SAN FRANCISCO (CBS SF) -- The owner of a bankrupt Berkeley wine shop admitted during a guilty plea in federal court in San Francisco today to carrying out a two-decades-long scheme that defrauded customers of at least $45 million.
John Fox, 66, owner of the now-closed Premier Cru retailer of rare and expensive wines, pleaded guilty before U.S. District Judge James Donato to one count of wire fraud.
That fraud was the electronic transfer of $100,271 from an unnamed customer in Hong Kong to a Premier Cru bank account in Northern California in 2013.
But in an 11-page written plea agreement filed later today, Fox admitted that his scheme began by 1994 and included false inventories of $20 million worth of "phantom wine," buying wines for some customers with money provided by later customers, embezzlement to pay his personal expenses, and a total customer loss of at least $45 million.
"I agree that, at the time of Premier Cru's bankruptcy, customers paid at least $45 million for wine they had not received," Fox said in the signed agreement.
The company declared bankruptcy in federal court in Oakland in January.
The embezzled funds went to pay the mortgage of Fox's former home in Alamo, expensive cars, his and his wife's credit card bills, golf club memberships, his daughter's college tuition and the spending through PayPal of "more than $900,000 on women I met online," Fox said in the agreement.
Fox will be sentenced by Donato on Dec. 14.
Under the plea bargain, prosecutors and Fox's lawyers will both recommend a sentence of six and one-half years in federal prison, plus restitution of at least $45 million to customers and at least $6.5 million to creditors.
The maximum possible penalty for the single fraud conviction is 20 years in prison.
When Assistant U.S. Attorney Benjamin Kingsley summarized the agreement at the start of the court session, Donato called Fox's enterprise "a wine Ponzi scheme."
A Ponzi scheme is an operation in which early investors are paid off with money taken in from later investors.
Fox, wearing a blue-and-white striped dress shirt and gray slacks, said little during the plea and chose not to make a statement.
When asked by the judge whether he wanted to confer more with his lawyer before pleading guilty, Fox said, "No, I understand it all."
Fox co-founded Premier Cru in Oakland in 1980 and later moved it to Emeryville. The company moved to a large retail store on University Avenue in Berkeley in 2011.
He surrendered to authorities on Wednesday and will remain in custody while awaiting sentencing.
Prosecutors charged Fox with the wire fraud in a document known as an information that was filed under seal on June 28.
At the joint request of prosecutors and defense attorneys, who said "defendant fears for his safety in the community should the information be made public," a magistrate sealed the charging document until Fox's surrender Wednesday. Fox waived his right to have the information replaced by a grand jury indictment.
Premier Cru sold some wine in its retail store, but made most of its sales in "pre-arrival wine" or "wine futures" bought by thousands of customers, Fox said in the agreement.
The pre-arrival stock was supposed to be wine that Premier Cru had already contracted for through foreign suppliers and that would be shipped to the customers within six months to two years.
In fact, Fox admitted, he began creating false inventories in 1993 or 1994 for pre-arrival wine that he never contracted for.
By 2010, the fraudulent inventory "constituted a substantial portion of the business" and Fox sold or attempted to sell $20 million worth of "phantom wine" between 2010 and 2015, he said.
Other company funds were lost through the embezzlement and through high-priced purchases Fox had to make from other suppliers to satisfy some of the customers who demanded their wine.
"When customers complained repeatedly or forcefully, I arranged to deliver wine to them even if I had never actually contracted to buy the wine for which they had paid," Fox said in the agreement.
"I often did this by delivering wine for which other customers had paid, or in many cases, by purchasing the wine from other suppliers, usually at prices much higher than those for which I sold the wine in the first place.
"A substantial amount of money in Premier Cru's bank accounts went to purchase wine in this way," he admitted.
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