Ponzi mastermind’s help may lead to short jail time

Dan Clar begins to auction off the French tapestries on the floor and the wall that once adorned the retail wine store at Premier Cru. Photo: Frances Dinkelspiel
Dan Clar auctions off French tapestries that once adorned Berkeley’s retail wine store Premier Cru. Photo: Frances Dinkelspiel

As Dan Clar cleaned up the Premier Cru office and warehouse in preparation for auctioning off the wine retailer’s contents, he came across two cardboard boxes stuffed with family photos.

They were of John Fox, Premier Cru’s one-time owner, his family and his friends. There were photos taken in the Philippines in the early 1990s of the woman 20 years younger than Fox who would eventually become his wife, a photo of her white satin wedding dress, and numerous pictures of the couple’s young daughter at various ages.

In one photo, Fox and his wife stand in front of a fireplace, their living room packed with mammoth plush animals. Others show dinners and outings with friends. In one of the boxes, there were even some old American Airlines tickets that his wife had used when she traveled from the city of Lapu-Lapu in the Philippines to live with Fox in Hayward, the first of many homes the Foxes would inhabit. Her 1991 passport application was also there.

 Read the back story about Premier Cru on Berkeleyside.


The abandoned boxes of intimate photos seem like a good metaphor for Fox’s shattered life. On Wednesday, the 66-year-old will be sentenced in federal court for running one of the world’s largest wine Ponzi schemes. Fox has admitted to defrauding more than 4,500 people of at least $20 million, if not $45 million, according to court documents. He has pleaded guilty to one count of wire fraud. The U.S. Attorney’s office has recommended that Fox be sentenced to 78 months, or six and a half years, in prison, in part because he admitted his guilt, cooperated with the investigation, and even helped secure the indictment of a 25-year-old Seattle woman who extorted Fox for $240,000 after they had sex.

The photos show a happy man with a full life, blessed with friends and family, the means to travel internationally and to afford a nice home. But Fox intentionally blew up that life by lying to and stealing from his customers, betraying his business partners and cheating continuously on his wife.

Did Fox leave those photos behind at 1011 University Ave. because he forgot about them? Was he in too much of a hurry as his business fell apart around him and he faced prosecution to bring them home? Or was there no home to bring them to after he admitted publicly that he spent $900,000 on meeting young women in their 20s online? (Neither his 46-year-old-wife nor his 21-year-old daughter showed up in court when Fox entered a guilty plea in August.)

After Clar found the boxes of photos, he set them aside. Obviously, they were not going to be auctioned. He called the attorney representing the building’s owner, who said he would pick them up.

On Dec. 3, Clar oversaw more dismantling of Fox’s life. His company, Daniel Clar Auctioneers, sold off most of the items that once made up Fox’s former wine empire in Berkeley. Most of the items sold for pennies on the dollar. Some didn’t even sell at all. The beautiful French tapestries that hung on the wall, giving the retail shop a feeling of luxury, for which Fox paid $8,000, mostly went for $125 each, with the largest fetching $250. The two extraordinary handcrafted African rosewood display tables that cost Fox $16,000 sold for $3,800. The custom wine rack in the temperature-controlled vault, access to which came via a thumbprint reader, didn’t sell, although Clar said it cost more than $50,000 to build. Fox’s executive desk and chair, which sat in in his office next to his personal workout gym, didn’t attract a bid either.

Among the dozens of people who came to bid on office furniture, steel racks that once held wine, forklifts, computers, phones and other paraphernalia that kept the 35-year-old business going, were a few former Premier Cru employees who said they hadn’t been on the premises since the wine retailer filed for bankruptcy in January and shut its doors. Now the former workers were spread out at wine wholesalers and retailers around the Bay Area. Three of them had come to the auction in part for nostalgia’s sake, they said, and in part to process what had happened to them.

“It is eerie,” said Michael Tola, who once handled inventory management. “This is the first time I’ve been back here since John closed the door.”

Some of the hundreds of empty wine bottles that will be auctioned Saturday. Photo: Frances Dinkelspiel
Some of the hundreds of empty wine bottles that were sold at a Dec. 3 auction of the contents of the Premier Cru facility. Photo: Frances Dinkelspiel

Whitney Jacobson, who was Premier Cru’s warehouse manager, stood at one point in the afternoon by a lot of empty wine bottles which once had held some of the world’s finest and most coveted wines. The oldest bottle on the premises was an 1865 Château Latour, which Clar had put it in its own box to sell separately. But the lot Jacobson was eyeing — although he had no intention of bidding on it, he said — contained an empty bottle of 1945 Château Mouton Rothschild ­— considered one of the finest vintages of the 20th century, made even sweeter as it was the first vintage made after the Nazis were driven from German-occupied France. There were dozens of other empty bottles of fine vintages, mostly French Bordeaux.

Jacobson looked at an empty 1966 Château Mouton Rothschild magnum, its label faded due to wine drippings and time. Jacobson said he had drunk the bottle with Fox, who used to routinely host tastings for friends and employees. While the wine had faded a bit and was past its prime when opened, Jacobson distinctly remembered the occasion.

Dozens of people gathered at the Premier Cru auction. Photo: Frances Dinkelspiel
Dozens of people gathered at the Premier Cru auction. Photo: Frances Dinkelspiel

On that Saturday afternoon, the retail portion of Premier Cru was jammed with bidders and Clar kept up a steady sales patter. Jacobson said the room was fuller than he had ever seen it; when Premier Cru was still in business, the retail store was deserted for long parts of the day. The real action was in back, where Fox spent hours every week crafting his infamous email blasts that offered great wine at prices that were often ridiculously low. Online and phone sales formed the bulk of the business, said Jacobson.

Fox was a control freak, said Jacobson, and had his hand in almost every aspect of the business. That meant there was always an extensive to-do list on Fox’s desk, which he took a long time to get through, slowing down operations.

In hindsight, it made sense, said Jacobson. Fox admitted in court that a key component of his wine Ponzi scheme involved creating fake invoices that made it look like he was buying and selling wine. So he couldn’t relinquish some of his duties because that might have meant that his employees saw he was creating fake accounts.

“I think it was the Wizard of Oz kind of thing — don’t look behind the curtain,” said Jacobson. “More information wouldn’t have been good for him.”

None of the employees had any clue that Fox’s business was a sham, said Jacobson. While Fox was creating fake invoices, Premier Cru was also really selling wine.

“It wasn’t like John was defrauding 100% of the customers,” he said. “He was selective.”

The scam really seemed to catch up with Fox in 2015, said Jacobson. In 2014, Premier Cru received five shipping containers of wine, around 50,000 to 60,000 bottles. The next year it trickled to just one container. When employees asked, Fox told them it was a cash-flow issue.

Jacobson never thought too much of the fact that Fox lived in a large house, or had numerous expensive cars, including some Corvettes, a Maserati, a Mercedes-Benz and a Ferrari. He would drive to work each day from Alamo in a different car, said Jacobson, who attributed the rotating parade of cars as the normal gains of a successful business.

Fox was not a bad boss, Jacobson said, but he did not personally feel close to him.

“He was engaging in a very slick manner,” he said. “He was nice but you always had the sense he was looking down on you in a condescending way. He made snide asides. He would never ask about our personal lives.”

Still, Jacobson valued the camaraderie he felt with his co-workers. They even got together a few months ago to process what had happened.

As Clar auctioned off items on Dec. 3 (the empty wine bottles went for about $50 to $75 per lot of 100) this Berkeleyside reporter asked a former employee what he would purchase if he had an unlimited amount of money to spend.

There was nothing he wanted to buy, said the man, who declined to give his name. All he wished for was the Premier Cru team to be back together, selling wine.

Government: Fox’s Ponzi scheme was “strikingly inefficient”

As criminals go, Fox was not the most adept, according to a pre-sentencing report filed by the U.S. District Attorney’s office. He has admitted to selling $20 million in “ghost orders” over a 20-year period. When the bankruptcy trustee Michael G. Kasolas inventoried the company’s business records, he found that Fox had taken in $45 million of orders for which there was no wine. Yet Fox only embezzled $5 million, he said, and spent it on a nice home, his daughter’s college tuition, membership at two golf courses, sports cars, and online dates.

It was not “a large gain amount for this scale of financial crime,” the government concluded in sentencing documents. “The government’s financial analysis of defendant’s personal and business accounts found that defendant’s Ponzi scheme was strikingly inefficient.”

Fox’s Ponzi scheme was expensive to maintain, which may be why he didn’t steal even more money, according to the government:

“The scheme required defendant to pay tens of millions of dollars for staff, inventory, expensive software, a store, and a warehouse, all to keep Premier Cru in business despite its regular losses on its legitimate wine business. Defendant also lost huge (though undeterminable) sums of money by underpricing the ‘phantom’ wine that he sold to customers, and then purchasing it much later for customers, at much higher prices, when those customers demanded it. He further lost millions in paying partial installments of contracts for wine to European wine sellers, failing to complete payment, and then forfeiting the amounts he had already paid.”

As part of the plea reached with the government, Fox has agreed to pay $45 million in restitution to his former customers and $6.8 million to his creditors. Some of Fox’s creditors may get their money back when a sale of his wine property goes through in January, according to court documents.

Premier Cru's retail store at 1011 University Ave. is for sale for $6.8 million. Photo: Premier Cru
Premier Cru’s retail store at 1011 University Ave. has been sold. The sale price has not been announced but it was on the market for $6.8 million. The funds will be used to repay some of the company’s creditors. Photo: Premier Cru

Fox and his business partner, Hector Ortega, founded 1011 University Ave. LLC in 2009 to purchase the Premier Cru buildings, for which they paid around $4.1 million. They funded the acquisition and massive remodeling project with a $3.8 million loan from the Taylor Family Trust, a $1.2 million loan from the Community Bank of the Bay, and a $935,000 loan from Saul Gevertz, an Oakland real-estate developer, according to county records. Fox and Ortega owned 60% of the LLC and Gevertz owned 40%.

After Premier Cru filed for bankruptcy, the bankruptcy trustee assigned Fox and Ortega’s 60% interest in the building to Gevertz in exchange for $35,000 and the chance to stay in the building rent-free until July. Gevertz has sold the building, he said. It is in escrow and the deal is scheduled to close in January. Gevertz did not name the sale price, but bankruptcy court documents state that it was $6.4 million.

(Ortega, who was not implicated in Fox’s Ponzi scheme, has also sold the house he owned in Oakland, according to county records.)

Fox’s former customers-turned-creditors have not been as lucky. They have received pennies on the dollar for wine they thought they had purchased but which never arrived, or which they had left in free storage at the warehouse. In August, Spectrum Wine bought at auction 79,000 bottles left at Premier Cru for $3.6 million. Half of the proceeds will go to his former customers, according to court documents. The bankruptcy trustee has petitioned the court for $1 million of the proceeds to pay for the administrative costs of administering the bankruptcy.

Fox’s cooperation with the government distinguishes him from “other Ponzi schemers”

When Scott Medaris, the FBI agent overseeing the investigation into Premier Cru, took a look at Fox’s bank accounts some payments stood out. Starting in 2014, Fox had been transferring about $10,000 a month via PayPal to a 23-year-old woman in Seattle named Seul Ki Yum, according to court documents.

Fox, who had started cooperating with the FBI in February — six months before he was indicted — admitted that he had connected with Yum through an online dating site and had met her in California, where they had sex. After that, Yum threatened to tell Fox’s family about their affair unless he paid for her expenses, according to court documents.

John Fox, left, at the counter of a Fourth Street store with a young woman. Fox, who admitted to spending $900K to meet women online, drew attention because he showed up so often.
John Fox, left, at the counter of a Fourth Street store with a young woman. Fox, who admitted to spending $900,000 to meet women online, drew attention because he showed up so often.

Officials soon discovered that Yum was only one of many women Fox had met online for dates and sex. He eventually acknowledged that he spent $900,000 on dates. He would meet different women in their 20s at Artis Coffee on Fourth Street in Berkeley so often that he started to attract attention. Workers in the area started to surreptitiously take photos of Fox and his various dates.

Fox agreed to help prosecutors from Seattle snare Yum, and his cooperation is one reason the government is recommending his sentence be on the low end of the spectrum, according to court documents. On July 25, while FBI agents and Seattle prosecutors were nearby, Fox spoke to Yum on the phone. The call was recorded.

“In the call, Yum continues to demand extortion payments from Victim J.F., threatens to disclose their relationship to his wife and tells Victim J.F. that he is behind on his payments to her,” according to the indictment filed by the King’s County Prosecuting Attorney. “Victim J.F. tells Yum the money he has been paying her is ’embezzled.’”

On Nov. 22, Yum was charged with four counts of extortion. She was also accused of blackmailing at least three other men whom she met on online at the sugar-daddy website Seeking Arrangements, Tinder, or OK Cupid, according to court documents. She was arraigned Dec. 6.

“Though it originated in defendant’s wholly unsympathetic conduct of using victim money to pay for sex, defendant’s cooperation in the prosecution of Yum in Seattle has been meaningful,” said the sentencing document. “As that cooperation occurred in advance of the entry of the plea agreement on August 11, this cooperation is incorporated into the recommended sentence included in the plea agreement of 78 months, and the government is not making a further motion under § 5K1.1 at this time,” according to court documents.

Fox also cooperated with federal investigators on at least three other occasions and even showed them, on the computer, instances where he had sold wine he had never purchased, according to the sentencing document. For this fact, and because he admitted his guilt, turned himself in voluntarily, and did not ask for bail, court documents have stated that his sentence should be on the lower end.

“Defendant’s cooperation in the investigation of his own case was significant and far beyond what is typical for fraud cases, saved the government the substantial investigative time and resources, and allowed for a prompt resolution of his case,” reads the sentencing memo.

“Defendant’s cooperation significantly distinguishes him from other Ponzi schemers or wine fraudsters who deny their crimes through trial,” said the government.

Fox will be sentenced Wednesday in federal court in San Francisco at 3 p.m.

Update 12.15: U.S. District Court Judge James Donato sentenced Fox to six and a half years in prison, followed by three years supervised release. For a complete story on the sentencing, click here.

Related:

Could Premier Cru auction help wine counterfeiters? (12.02.16)
At Premier Cru, a peak into major wine fraud (12.01.16)
Premier Cru owner used coffee shop as hookup HQ (08.18.16)
Premier Cru spent $900K on dates he met online (08.11.16)
Premier Cru owner will plead guilty to fraud (08.09.16)
How did Berkeley wine store accrue $70M in debt? (07.28.16)
Premier Cru lawsuit: Some customers to get refunds (06.23.16)
Bankrupt Premier Cru not run in ‘a reliable fashion’ (05.09.16)
Premier Cru owner had penchant for expensive cars (03.08.16)
Customers confront owner of bankrupt wine store (02.25.16)
FBI investigating whether Premier Cru ran a Ponzi scheme (02.22.16)
Troubles mount for Premier Cru as FBI steps in (02.11.16)
Berkeley’s Premier Cru paid its tech staffer in wine (02.04.16)
Shop Talk: The ins and outs of Berkeley businesses (12.22.15)
Berkeley store sued for not delivering $3M worth of wine (10.29.15)

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