Big – but not THAT big | Running the numbers on Rudy Kurniawan's fake wines

Several months ago, the Wall Street Journal reported that at least $550m worth of Rudy Kurniawan’s faked and forged wine is still in the market. This isn’t the first time this figure has been quoted – it appears in almost all recent articles about wine fraud. But is it accurate?

Firstly, it is an extraordinarily high figure. Indeed, it is more than the total fine wine auction market in 2017, reported by Wine Spectator as totalling $381.7m.

The $550m figure has been circulated since at least December 2016. To be clear, it is challenging to find accurate figures on fine wine fraud because it is an activity that by its very nature is covert and deceitful. 

It was claimed that Kurniawan (real name Zhen Wang Huang) was responsible for as much as $150m worth of fake wine over a 10-year period from 2002 to 2012. The example was cited of Kurniawan selling 1978 Henri Jayer Richebourg in 2002 for between $2-3,000 per bottle. In December 2016 it was claimed to be worth more than $10,000. Ergo $150m was now worth $550m. Actually, based on $3,000 becoming $10,000, it would be worth $499.5m. There’s something missing – or rather, added – here.

This is an exceptionally rare and lucrative wine. Indeed, so rare is it now that none was offered at Baghera Wine’s sale of the private cellar of Henri Jayer in June 2018. Of course, his relatives might have kept any remaining bottles for their own enjoyment but the prices would surely have persuaded them to sell.

Sotheby’s sold a 12-bottle case in May 2016 for £211,500 (including premium), or £17,265 per bottle pro rata. Wine-Searcher shows the price at £13,029 in August 2013. As of July 2018 it was £15,171, an increase of 16%, with only three bottles available worldwide.

Like Hardy Rodenstock, Kurniawan timed his fraud to perfection. It was a period in which the value of fine and rare wines increased tremendously. In 2003, when Kurniawan was scaling-up, global wine auctions totalled c. $96,400,000. By the time he was arrested in 2012, the end of year total was $389 million, an increase since 2003 of 403.5%, though down from 2011’s peak of $478 million. Using this metric, $150m in 2002 would be worth $605,250,000 in 2012.

(In the absence of data for global auction market totals for 2002, we have looked at the Liv-ex 100 Index, which represents the price movement of 100 of the most sought-after fine wines on the secondary market, to cover the period from January to December 2002. In 2002 it increased by about only 4% year-on-year. Not having auction figures for 2002 will not distort our correlations and conclusions. We will use the 2003 end of year figures as our base.)

However, the $150m figure is not a base figure from 2002. The figure is the claimed value of his counterfeit wines as of 2012. The $550m figure is the claimed value from December 2016 on. The wine – or certainly not all of it – was not in situ at the start of this lucrative period and therefore did not enjoy the enormous returns seen in the wine auction market in this period.

We can correlate the $150 million figure against these auction totals and the growth (or decline) of the market from 2012 to 2017. The fine wine auction market was worth $389 million in 2012. By 2017, it had declined 1.9% to the previously stated $381.7m. So the claimed $150m figure would now be worth $147.2m, not $550m.

Can $150m in 2002/3 be worth $550m in 2012?

* Kurniawan is claimed to be responsible for $150m worth of fake wine over a 10-year period from 2002 to 2012 – now said to be worth over $550m

* $150m figure was correlated to 1978 Henri Jayer Richebourg, claimed to have been sold by Kurniawan in 2002 for “between $2-3,000 per bottle” – said to be worth “more than $10,000” in December 2016 – an increase of 333%

* $150m x 333% = $499.5m

* $550m / $150m = 366%

* 2003 global wine fine wine auctions totaled c. $96,400,000

* 2012 global wine auctions totaled $389 million, an increase since 2003 of 403.5%

* $150m x 403.5% = $605,250,000

The average price per lot at the now notorious “THE Cellar” auction conducted by Acker Merrall & Condit in New York in October 2006 – at which many of Kurniawan’s fakes and forgeries were sold – was (including premium) over $10,500 per lot for a total of over $24m. The 2,271 lots offered in that two-day sale comprised 11,474 bottles, so $2,092.00 per bottle.

If there is $147.2m of Château Rudy still in the market, using the Acker bottle price of $2,092.00 it would equate to 70,363 counterfeit bottles made over a ten-year period, or 7,036 bottles per annum, 135 bottles per week, or 19 bottles every single day.

That is simply not possible for one person.

If we return to the $550m figure and correlate it to the Acker bottle price, it equates to 26,291 bottles per year, or 506 per week, or 72 per day. That is about as likely as my beloved Aston Villa winning the Premiership next season. (Note to non-soccer fans: Aston Villa is in the Championship – the second tier of English football – so it’s impossible for them to win the Premiership. They probably won’t win the Championship, either.)

Can $150m in 2012 become $550m in 2016?

* NB $150m figure is not a base figure from 2002 – it is the claimed total value of Kurniawan’s counterfeit wines as of 2012

* $550m figure is the claimed value from December 2016 on – it is claimed that $150m of fine wine in 2012 is now worth $550m

* 2012 global wine fine wine auctions totaled $389 million

* 2017 global wine fine wine auctions totaled $381.7m – a decline since 2012 of 1.9%

* $150m / 1.9% = $147.2m, not $550m

Even if you put the average at an inflated $10,000.00 per bottle it still requires Kurniawan to have been cranking out an implausible 55,000 bottles at 5,500 bottles per year, 106 bottles per week, or 15 bottles per day. As Fabian says in Shakespeare's Twelfth Night: “If this were played upon a stage now, I could condemn it as an improbable fiction.”

It challenges credulity. There are only 24 hours in a day. It would require several people of Stakhanovite tendencies to produce this much fraudulent wine. Kurniawan was known for being fashionably late and for sometimes nodding off at fine wine events. He must have been working very hard. 

Did he work alone? That’s the big question. Nobody has, so far, established where his initial funds came from. And reporting around his trial suggested it was improbable that he’d done so much damage to the fine wine system all by himself. As yet, however, nobody else has been arrested.

In this tale one must follow the money. The best place to do this is the legal documents that pertain to his arrest and conviction in 2012.

The legal documents detail his non-auction, private wine sales, though doubtless much of this information remains hidden even from government investigators who had access to Kurniawan’s emails and other documentation. Nobody can be sure of how much fraudulent wine he sold off the record.

The “Complaint” document, dated 5th March 2012, states that in February 2007 Kurniawan obtained a $1 million loan from “a wine collector” in exchange for $500,000 of wine and a promise to pay back the $500,000 plus interest. There was a $2 million loan against wine from a Connecticut-based company. In 2007, loans were obtained from “the New York Auction House” to total $8,485,056.20. The “California Collector” bought $2.2/2.3 million from Kurniawan “in or about May and November 2007”. This totals less than $5m.

The Indictment document for “United States of America vs. Rudy Kurniawan”, dated 8th April 2013, states that Kurniawan “sold and attempted to sell these counterfeit bottles of wine at auction and in direct sales to wealthy wine collectors”. It cites “a New York wine collector located in Manhattan… in or about 2006”. A “certain wine collector from Florida” bought a double-magnum of Pétrus 1947 for $30,000 via a private sale conducted by a “New York Auction House” in May 2005. There was a “Direct Sale of Wine… In or about September or November 2006” to a NY collector of $48,259 for a Jéroboam of Château Mouton Rothschild 1945. It would need private sales on an enormous scale – the scale of a global auction house rather than a sole trader – to reach a total of $550m today.

The “Sentencing Memorandum”, dated 1st May 2014 and submitted by Kurniawan and his legal team, states, “Based upon trial evidence, what was spent on wines created by Rudy is between $2,500,000 and $7,000,000… But even if additional losses are considered, clearly the actual loss will not exceed $20 Million.” Acting on behalf of the defendant, Kurniawan’s lawyers were clearly downplaying the figures but even with his many millions of auction sales it still doesn’t get us to £550m.

Unofficial sources claim that there was a collector in Australia who lost $15m. It is alleged that Bill Koch lost between $2m and $4m. Apparently victim statements prepared by prosecutors had the total loss at $30m, which would mean that Kurniawan’s defence had underplayed it by a generous 50%.

In May 2016, it was reported that an investment firm based in Singapore filed a lawsuit in a New York state court on May 19, charging that 132 bottles of Domaine de la Romanée-Conti wines it purchased for $2.45 million in 2011 were not authentic and that they were fakes made by Kurniawan. It’s still a long way to go to $550m.

That the fine wine market is riddled with counterfeits is not in dispute. But while collectors need to be wary and do their due diligence, the fine wine market isn’t quite as rotten as suggested.

Kurniawan private (non-auction) sales as disclosed in court documents

* $1 million loan from “a wine collector” in exchange for $500,000 of wine

* $2 million loan against wine from a Connecticut-based company

* $8,485,056.20 loan from “New York Auction House”

* “California Collector” bought $2.2/2.3 million from Kurniawan

* A “certain wine collector from Florida” bought a double-magnum of Pétrus 1947 for $30,000

* “Direct Sale of Wine” to a NY collector of $48,259 for a Jéroboam of Château Mouton Rothschild 1945

* 132 bottles of Domaine de la Romanée-Conti purchased by an investment firm based in Singapore for $2.45m

* Total of these sales / loans $15,813,315.20