'Ponzi Wine Scheme' Fraudster Spent Investors' Money on Cars and Women

In 1920, Charles Ponzi was arrested and charged with 86 counts of mail fraud after paying out investors with other investors' money. Ninety-six years later, he and the scheme that bears his name live on in infamy—even in the world of wine.

This week, US District Judge James Donato called wine dealer John Fox's financial ruse a "wine Ponzi scheme" after accepting his guilty plea for defrauding clients of $45 million worth of wine futures through his high-end Berkeley, California wine business Premier Cru.

Wine futures are a financial instrument that allow wine speculators to invest their money in recently harvested, unbottled wine for significantly less than their potential post-bottled market value. Unlike mutual funds or bonds, investors actually can get a return on their investment while owning something tangible and delicious. That's assuming, of course, that they actually receive the high-end wines that they were promised in return for their funds.

But because investors only get their wine months or years after it is bottled, it's also a financial instrument that allows fraudsters like John Fox to make a lot of money by simply keeping the money and not delivering the goods. The plea deal he struck with prosecutors comes with a six-and-a-half year federal prison sentence, which doesn't seem bad considering Fox lived high off the hog for decades on money that was not his.

Much of the capital that Fox was given by wine speculators was actually spent on luxury cars, a mortgage for his house, and just under a million bucks for "women he met online," according to SFGate. As part of his plea agreement, Fox was forced to admit that he had sold $20 million worth of "phantom wines" that he knew he could not deliver, a scheme he confessed to employing as far back as 1993.

But this is little comfort for the investors who lost massive sums of money and wine because of Premier Cru's owner. The company declared bankruptcy in January, with $70 million in debts and only $7 million in assets, meaning that their last hope in getting any money back will be the sale of the wines remaining in Premier Cru's warehouse. At which point, they can choose between storing it or drinking their sorrows away.