A seemingly contrite John Fox, his feet shackled and his hands cuffed, walked into a federal courtroom on Thursday and pleaded guilty to defrauding his Premier Cru customers by selling $20 million in ‘phantom’ wine over a five-year period.
Fox also admitted in a plea agreement that he embezzled about $5 million from Premier Cru, starting in 2010, that he used to buy a house; to pay his daughter’s college tuition, his family’s credit card bills, and memberships to two private golf clubs; and to purchase or lease numerous expensive cars, including Corvettes, Ferraris, a Maserati and several Mercedes Benz cars.
In addition, Fox said he spent more than $900,000 “on women I met online.”
Read the back story about Premier Cru on Berkeleyside.
Fox said he first started cheating his customers in 1993 or 1994 when he created fake purchase orders for “pre-arrival” wines. Each year he increased the amount of phantom wine he pretended to order for his customers until it represented a “significant” amount of his business.
For his crimes, Fox probably faces a maximum of six and a half years in prison and is on the hook to pay $45 million in restitution.
Dressed in a pressed white and blue striped shirt, dark pants and shoes, Fox used such a low voice to admit his guilt that U.S. Federal District Court Judge James Donato had to ask him to speak up.
“We are here to take a guilty plea today, right?” said Donato.
“Yes,” replied Fox.
“Speak up,” said the judge.
Fox pleaded guilty to what the judge called “a wine Ponzi scheme” that ran from 2010 to 2015, according to the plea agreement. Fox admitted taking customers’ money for pre-arrival wine and wine futures that his retail operation, Premier Cru, did not have and that Fox never intended to order, according to the plea agreement.
In the plea agreement, Fox detailed how he pulled off his Ponzi scheme. He admitted that he listed European wines for sale that he did not buy, nor ever intended to buy, on Premier Cru’s website and stated that they would be delivered within six months to two years. Fox often falsified purchase orders and entered them into Premier Cru’s system to make it seem as if he had ordered the wine or had ordered more wine than he actually did, he said.
“These representations were false and I knew they were false at the time I made them or caused my salesmen to make them,” Fox said in the plea agreement.
Fox also admitted that he did not pay wine brokers and merchants money that Premier Cru owed them, but diverted some of the payments to himself or used the funds to pay back other customers who were angry that the wine they had ordered years earlier had not arrived.
Fox said that he transferred funds from Premier Cru into his own accounts and also into accounts he had set up with false names.
Fox admitted that he made all the business decisions for Premier Cru and his partner, Hector Ortega, did not actively participate in running the business. (Ortega ran the warehouse operations.)
Benjamin Kingsley, the assistant U.S. attorney handling the case, and Robert Breakstone, Fox’s attorney, worked out a plea deal that would see Fox only serve a maximum of six and a half years in prison. That could be cut by a year for good behavior, Breakstone said outside court. The judge is scheduled to sentence Fox Dec. 14 and warned in court that the ultimate length of the sentence was up to him, not the attorneys.
Fox, now 66, will be 71 or 72 upon his release. The money he earns after he is free will go toward repaying $45 million owed to his former customers. The bankruptcy trustee overseeing the liquidation of Premier Cru inventoried the company’s books and determined that Fox has sold that amount of wine, which he did not have, to around 4,500 customers.
Fox has also agreed to repay another $6.5 million to the people who lent him funds to acquire the three parcels of land at 1011 University Ave., which Premier Cru used for a store, a warehouse and an office.
(The 79,000 bottles of wine still in the warehouse are set to be sold later this month to Spectrum Wine Sales for $3.3 million. Those funds will go to the business’s 9,000 creditors.)
At times in court, Fox had difficulty hearing and had to ask Donato to repeat his question. When asked if he had a hearing issue, Fox said, “I suppose so.”
Breakstone said outside of the courtroom that Fox was remorseful for his actions.
“John Fox is devastated by what has happened. He is sorry. He acknowledges he is guilty. He’s hurt his customers and the people who trusted him. He has ruined himself [and hurt] his wife, his daughter and a whole bunch of family members,” he said.
No friends or family appeared in the San Francisco courtroom to support Fox.
Frances Dinkelspiel is the author of the New York Times bestselling Tangled Vines: Greed, Murder, Obsession and an Arsonist in the Vineyards of California.
Related:
Premier Cru owner will plead guilty to fraud (08.09.16)
How did Berkeley wine store accrue $70M in debt? (07.28.16)
Premier Cru lawsuit: Some customers to get refunds (06.23.16)
Bankrupt Premier Cru not run in ‘a reliable fashion’ (05.09.16)
Premier Cru owner had penchant for expensive cars (03.08.16)
Customers confront owner of bankrupt wine store (02.25.16)
FBI investigating whether Premier Cru ran a Ponzi scheme (02.22.16)
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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