By Siobhan Turner

Day 6: Wednesday, 3rd April 2013

Witness: William (‘Bill’) Koch

John Hueston called Bill Koch to the stand.  Koch has several degrees, including an MSc and PhD from MIT, and is the founder and CEO of Oxbow Carbon LLC, which buys waste petroleum coke and sulphur from oil refiners, processes them and sells them to other manufacturing companies.  In total, the company directly employs about 1500 people, with a similar number indirectly employed.  Koch has also been involved in a number of charitable organisations, including the Museum of Fine Arts and the University Hospital in Boston, the Smithsonian American Art Museum, and various schools and programmes for children.  He had at that point donated over $200 million to various charities.

Koch had also been involved in crime fighting organisations.  In particular, he was head of and funded the Kansas crime commission established by Joan Finney, the then (Democratic) governor of Kansas.  Koch stated that he wanted to look at the evidence base, not the political party line of what was happening with crime.  (Koch is a Republican, and donated $2m towards a PAC supporting Mitt Romney’s presidential campaign in 2012).

Koch’s passions include sailing (he owned and skippered the boat that won the 1992 America’s Cup), and collects, inter alia, wine, impressionistic paintings, American paintings, nautical artifacts from the War of 1812 (I’d just like to point out, as a Canadian, that we won that one) and a lot of Western ephemera.  He has two standards for collecting: things he loves, and things he feels a historical connection for, such as both Jesse James’s gun and the gun that killed him.  Although he’s loaned paintings to major museums, such as the Louvre and the Metropolitan, he particularly enjoys loaning them to smaller museums with which he feels a personal connection, such as the museum in Topeka, Kansas.  He very rarely sells any pieces from his collections, and both buys and sells as an individual, not as a company.

Although Koch has collected wine, he does not buy much any more.  He started in the late 70s, and “binge-collected” for a while, slowed down in the 90s, sped up again in the 2000s, and then stopped.  He collects because he loves wine, partly because he enjoys tasting the love the vintner had for his creation, and partly because of the historical significance.  He loves wine from the Civil War and Napoleonic War years, which he never plans to drink.  He also tries to collect every year of four producers: Petrus, Latour, Mouton and Lafite, as well as a brandy from every America’s Cup year.

Koch confirmed he kept his wine in a wine cellar, with a computerised inventory system that will show what the wine is, where it is in the cellar, its cost and where it came from.  Each bottle is bar-coded, and that code included in the computer, which allows him to track each bottle that comes in or goes out of the cellar.  This system has been in place since the late 1980s.

Koch confirmed that Mark Curley manages his wine collection, and all his other collections, and has been in this role since approximately 1993.  His responsibilities include overseeing inventory, receiving, entering and logging wine shipments.  He was not, in 2005, doing anything to look for counterfeits.

Hueston asked what Koch’s understanding of “questionable wine” was.  Koch replied that to him it meant fake wine.  He does not intentionally collect such bottles, although he unfortunately does have a number – 421 to date, having checked approximately 20% of the cellar, for which he had paid $4.3 million.

Koch noted that when he buys wine, he does not just care about the liquid inside the bottle.  The package Is what says what’s in the bottle, so you know what you are drinking.  It might also have historic or artistic meaning to it, such as the famous artists commissioned by Mouton-Rothschild, or wine from a particular year of significance, such as the year the Civil War ended.

Turning to the October 2005 auctions, Hueston showed Koch the catalogue from that auction, entitled “Over 17,000 Bottles of Greatness”, which Koch recalled receiving no more than 10 days before the auction.  On receiving it, Koch looked at the introduction letter, at the picture of Daniel (the chef at whose restaurant the auction was to be held) and then he thumbed through it and looked at the wines in which he might be interested.

Hueston asked if the introductory letter was important, and Koch replied that it was critical.  This was because it established that it was the collection of a single very knowledgeable collector, and that it was “the best of the best”.  This was important in one part because what one doesn’t want is a collector selling off his “garbage”, and in another part because it described how the collection was acquired, how knowledgeable the collector was, and where the wines were from, which are all very important facts to know.  Quality (a word repeatedly emphasised) was highly important to Koch, as was the fact that the collector amassed the collection on his own, which Koch took to mean he did not use resellers.  Koch at no point had the sense that the consignor was in the business of selling wine.  To him, buying from a collector is buying from someone who wants the best, who wants real wine.  A business seller, on the other hand, simply wants to make money off the wine, without caring whether or not it is real.  The description of this auction as a sale of a single collector indicated the former to Koch.  The statement that much of the wine came directly from the producers was also important, because that’s as good as it gets in provenance terms.  Further, the letter stated that the older vintages came from other collectors, rather than resellers, which is also important, because it indicates more authenticity.  The letter also says that the provenance is excellent, meaning not only being able to trace ownership but also confidence regarding storage conditions.  It also said they had opened and tasted a 1947 Lafleur, which further encouraged Koch, because “someone had blessed the bottles”, so to speak.  The letter did not raise any questions regarding authenticity or provenance; in contrast, it assuaged concerns Koch might have had.

Koch confirmed that he had read some of the specific wine descriptions in the catalogue before deciding to purchase the wine.  For example, with a lot of Cheval Blanc 1921, nothing in the description of which raised any concerns about the authenticity of the bottle offered.  Hueston asked what, reading the title of the bottle “Chateau Cheval Blanc 1921”, Koch expected to be offered.  He replied “Chateau Cheval Blanc 1921”.  “From the actual year?” queried Hueston, which Koch affirmed.  Nothing in the description of the bottle indicated that it might be anything other than a 1921 Chateau Cheval Blanc.  Hueston repeated this with a number of other bottles of Lafleur, Lafite, Petrus and Latour from various vintages from the 20s through to the 50s.

Hueston then noted that Koch had heard that a 1945 Lafite that Greenberg had returned to him from John Kapon had been sold to Koch via the Zachy’s auction.  He showed Koch an email from Kapon in November 2004, which set out the description he would need to make for that bottle, identifying that it had a photocopied label.  Koch confirmed that had he seen such a description next to the bottle, he would not have bought it, because it meant a faker could have put it together.

After a break, Hueston asked Koch if he had tried to inspect the bottles before the October 2005 auction.   Koch replied that the introductory letter was so glowing he did not see the need.  Even if he had, he would not have known what to look for himself, and did not have experts on hand who would know how to authenticate wine.  In this auction he bought 2669 bottles, but he would not know beforehand which he would win, as he will set a limit over which he will not go.  Even attending the promotional dinner did not enable inspection – how could someone show 17,000 bottles in a restaurant.

Hueston noted that there had been suggestions by opposing counsel in their opening statement that Koch was investigating Hardy Rodenstock.  Hueston asked if, by October 2005, Koch had a belief that counterfeiting was widespread and prevalent in wine.  Koch replied, “Not at all”.  In 1988 he had bought four bottles of wine, purportedly Lafite 1787, attributed to Thomas Jefferson’s ownership, for an average of $100,000 per bottle.  He was not paying this for the liquid inside the bottle, but because it was a Jefferson artefact.  In 1991 he read an article in the Wine Spectator querying whether these really were owned by Jefferson, but at that time he was training for and competing in the America’s Cup, and had no time to think about anything else.

In 1993, after the competition was over, Koch asked his in-house counsel to hire someone to check it out.  Initially the information came back that Hans Peter Frericks, the initial complainant, had been discredited so Koch forgot about it.  (This information was not correct.  Frericks won a court case in Germany against Rodenstock, and eventually settled with him.)  However, in March 2005 Koch once again became concerned.  The Museum of Fine Art in Boston was staging a show, and they wanted to know the provenance of the bottles.  Koch assigned one of his staff, Brad Goldstein, to research it, and the first thing Goldstein did was to contact the Jefferson Museum at the Montecello estate in Virginia, who told him that Jefferson never bought Lafite, he didn’t have his bottles engraved, and they have almost all of Jefferson’s records none of which referred to the bottles in question.  Koch then proceeded with an investigation of the Jefferson bottles and Hardy Rodenstock.  However, he still assumed that this was an anomaly, and that fake wine was not a major issue.

Koch confirmed that he had a 50% interest in the Chicago Wine Company from 1989 to 1996 or 1997, as a passive investor.

Koch then confirmed that he had tasted “bad” wine.  To him, this meant that the wine had deteriorated because of temperature fluctuations, damage from bright sunlight, cork failure, or cork taint.  Koch confirmed he remembered tasting a bottle of 1921 Petrus, on 4th June 2004, and finding it bad.  It looked fine, but it tasted off, and not like Petrus 1921, but at the time, he assumed he had just got a bad bottle.  At a later point, in November 2005, he began to suspect it might be counterfeit.

Koch did not personally attend the October 2005 auction, being represented instead by Brian Orcutt, who used to work at Christie’s.  Koch consulted with Orcutt before the auction, indicating what particularly interested him, and Orcutt bid for him.  Hueston showed Koch the invoice from Zachy’s for his purchases at that auction, which Koch confirmed he had paid.  Koch did not know whether the wines were shipped to his Cape Cod home or his Palm Beach home.

Turning back to the catalogue, Hueston asked if Koch, when he bought the wines, trusted that the representations made in the catalogue were truthful about the producer and vintage of the wine, which Koch confirmed.  He also confirmed that he believed that Zachy’s and the consignors stood behind the wines they sold at auction, meaning that he understood that they represented that the wines were true and real and as described in the catalogue.  He had not read the “as is” disclaimer on page 238 of the catalogue, although he had a very strong opinion of what the clause meant: “It’s BS” he said, calling it a “licence to steal”.

Hueston asked Koch if he had also sued Zachy’s over the 24 bottles at issue in this case.  He confirmed he had sued Zachy’s, but was not sure if it was the specific 24 bottles at issue in this case.  He sued them because he had bought fake wine from their catalogue, and he believed they were responsible for it.  In the course of the lawsuit he conducted some discovery, and learned some information.  Koch confirmed he reached a settlement with Zachy’s.

Koch also confirmed he had filed suit against Hardy Rodenstock in August 2006, and against Christie’s, principally because of the Thomas Jefferson wines.  There was however another bottle that he had spotted was a fake, and he told Christie’s, and they still kept selling it, so he decided to buy it and then sue them because he wanted to stop them from selling fake bottles.

Hueston asked if, at the time of the Zachy’s October 2005 auction, Koch had any idea that the “collector” described in the catalogue was actually involved in the wine sales business.  Koch replied that not only did he not know this, but that if he had, he would not have bought from him, because the motivation of such a person would be to make the margin.  He also had no idea that the consignor had no way of tracing the bottles to specific sources, and was shocked to learn this.  Koch also had no idea that Greenberg had been warned by Sotheby’s that his higher-end wines required further investigation, that he had filed suit against Royal as well as an insurance claim, and had returned some but not all the Royal wines, but did not know which of his remaining wines were from Royal.  Koch confirmed this would have been important to him, in particular the fact that not all the Royal wines could be identified, which he described as critical.

Koch also confirmed that he wished he had known that Greenberg had stated in writing that Bordeaux Wine Locators was “the worst counterfeiting operation in the world”, and yet sold many of their bottles to Koch.  Koch also had no idea that John Kapon of AMC had rejected and identified problems with a number of the magnums that Greenberg then sold via Zachy’s to him, nor that the Chicago Wine Company had returned magnums to him with problems identified that are present in the magnums Koch purchased.

Koch confirmed that if he had known any of the wines were counterfeit, or even questionable, he would not have purchased them.

Hueston then published an email dated 15 February 2006 from Mark Curley, who manages Koch’s cellar, to Jeff Zacharia, in which Curley queried the provenance of the 1921 Petrus magnum.  The email was in connection with Koch’s investigation into Hardy Rodenstock, in the course of which they had come to the conclusion that Rodenstock’s fakes were not limited to the Jefferson Lafites, but included in particular 1921 Petrus.

Zacharia had responded to Curley’s email saying that the consignor (i.e. Greenberg) had replied, “He bought the wines from two different sources.  The wine either came from a top collector in Toronto or out of Europe from English royalty.” (As noted earlier, Greenberg clearly needs to do better research into the tastes of English royalty….)  Koch felt this reply was consistent with the introduction letter, but he felt it was incomplete, and therefore wanted further investigation.

The next thing Koch then did was call Jeff Zacharia to ask who the consignor was, but was told that Zacharia could not tell him but would ask the consignor, a common occurrence in the auction business.  Eventually Koch was given Greenberg’s name and phone numbers.  Koch called him, and had two telephone conversations with him, one on his own, and the other with James Elroy, and ex-FBI agent who was investigating Hardy Rodenstock.  In the calls, Greenberg told Koch that he thought the bottle came from Royal Wines, but he could not trace any of the bottles back to sources because he did not keep good enough records.

Greenberg told Koch about the lawsuit with Royal, whom Greenberg had apparently had investigated by an ex-CIA agent called Jack Devine (does ex-CIA top ex-FBI?  Or vice versa?) who told Greenberg that Royal were, in effect, laundering money for the Russian mafia.  Greenberg told Koch that he settled for a low amount, mainly because he felt that $1 million in fake wine wasn’t worth the risk to him and his family, given the Russian mob connections.  Greenberg also related that Bordeaux Wine Locators sold a tremendous amount of fake wine.  They also spoke about Hardy Rodenstock, to whom Greenberg had been introduced while in Europe with Royal Wines.

Greenberg then said that he thought Hardy Rodenstock had started the fake wine trend, but that organised crime had taken it over. (Side note: this is why I just cannot believe that Rudy Kurniawan was acting alone.  Someone was behind this, and there were lots of willing partners who have yet to be prosecuted.  It is a classic money laundering scenario… but that’s for another day.)  Greenberg said that because of this mob link, he was very reluctant to get involved.  He would provide information, but wanted to be behind the scenes.  He did not want to give any depositions, nor get involved in any legal proceedings.

Hueston asked if this conversation was similar to the previous information he had received.  Koch responded that the first story was that it was a top Toronto collector or English royalty; the second that it was from one of several notorious mob-connected sellers of fake wines.  Koch added that if he had known this at the time, “I would have run away from that auction”.

Click here for Part 13.