has worked out an arrangement with Gervertz to assign Fox’s 60% interest in the building back to him in exchange for $35,000 and the chance to stay in the building rent-free until July.

Premier Cru owner had penchant for expensive cars (03.08.16)
Customers confront owner of bankrupt wine store (02.25.16)
Troubles mount for Premier Cru as FBI steps in (02.11.16)
Berkeley’s Premier Cru paid its tech staffer in wine (02.04.16)
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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Frances Dinkelspiel, Berkeleyside and CItyside co-founder, is a journalist and author. Her first book, Towers of Gold: How One Jewish Immigrant Named Isaias Hellman...