Wine Brokers Duped Investors Out of Millions in Alleged $100M Ponzi Scheme

In recent years, fine wine has been an incredibly lucrative investment. In September, wine topped the Knight Frank Luxury Investment Index, dethroning other luxury leaders like Scotch and Hermès handbags. Then, in December, Liv-Ex released a report showing that fine wine had better gains than traditional investments like gold and the Dow Jones over the previous year.

Of course, when investment opportunities arise, so do fraudsters looking to take advantage of less savvy investors who might not understand nontraditional markets like fine wine. And in New York, two men were allegedly able to bilk clients out of nearly $100 million doing just that.

Stephen Burton and James Wellesley — both British citizens — face up to 20 years in prison after being indicted in Brooklyn Federal Court yesterday for wire fraud conspiracy, wire fraud, and money laundering conspiracy as part of a scheme that allegedly convinced investors to loan them over $99 million based on a collection of fine wine held as collateral by their company Bordeaux Cellars. But in actuality, prosecutors say the alleged fraudsters' cellars weren't as well stocked as advertised.

In what would amount to a wine-based Ponzi scheme, federal agents allege that, starting as early as June 2017, the defendants would solicit investors by claiming that Bordeaux Cellars brokered loans for wealthy wine collectors, with Bordeaux Cellars backing these loans by holding the wine and paying interest to the investors who put up the money. But prosecutors allege that these rich collectors didn't actually exist, and the defendants instead used new incoming funds to pay the promised interest and line their own pockets. According to the indictment, the scheme apparently began to unravel when interest payments suddenly stopped around February 2019.

According to Reuters, additional court documents alleged that Bordeaux Cellars had thousands fewer wines than promised, including non-existent bottles from highly coveted producers like Domaine de la Romanée-Conti and Chateau Lafleur.

"Unlike the fine wine they purported to possess, the defendants' repeated lies to investors did not age well. As alleged, these defendants duped investors by offering them an intoxicating investment opportunity collateralized by valuable bottles of fine wine that turned out to be too good to be true," Breon Peace, United States attorney for the Eastern District of New York, explained, offering up his finest wine wordplay. "This Office and our law enforcement partners will work to protect investors from deceptive schemes and ensure that loans that are financed with investor funds are not stolen by fraudsters."

FBI Assistant Director-in-Charge Driscoll Michael J. Driscoll added, "Burton and Wellesley, as alleged, lied to their victims to get them to invest in what ended up being a nearly $100 million scheme. Today's indictment brings their criminal activity to light and reminds other like-minded criminals that illegal investment fraud schemes won't be overlooked."

New York has certainly seemed to have their eye on alcohol-related fraud. This time last year, the U.S. Attorney's Office for the Southern District of New York indicted a supposed tequila entrepreneur who, this past November, pled guilty to fraudulently soliciting investments for his on-trend liquor company concept.