March 15, 2021

Episode 011: Wine Fraud & Rudy Kurniawan


This episode pairs well with a glass of wine. 

Sarah starts us off with a lesson in our favourite alcoholic beverage, including the proper lingo and some French history. She tells us the unfortunate tale of the grape louse and how it impacted wine production in the 19th and 20th centuries. She then answers the question everyone is asking: is red wine really good for us?

Becca does a deep dive into the most famous case of wine fraud. It includes auctions for the rich and famous, Thomas Jefferson’s wine collection, and crime, of course. This is the case of Rudy Kurniawan and the story that shook the wine world.

For a full list of references, visit our website.

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Transcript

B: Today you are covering some of the history of WINE! Then I am going to tell you about the most notorious scandal to ever hit the wine world. But that is all I am going to say as I don’t want to give too much away. Before we get started is there anything we want to talk about?

S: I did a little digging into one of my personal favourite adult beverages - wine and I quickly realized that I know next to nothing about wine. It’s so confusing and intimidating! So let’s start out nice and easy - what exactly is wine? It’s an alcoholic beverage (typically 10-15% ABV)  made from fermented grape juice. Technically, any fruit can be used to make wine, but if the bottle just says wine then it’s made with grapes. The fermentation process typically takes between 2-3 weeks during which yeast consumes the sugar in the grapes and converts it to alcohol, carbon dioxide, and heat, and then after the fermentation, the wine can be aged and the length of aging depends on the type of wine. Contrary to popular belief, wine does not always get better with aging. Aging changes the wine, but past a certain point it’s like to get worse.  

Now, the grapes used to make wine are different than the grapes that we snack on - they are smaller, sweeter, have thicker skin, more juice, and more seeds. There is a form of measurement called the Brix level (b-r-i-x) which measures the percentage of sugar in a liquid (One degree Brix is 1 gram of sucrose in 100 grams of solution), and the grapes we eat have a Brix level of 17-19, whereas wine grapes are closer to 24-26. 

Most of the common wines that you’ll probably recognize are actually named after their grape varietal. A single-varietal wine is made primarily with one type of grape and it’s usually named after that grape! So a bottle of Riesling is made with Riesling grapes, a merlot is made with merlot grapes and so on. It’s useful to note that each country and even each state in the US has different rules for how much of the grape variety should be included to be labeled as a varietal wine - so in most of the USA, 75% of the grapes in a bottle of wine must be a merlot grape to be called a merlot, but in it’s 90% in Oregon. 

Wines may vary according to their level of sweetness, acidity, tannin, flavor, and body. 

Sweetness: Depending on what style of wine you drink, sweetness in wine ranges from having no sweetness (dry) to sweet like maple syrup (ice wine). 
Acidity: Wine as a beverage lies on the acidic end of the pH scale ranging from as low as 2.5 (lemon) to as high as 4.5 (greek yogurt). 
Tannin: Tannin is found in red wines and contributes to the astringent quality of red wine - that sort of dry mouthfeel. 
Aroma: Different tastes and smells, like berries, flowers, fruity, spicy, zesty, delicate, fresh, oaky, vanilla, nutty etc.  
Wine has been produced for thousands of years. Some of earliest evidence of wine is from ancient Georgia, Armenia, China, Persia, and Italy (~7000-4000 BC). Little is actually known of the early early history of wine but it’s thought that ancient humans made wines from wild fruits, including grapes. I’m not going to get into the history of wine today because it was overwhelming! But I do want to tell you the historical story of the grape louse aka. Phylloxera, the tiny little aphid responsible for devastating the french wine industry during the Great French Wine Blight of the mid 19th century. 

France is well-known for being one of the world’s most prolific producers of fine wines, but about 150 years ago, the french wine industry was under a critical and nearly invisible threat. By the mid 1860s, grape vines were rotting away and entire vineyards were being destroyed by a mysterious illness, crippling wine production and threatening the future of the whole industry. The cause? A tiny parasitic aphid that traveled over from the United States called phylloxera. In the US, phylloxera had only been interested in the leaves of the grape vines, but in France where the grape varieties were different, they preferred to snack on the vine roots. 

Even after scientists had identified these sneaky aphids, no one could figure out how to get rid of them. France lost almost 2 million hectares of vineyards to the grape louse and vineyards across Germany, Italy, Spain, South Africa, and New Zealand were also impacted. The French government even offered 320,000 francs to anyone who could create an effective insecticide (about 4.5 million $CAD) (although some sources said 20000 francs). In the meantime, growers resorted to placing toads under each vine or letting their chickens roam the vineyards, hoping that they would eat the phylloxera. Two French wine growers, Leo Laliman and Gaston Bazille, hypothesized that some sort of hybrid grape plant of the aphid-resistant american vines and the original French grape vines would be able to survive against the grape louse. 

So these two varieties were grafted the resulting hybrid plant was tested and it proved to be a success! This method would later be called “reconstitution” by French wine growers and it was very divisive. Wine growers fell into two camps: the “chemists” who rejected the grafting solution and persisted with pesticides (which didn’t work) and the “Americanists” who embraced the grafting solution and kept growing. Eventually, the majority of France’s vineyards were reconstituted. Today, nearly all French wine comes from vines grafted onto American roots.
Now, remember that hefty prize money? Leo Laliman was the first to suggest the hybrid grape varietal and so he tried to claim the money, but the French government refused to award it, with the rationale that he had not cured the blight, but rather stopped it from occurring. However, it’s said that Leo was mistrusted by several notable parties and he was thought by many to have originally introduced the pest, so it’s possible he was denied the prize for many other reasons. 

And the grape louse still exists today! It hit California in 1983 and caused $1-2B in damage. But the majority of grapes are grafted now and are largely resistant to phylloxera. 

Some Canadian wine stats: Canadians like wine - in 2014, we drank on average 13.5 L per adult per year and consumption was expected to increase to reach 16.4 litres per adult in 2018 (couldn’t find if we actually did that) but given what happened in 2020 I’m sure we passed it with flying colours. Nearly 90% of Canada’s regular wine drinkers live in just three provinces: Ontario (40%), Quebec (28%) and British Columbia (19%). In Quebec, no surprise but French wines are the most popular and the Quebecois are more likely to enjoy rose! Whereas English-speaking Canadians are more likely to select North American wines, with Californian wines leading the pack. 

And because we are here for the sake of nutrition, I thought I’d touch on the age-old question - is wine good for us? This topic is the subject of many clickbait headlines and the idea that red wine is better for us stems from a theory called the French Paradox, which refers to the idea that drinking wine might explain the lower rates of heart disease in the French despite their fondness for rich, fatty foods. Wine is rich in polyphenols which are found in grape skins (as well as many other fruits, vegetables, and nuts), and so theoretically the polyphenols might explain the heart protective qualities of red wine. BUT the evidence that red wine might reduce your risk of heart disease is pretty weak, most of it is observational and not strong enough to infer causation and the long-term effects of alcohol have never been tested in a long-term, randomized control trial although drinking within guidelines (2x/day W, 3x/day M at a rate of approximately 1x hour) is largely considered safe. Some evidence shows that people who drink moderately (and that’s any alcohol like wine, beer or hard liquor) have a somewhat lower risk of heart disease than those who don’t drink, or who drink too much.   But it is also known that drinking excessively can increase your blood pressure leading to heart disease and stroke. 

Animal studies have shown that the antioxidants in red wine, like resveratrol, may reduce blood vessel inflammation, a risk factor for heart disease. However, there has not been enough research done on humans to be able to say that we would experience the same benefit. 

Plus, we do know that drinking too much alcohol increases the risk of high blood pressure, high triglycerides, liver damage, obesity, mental illness, some cancers, accidents and many other health conditions. So if you don’t already drink red wine, it’s not recommended you start, but if you do want to enjoy some wine, go for it! But remember to enjoy responsibly - alternate with waters, and remember that a standard glass is only 5oz.  

B: When I was looking for research on this story, I found a few recent headlines about wine that were relevant to today’s topic that I wanted to share. It’s no surprise, to me at least, that 2020 was a big year for wine sales. And with that a few new trends have also emerged. For example, convenience store wine purchasing has increased by 44.5% since 2019 (Gray, 2021). Clearly that isn’t in Ontario since our liquor board doesn’t allow us to purchase alcohol just anywhere. But that is a significant increase that should have the attention of the wine industry. And another article from Business Insider South Africa claims that their boxed wine has outsold bottled wine for the first time in 2020. Now this may partially be due to the fact that South Africa banned some alcohol sales during the pandemic, and people are stocking up. But all very relevant to our topic today, which is the most famous wine fraud case.

Some of the references that I used for this episode include the documentary Sour Grapes by filmmakers Jerry Rothwell and Reuben Atlas, an article by Tom Mullen written for Forbes and one by Rupert Millar for the Drinks Business website. You can find all the references in our shownotes at www.dieteticsafterdark.com.

I am going to be talking quite a bit about wine auctions here, since this is where a lot of the fraudulent acts took place. There are two basic types of wine auctions - The first is First Hand Auctions, which is when a wine producer will auction off their own wine, usually vintages, for something like a charity. Second hand auctions are different in that they are arranged by auction houses. The wine here is auctioned off more like art, and the buyers are considered collectors. The most expensive bottle of wine to have ever been sold at an auction was a bottle of 1945 Romanee-Conti Burgundy sold in 2018 for...guess how much…$558,000 USD ($708,261 CAD). This is 17 times more than the original estimate made by the auction house, which was $32,000 (Frank, 2018). So this is the big leagues of wine. And some of the richest people in the world attend these events. 

Now a quick little history on wine auctions. The first charity wine event took place in 1443, when the Duke of Burgundy, from Burgundy France, and his wife sold wine and donated the proceeds to a hospital. In 1859, the first wine auction took place for charity at Christie’s Wine Auction, and this specific event apparently still takes place every year to this day. In 1969, an American producer and distributor contacted Christie’s and asked to host a wine auction at the Continental Plaza Hotel in Chicago. They sold $55,000 of Californian & European wines that night. 

There were some issues getting these second hand auctions launched in the US as some retailers would protest, and even filed restraining orders against the State Liquor Authority since they were issuing auction licenses, and apparently they shouldn't have been doing so.

While some auctions did take place before the 90’s, there was a real uptick in these events during the dot com boom, when everyone was making a ton of money off this cool new thing called the Internet (Mullen, 2020). SO we have rich people getting richer and wine is now being seen as art, so naturally these things, they pair really well together. 

According to the winos’, the best way to taste wine is in a group setting, where you can schmooze and share the experience with each other. In the early 2000’s there was a group called the Angry Men, who would meet about 8 times a year to share dinner and wine, often drinking $200,000 of wine a night. The name of the group came from that feeling when you’re invited to a party, and you bring a really nice bottle of wine, and everyone else brings really crappy wine. And it makes you an Angry Man.

A gentleman by the name of Rudy Kurniawan was introduced to the Angry Men as being an “up-and-comer” in the wine collection biz. Not too much was known about Rudy, other than the fact that he is of Chinese descent and that he moved to Arcadia, California from Jakarta, Indonesia. He is described by friends as a classy, graceful and generous man. He also had an amazing palate and could identify almost any wine.

There were a lot of rumors about his life, including that his family owned the Heineken distributorship in China and that he had a million dollar monthly allowance for wine that was given to him from his brother. He wouldn’t really engage when it came to conversations about his family. BUT many of his friends did meet his mother and brother (Dar), and it seemed like the stories checked out.

Rudy’s spending habits also backed these rumors, as he would often spend a ton of money at these wine auctions, driving up the prices of the wines that he would bid on. He started setting records in the money that he was spending on wine, and a journalist in the Sour Grapes documentary claimed he was ruining the “old guys club”.

Rudy was introduced to a man named John Kapon, whose family owns a wine store called Acker Merrall & Condit. John transformed the store to include wine auctions and started to make them more “fun”. He then began somewhat of a partnership with Rudy and between 2003 and 2006 he sold over $35 million dollars worth of Rudy’s personal wine collection. Acker soon became the #1 wine house in the world. But there were some questions about whether John could physically inspect all the wine that was being auctioned off at Acker during that time.

Wine consultants and collectors begin to notice fakes that were making their way into their collections. Rudy had even mentioned that he had to become an expert in fake wines because there was so much of it within the auction market. And one wine producer from Burgundy, France - his name is Laurent Ponsot - he noticed that some of his wine that was being showcased in an auction magazine was dated 1929, BUT his winery didn’t start bottling that wine until 1934. So he naturally became a bit suspicious.

Now I am going to quickly take a minute to tell you about Laurent’s winery. It is called Domaine Ponsot, and they have been producing wine since 1872. The average bottle available to us more common folk is less than $1000. And in the documentary, Ponsot expressed confusion by the fact that the Domaine Ponsot winery would sell their bottles at one price and they would be released in the auction scene with a markup that was 10 times the amount. Now wine from Burgundy, France is highly coveted, but this price surge drove up the cost of wine from this region to the point where it was unattainable. 

Domaine Ponsot wine was therefore often in circulation at these auction houses with absurd prices. And when Ponsot saw the fakes in the auction magazine, he saw that John Kapon  from Acker auction house had signed off on the wines. Now a seasoned auctioneer should know the years of certain wines, and it is possible that it was a mistake. However, Ponsot expressed that each bottle was sold between $50-70,000 and that John Kapon made about 20% off those sales. So either it was a mistake, or the plot thickens.

It’s 2008, and Ponsot decides to go to New York City to investigate what is going on for himself. It is the middle of the recession, but there is a big Acker wine auction taking place in Manhattan. A massive investment banking company called Bear Stearns shut down the week beforehand and no one knew what would happen since many wine collectors are investment-types. Ponsot decides to go. And needless to say the auction gets ROWDY. The wine is flowing, and based on the video footage, it looked more like a bar than a sophisticated auction. And just as they are about to auction off some Domaine Ponsot bottles, Laurent Ponsot stands up and yells “withdraw my wines”. Based on the retellings of this story, it was quite dramatic. They do end up taking the wine out of the auction circuit that night. And Ponsot meets with John Kapon afterwards to ask who’s counterfeit wine he was selling. John sets up a meeting between Ponsot and Rudy for the next day.

When they meet, Rudy is friendly, calm and a bit confused. He tells Ponsot that he buys so much wine that he couldn’t remember where it came from. Ponsot isn’t sure if he should trust Rudy and decides he is going to play nice to try to get some more information. A few days later Rudy gives Ponsot his source, who is a man named Pak Hendra from Jakarta. He gives him two phone numbers → one of which ends up being a fax line for an airline, and the other was the number for a strip mall.

I am going to now introduce someone new to this plot line, and that is Bill Koch. Bill was one of the only people who would bid up against Rudy when the wine prices started soaring. He is a collector from Palm Beach, FL - he collected art, swords, coins and wine. In the documentary they take you through his wine cellar, which is no doubt bigger than my home. He has a collection of over 43,000 bottles, which include some bottles that were previously owned by Thomas Jefferson from the 1700’s. As he is showing off his bottles, he calls out a few counterfeit bottles and lays them out, saying that he paid at least $100k for each one. Overall it was estimated that Bill has over 400 fake bottles in his collection totalling over 4 MILLION DOLLARS. He reached out to the auction houses, but they wouldn’t do anything, so Bill hired an investigator named Brad Goldstein to look into things. At this point, Ponsot the French winemaker, and Bill join forces. They are both being affected by these wine knock-offs and decide something needs to be done. Bill hires a team of experts in all the wine trades - like experts in corks, glass and glue. They find many inconsistencies, like Elmers glue on vintage wine bottles from 1958.

Since they still that Pak Hendra from Jakarta is involved, Ponsot flies to Asia to check it out. After asking around about him, he finds out that the name “Pak Hendra” is the equivalent of “Mr. Smith” in English. So he then starts asking restaurants and wine collectors about Rudy and his family’s beer business. BUT no one knows anything about him.

In the meantime, Bill’s investigator looks into Rudy’s immigration status and they find removal proceedings from 2003 with a warrant for his arrest. His student visa had expired so if he left the country, he wouldn’t be allowed back in. They figured out where Rudy had gotten his visa, and it was from a strip mall in Jakarta - and it looked more like a hardware store.

At this point the FBI gets involved. As I mentioned before, it was rumoured that Rudy was a trust fund kid, but there was no real evidence to back this up. It turns out that Rudy was actually broke and was moving his debts around to almost give the illusion of having money. Acker wine house would pay Rudy in advance for his wines since they knew they would sell and wanted to snag them so that another wine house wouldn't get Rudy’s business. At one point Rudy owed Acker about 10 million dollars. So they stopped doing business with him. But other wine houses continued to take his business until at least 2012 it seems.

In March 2012, the FBI goes to arrest him and he answers the door like he's just woken up. The place is a disaster - and there is wine EVERYWHERE. On every shelf, on the floor, in boxes, in the sink soaking. They found cork extraction devices, a mixing station, new vintage looking labels...essentially everything you would need to bottle wine. There was no production equipment, but the house was kept super cool, with space heaters in the bedrooms. Rudy has also purchased $1000’s of dollars worth of wax, antique paper and empty wine bottles from restaurants. 

It is assumed that through trial and error, Rudy had apparently made these cheap wine concoctions himself, which many people claim is an art in itself. As he fooled some of the most experienced wine collectors, somaliers, and wine drinkers in the world. It is estimated that each bottle would take about an hour to piece together following the bottling process. With the amount of counterfeit bottles he did produce, it is impossible that he had done this on his own.

However, only Rudy was detained...in a detention centre in New York. He was deemed a flight risk and wasn’t given bail. During the FBI investigation, they traced money from Rudy to his brother in Indonesia, and at one point in 2007 he wired his family $17 million, making the authorities think that this was more of a family affair. But his whole family didn’t seem to have anything to hide - many of them had open Facebook pages - so either they were confident in their crimes or they were completely unaware of what was going on.

One very interesting thing came up during the investigation that may help explain where Rudy got some of his initial wine start-up money. Rudy’s mother, Lenywati Tan, had two brothers, Eddy & Hendra, who were linked to the largest bank heist in Jakarta history. In the early 90’s they stole $780 million dollars from Bapindo bank, and only 1/10th of that money was ever recovered. Eddy escaped from prison in 1996 and is said to be hiding out in China. Hendra was arrested trying to flee to Australia. And he passed away in January of 2003. 

The FBI couldn’t prove that Rudy had ever received any of that money, but it’s not out of the realm of possibility. They did also find that his uncle Hendra owned the strip mall where Rudy had obtained his Visa to get into the states, so they must have been connected at some capacity.

Rudy pled “not guilty”. But regardless, in December of 2013, he received a 10 year sentence and had to pay $28.4 million back to the victims of his crimes. Bill Koch won $3 million, which Rudy has yet to pay back. 

Many people believe that his sentence was too tough considering the crime. And that he must have had accomplices, but authorities couldn’t prove that anyone else was involved in the fraud….This was deemed the largest wine seizure the US Marshal has ever handled. They had to destroy over 500 bottles.

It is estimated that as many as 10,000 bottles from Rudy’s collection are still sitting in private collections across the world, but it is impossible to track them all. And wine fraud overall still continues, so there are clearly some more players in the game.

Rudy was released from prison in November of 2020, 7 years after his sentencing. But he was taken into custody by the US Immigrations & Customs Enforcement immediately after “pending removal” from the country. This past December his deportation was confirmed and according to a news article posted 2 days ago, he is still awaiting deportation (Bortolot, 2021; Millar, 2020).

And that is the story of Rudy Kurniawan and the fraud that shook the wine world.

I know I usually give tips or things for consumers to look out for at the end of an episode, but I highly doubt that any of you listening attends wine auctions. And if you do, we would LOVE to hear about it. Wine sales that go through the traditional avenues are less likely to be infiltrated by this level of fraud.