One of the nation's biggest wine investment scammers is being shut down. It won't be the last.
£100 million a year. That's a conservative estimate of how much money duped investors pour into the pockets of scam wine investment firms, of which there are at least a dozen active at any one time.
Next month, one of the biggest, Bordeaux Fine Wines Ltd (“BFW”), will end up in compulsory liquidation in the wake of a provisional liquidation by the High Court in the public interest, following an investigation by the Insolvency Service. This was a response to a petition on behalf of the Secretary of State for Business, Innovation and Skills.
Young 'experts'
BFW cold-called potential victims with the usual boiler room style tactics. The highly motivated salesforce painted the firm as wine experts. Yet when BFW was set up in September 2008, its director – Kenneth Gundlach – was just 24, hardly old enough to have acquired the in-depth knowledge of the wine market the firm claimed.
Yet while his wine expertise is unclear, he was certainly on top of his real task – encouraging investors to trust him with substantial sums. Many started with £5,000 to £10,000, told that they would make annual gains of around a fifth from “carefully selected portfolios”. They were often encouraged to add more some months later when they were told that their investments had “already performed better than expected”.
The firm officially operated from a top notch address in central London. But while this impressed victims, it was just a maildrop which might have cost the company as little as £40 a month.
The real operation was in a low rent office in Croydon where an army of young people called investors, often using multi-dialling phones to call several intended victims at one – there is no point wasting time waiting for someone to pick up so let the others have a silent call.
Too big to hide
BFW grew so big that it could no longer hide behind the financial anonymity handed out to smaller firms. In its two most successful financial periods – 2011 and 2012 – it pulled in around £20 million a year. Besides telling investors that they would make big returns, it impressed them by claiming the wine would be held by London City Bond, a long-established warehouse. The only problem was that London City Bond has never heard of BFW or seen any of the wines it said it bought for its clients.
The prices quoted for the wines was generally around 80%-100% more than the same wine from a legitimate dealer. So the price would have to double before anyone could make a profit. This assumes the cases of claret ever existed or were genuinely as described – not the case with several wine investment firms.
Enormous profits
BFW profits were enormous. Sole shareholder Gundlach picked up £4.7 million as a dividend in 2011 and £4.2 million the following year - more than a fifth of the income. Gundlach is also a director at Hunter & Reynolds, where there is a “proposal to strike off” and Driving Made Simple. Both these companies have been set up in the past twelve months.
And the staff were well paid when they made a sale. They would even boast about it when buying sandwiches in Croydon. As the local café owner said:
“They all have fake names, they are running an illegal ponzi scheme (paying investors' returns from other investors investing). They promise investors they can exit them but they can't as it's totally illiquid. Its so toe-curling what they do, they dress like Gordon Gecko but instead walk into a shabby block in Croydon. How they sleep at night god knows, most of their clients are 55-60 plus. All I can say is what goes around, comes around! Problem is they mentally train themselves to believe its a good investment even though they are robbing elderly people's ISAs and savings.”
The firm disintegrated a year ago when one salesperson said: “I just left Bordeaux Fine Wines because none of us were paying tax on our earnings and our company bank account just got frozen because most of our clients don't own their wine.” Sellers picked up between 10% and 20% of cash they ripped from victims.
But just before the end, top BFW people were commenting, using false names, on various sites that it was a great investment. One wrote: “They are a legitimate brokerage, registered with companies house since 2008. A colleague of mine invested with them last year - storage with your own account with the London City Bond all checked out. The returns have been excellent also I must say.”
This is not the first wine investment scam to be shut down in the public interest. And it won't be the last. It's a low-cost operation which can bring in big money. Unless you are a top wine expert yourself, head down to your local supermarket for a bottle of plonk and drink it instead!