This scam has cost victims £100m in four years!

One new investigation has suggested wine investment scams have cost the victims as much as £100 million in the past four years alone.

This column has warned over and over again against so-called fine wine investment. Just a few weeks ago, I reported that I had been cold-called by a trio of dodgy claret firms in the space of just one morning.

I make no apology for returning to the dregs of the investment world. Last week, the BBC Money Box programme reported how investors in these so-called fine wines have probably lost as much as £100 million over the past four years.

That's very serious money with some individuals losing six figure sums.

Nonsense and lies

One of my recent cold-calling trio sent me a beautiful brochure – claret coloured of course – which looked identical to all the others I had been sent over the past few years. It probably was identical – the figures showing the apparent returns on wine and other investments only went up to December 2010, even though this company had only been set up in 2011. What happened to the missing year? Either this firm copied an old booklet or the 2011 experience was bad for wine. Whichever, it is not confidence-building.

The brochure told me that: “Each client is assigned a highly trained and experienced 'wine broker' who will work closely with you, to develop on your behalf a bespoke portfolio that fits your investment requirements. With our finger on the pulse we make a commitment so that you can invest with confidence.”

Just how much nonsense and how many blatant lies are there in that sentence alone? There is no such thing as a wine broker although there are wine merchants. The people I have spoken to at that firm (and the others) read from a script. There are no “bespoke portfolios” - this implies that they will create a special collection of wine for you, when in reality they will just sell the overpriced stuff they are highly incentivised by massive commission to sell.

And confidence? The BBC reports how some victims have lost £100,000 each.

Telling a story

Now these firms train their staff to empathise with targets over how low interest rates are and how volatile the stock market is. They are taught to give the “story” - the current version is the growing demand from India and other emerging markets from purchasers for whom money is no object, and they are taught to deal with objections. It's all on their scripts.

The sellers also have amazing patience, calling back time and time again to wear down resistance from potential victims. Again, their devotion is hardly surprising when these hucksters get nothing if they don't make a sale, but up to 40% if they do.

There are some who have made money out of wine. But that will be from genuine wine merchants, not cold callers claiming expertise.

How the scam works

There are three basic, often interwoven, scams.

1. They take your money and disappear. According to BBC Money Box, over 50 UK-based vintage wine investment firms have collapsed over the past four years.
2. The wine is false – trading standards have detected substantial amounts of dodgy wine. Some of this is sold in corner shops where customers will probably soon realise (by the taste) that they have bought overpriced rubbish. It's even easier with “fine wines” as you don't get to drink it, or often even inspect the bottles which are supposedly held in “bonded warehouses”. Even wine experts can't tell the difference between a £20 and a £200 bottle in blind testings. It is easy to print fancy labels and stick them on bottles of £3 wine or even fill them with cartons of red grape juice.
3. The wine is drinkable but over-priced. In one case, the liquidator (no puns intended) found that a firm which had charged investors £10 million only bought wines worth £2 million. Where did the rest of the money go? In the pockets of the firm's promoters and into those of the sharp talking sales staff it recruited.

The number of firms that the BBC found had gone bust – around 50 - is truly amazing. And this must be the tip of the iceberg. Many others will have escaped unnoticed with investor money or are in that netherworld between activity and their final winding-up.

You can read more details of one firm and one victim here.

Phoney wine investment scams prosper when stocks and bonds are seen as risky. And they need a story – the rich of India and China lining up to pay fantastic amounts works well. It is plausible and almost impossible to verify. Back in the late 1990s, the story was demand from millennium parties.

After cleaning up from investors with that one, many moved on to landbanking. Now landbanking is less heard of, many landbankers have moved back into wine – sometimes even combining it in one call centre with other “alternatives” such as carbon credits or coloured diamonds.

Don't get corked up in one of these scams