Basalt man arrested on fraud charges for wine scam
A Basalt man was arrested at his home Thursday morning on federal fraud charges for allegedly running a wine futures scam that defrauded its customers out of more than $13 million. Richard P. Wallace, 47, was arrested by a joint federal law enforcement team that included special agents from the Internal Revenue Service criminal investigations division in Glenwood Springs and the FBI.He is accused of ripping off customers who were trying to purchase high-end wines from the Bordeaux region of France. “It was scheme involving wine futures,” IRS spokesman John Harrison said on Thursday. “This guy really had an intimate knowledge of the wine industry.”Wallace was taken to U.S. District Court in Denver Thursday where he was advised of his charges, issued a $1 million secured bond and taken into custody by the U.S. Marshal’s Office. Wallace’s next hearing was set for Oct. 5. According to the arrest affidavit, Wallace formed a company called Rare, which offered wine futures for wines that were not yet produced. These futures were supposed to guarantee buyers that they’d receive a bottle of these difficult-to-acquire wines. “Eventually, in approximately March, 2003, defendant Wallace’s fraudulent scheme collapsed, at which time Rare owed its clients more than $13 million in wines,” the indictment said.One payment documented in the affidavit was a bank wire transfer of $400,000.Wallace was named in a 21-count indictment that was returned Tuesday by a federal grand jury in Los Angeles. The indictment alleges that Wallace executed a fraudulent scheme by, among other things, selling older wines that he did not own, selling wine futures he did not own, and diverting and misusing “early deposits” that clients had entrusted to him to purchase wine futures, an IRS news release said. Wine futures – particularly in relation to French wines such as Chateau Latour and Chateau Petrus, the famed Cabernet Sauvignon, and Merlot-based wines of Bordeaux – refer to offers made by wineries, typically through merchants or negotiants, pursuant to which the customer buys wine that has been fermented but not yet bottled, an IRS news release said. Bordeaux futures are commonly offered the summer after the wine grapes are harvested, which is typically about two years prior to the wine being bottled and released. Wine futures are generally sold at prices much lower than the anticipated retail price of the wine, the affidavit said. In addition to their lower costs, some collectors purchase futures because some wines are only available using this method, the news release said. Rare solicited business from individuals across the United States through the Internet and advertisements in publications such as Wine Spectator magazine. The indictment alleges that Wallace’s scheme ran from at least 1999 until early 2003. In March 2003, Rare was forced into bankruptcy.The indictment specifically discusses Rare’s offering of Bordeaux futures for several vintages. In 1999, for example, Rare allegedly accepted and confirmed more than $1.5 million in orders from clients for the purchase of 1998 wines. One customer, Paul Marciano, who along with his brother Maurice is a co-chairman of clothing company Guess?, Inc., paid nearly $115,000 for futures of large-format bottles of 1998 Bordeaux that Wallace had not secured.By 1999, Wallace was offering customers an “early deposit” program, in which Wallace collected money before futures were available, purportedly to increase his purchasing ability when the futures were made available in France. But, according to the indictment, Wallace used neither “early deposit” money nor funds collected later to purchase all the wine futures he sold to his customers. “In other words,” the indictment states, “defendant Wallace sold wine futures that he did not own.”In relation to 2000 Bordeaux, which was heralded by wine critics such as Robert M. Parker Jr. as a great vintage, Wallace collected more than $8 million from customers who wanted to purchase futures, the IRS news release said. But instead of using the monies to pay for the requested 2000 wine futures, Wallace used some of the monies to make payments toward his BMW; to pay French- and London-based negotiants, as well as domestic retailers, for older wines that he used to satisfy demands of earlier customers; to satisfy a lawsuit that a currency exchange house had brought against Rare; to pay Wallace’s bill at the Roaring Fork Club; to pay contractors to remodel his Basalt house; and to pay for expenses incurred during a November 2001 wine tasting at the Peninsula Hotel in Beverly Hills, the indictment alleges. Wallace solicited a large number of customers for the 2000 vintage, including the Marcianos. However, many of the previous wine futures orders that the Marcianos and others had placed with Rare had not been completely delivered.The indictment alleges that Wallace, in order to convince the Marcianos to buy more wine futures from Rare, operated a Ponzi scheme by using some of the funds collected from clients for 2000 futures to buy on the open market 1998 Bordeaux for the Marcianos. The prices for these 1998 Bordeaux, however, were quite high and in most instances far exceeded the price at which Wallace had sold the wine to the Marcianos on a futures basis several years earlier.Rare collected $800,000 for 2001 futures, according to the indictment, which names Seattle Mariners pitcher Jamie Moyer as a victim who paid $30,000 for 2001 futures.The indictment also alleges that Wallace defrauded victims who wanted to purchase older vintages. For example, in late 2001 and early 2002, Wallace defrauded movie producer Arthur Sarkissian, who paid $11,700 for two cases of exotic wine, only one of which was ever delivered, the indictment shows. “Through a series of deceptions that included ads in a wine trade publication, Wallace exploited the trust he developed with his knowledge of the world’s best wines,” said United States Attorney Debra W. Yang. “While Wallace plied his trade in the rarified world of exclusive tastings and $1,000 bottles of wine, in the end he turned out to be nothing more than a common fraudster.”Richard Garcia, Assistant Director in Charge of the FBI in Los Angeles, was quoted in the IRS news release as saying, “By defrauding investors, whether of stocks and bonds or rare wine, Mr. Wallace and those like him threaten the nation’s economy by shrinking consumer confidence in the marketplace. This case is yet another example of multi-agency, interstate cooperation among federal agencies in the interest of justice.”Wallace is charged with five counts of mail fraud, 10 counts of wire fraud, four counts of money laundering, and one unlawful monetary transaction in which he allegedly used $13,000 of Sarkissian’s money to import a BMW M5 from Europe. The indictment further alleges that Wallace used his extensive knowledge of the wine industry to run a sophisticated scheme that included wine tastings, a sizeable staff and the use of Ponzi payments to perpetrate the scheme.If convicted of all charges, Wallace faces a maximum possible sentence of 195 years in federal prison. The indictment also seeks forfeiture of all monies that Wallace derived from his fraud scheme.”The prosecution of illegal schemes of this nature is critical in prohibiting the use of legitimate businesses and bank accounts to ‘launder’ illegal proceeds,” said Terry L. Stuart, Special Agent in Charge, IRS-Criminal Investigation Division, Denver Field Office.Contact Greg Massé: 945-8515, ext. firstname.lastname@example.org
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