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Wine Ponzi Scheme Suspect Pleads Guilty

John E. Fox, the owner of Premier Cru, a bankrupt wine shop based in Berkeley, has pleaded guilty to wire fraud, announced United States Attorney Brian J. Stretch and Federal Bureau of Innvestigation Special Agent in Charge John F. Bennett. The Plea Agreement follows the filing of charges in June 2016 that the wine shop owner engaged in fraud.

Fox, 66, of Concord, Calif., co-founded Premier Cru in 1980, and eventually moved it to University Avenue in Berkeley. Premier Cru generally sold wine in two ways: through a physical retail store and through a “pre-arrival” or “wine futures” business. Though its pre-arrival wine business on the premise that Premier Cru would contract to buy wine from Europe and then, after having contracted to purchase wine, would sell it, through Premier Cru’s website or salespeople, to customers before it arrived in the United States. Specifically, Fox agreed that, through the website, he promised that the company would deliver European wines to customers within a time period of approximately six months to two years after customers had paid for the wine.

According to the plea agreement on Thursday, Fox acknowledged he orchestrated a massive scheme to defraud through Premier Cru’s pre-arrival wine business by selling wine that he knew he would never be able to deliver to his customers. Fox admitted that, in many instances, he falsified purchase orders for wine that he had not contracted to purchase, entered them into Premier Cru’s inventory for sale, and then solf or cause Premier Cru’s salespeople to sell the phantom wine. He acknowledged that, between 2010 to 2015, he sold or attempted to sell approximately $20 million worth of phantom wine that he had never actually purchased prior to entering them onto Premier Cru’s inventory.

In addition, in instances where Fox actually did contract with foreign suppliers on behalf of Premier Cru to purchase wine, he generally promised to pay the foreign suppliers within 30 days. Fox admitted that he knew Premier Cru would not be able to make payment within 30 days, or in some cases, ever, because he embezzled money from Premier Cru’s business accounts and diverted money coming in from current customers to obtain wine for prior customers who had never received their wine.

According to the plea agreement, Fox embezzled funds from the Premier Cru accounts by both using Premier Cru’s business account to make payments for personal expenses and by making substantial cash transfers from the Premier Cru business accounts to personal accounts in his own name and in fake names. Fox used the embezzled funds to pay for personal credit cards; memberships to private golf clubs; the purchase or lease of expensive cars including Corvettes, Ferraris, a Maserati, and various Mercedes-Benzes; and a variety of additional personal expenses, including more than $900,000 on women he met online.

Premier Cru eventually filed for bankruptcy under Chapter 7 of the Bankruptcy Code. At the time of Premier Cru’s bankruptcy, customers had paid at least approximately $45 million for wine that they had not received. On June 28, 2016, Fox was charged with a single count of wire fraud in violation of 18 U.S.C. § 1343.

Fox’s sentencing hearing is scheduled for December 14, 2016, before the Honorable James Donato, U.S. District Judge, in Oakland. The maximum statutory penalty for a violation of 18 U.S.C. § 1343 is twenty years’ imprisonment and $250,000 or twice the amount gained or lost as a result of the scheme. However, any sentence will be imposed by the court only after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.