The Emperor’s old wine

A couple of years ago I watched a documentary called Sour Grapes.

It chronicled how gifted conman Rudy Kurniawan duped the most well-regarded wine tasters in the world.

From now on, I’ll refer to him as Rudy, like the man in the Supertramp song.

Rudy appeared on the US wine scene in the early 2000s. By 2006 he was spending up to $1 million per month on rare wines at auction.

As his notoriety increased, he started hosting tastings of rare wines for other collectors and anyone rich enough to attend.

At that time he was regarded as having “arguably the greatest wine cellar on Earth”, worth many millions of dollars.

In that same year, auction company Acker Merrall & Condit broke all previous wine-sale records, selling $35 million worth of Rudy’s wine at auction.

But it was all a big con.

While it was true that Rudy spent millions on his wine collection, most of it was fake.

One nose in a million

It turns out that Rudy is one of the most gifted wine tasters to have ever been born.

After a single taste of a wine, he could recreate its flavour, exactly, by mixing different, much cheaper wines together.

He would buy, say a $200,000 bottle of wine, drink it and share it at one of his events. He would then forge it and drink and sell it again many times over.

He managed to get his hands on many old bottles that he could fill with his own forged wine, and old labels he could use to copy the real wine’s designs on to.

So the labels bottles, corks and wax seals were the right age and style. The wine inside, however, was not.

In fact, Rudy recreated these famous and almost priceless wines by mixing together many different bottles of off-the-shelf supermarket wine.

When the FBI raided his apartment in 2012 they found his wine-bottling apparatus, old labels and many, many bottles of half-used supermarket wine.

Scattered around his apartment were lists and lists containing his wine recipes.

On each list was the exact proportions of cheap wine he needed to make a convincing “priceless” wine.

Showing up the rich and powerful

Throughout the documentary it showed countless rich, famous and pompous people drinking his forgeries and stating that it was the “greatest wine they ever tasted”.

As I remember there was even one scene where three multimillionaire “wine experts” thought a real wine was fake and Rudy’s fake wine was real.

They were going around the wine tasting event showing people how to tell the difference in taste and stating how bad the “fake” wine was.

Of course, a couple of years later, when we watch that footage, we know they are completely wrong.

I’ll admit, there is something very satisfying about watching these people being made to look like fools.

Especially when they were constantly putting down “lesser wine drinkers”, and stating that they were compete experts.

It was very Emperor’s new clothes.

In the end Rudy wasn’t caught because his fake wines didn’t taste right. He was caught because he got the dates on some of his bottles wrong.

In 2008 he put some wines up for auction from 1945, 1949 and 1966 that were actually never produced until 1982.

Someone in the know noticed and the auction was called off. Even then, most people thought it was Rudy who had been duped and was innocently selling a lot of fake wine.

But by then his time was running out.

In 2009 billionaire Bill Koch sued Rudy for knowingly selling him and other collectors fake wine, both at auction and privately.

I told you he mixed in powerful circles, didn’t I?

Ten years in prison for exposing a bunch of charlatans

Rudy was arrested at his apartment in California in March 2012. He was found guilty on many counts of fraud, and in December 2013 he was sentenced to ten years in prison.

To put that sentence into perspective, in the UK manslaughter carries a typical sentence of between two and ten years.

This is what happens when you make rich and powerful people look like fools.

My main takeaway from the documentary was that a person with such a talent should not be rotting away in prison. And certainly not for a stretch of ten years.

Imagine how valuable his skill would be to wineries around the world. He could help them to create or re-create some of the best wines ever bottled.

If he can convince the world’s foremost wine experts that a mix of supermarket wines are as good as ones worth hundreds of thousands of dollars, imagine what he could do given all the tools a large wine distributer has.

Of course, another takeaway could be that wine experts are all charlatans.

If someone can feed them off-the-shelf bottles and convince them they are worth millions, then how can we ever take their opinion on wine seriously again?

I guess that’s why Rudy ended up being made an example of. He hurt the reputation of the entire wine industry.

Here’s the real lesson of this story, from an investment perspective

Why am I telling you all of this, aside from the fact it’s an interesting expose into the world of fine wine investing?

Well, in the food, drink and fashion industries forgeries are a huge problem.

In fact, it’s not just in those industries. The electronics industry is rife with fakes. If you’ve ever had a memory card fail or a battery run out way before it should have, the chances are it was a fake.

Forgeries have always been a problem for companies, but over the last few years they are becoming more and more commonplace.

From the Guardian:

In a 2016 lawsuit against the former Amazon supplier Mobile Star, Apple described buying more than 100 iPhones, power adapters and lightning cables sold as genuine, to discover that almost 90% of the products were counterfeit. 

So, what’s the solution?

If you’re a regular reader, you can probably guess…

Blockchain, crypto, distributed ledger technology (DLT). Call it what you will.

This is the best solution to this multi-billion dollar global problem.

Because blockchain is immutable, manufacturers can use it to prove an item is real.

When a company manufactures an item, it attaches an RFID tag which corresponds to its record in the blockchain.

These tags can be customised and can included things like temperature and accelerometer data, which can be used in pharmaceutical and food shipments.

Manufacturers can ensure their foods and medicine have been handled with appropriate care throughout the shipping process.

This tech also works in the opposite way.

It can be used to prove a fake is a fake in the same way it can prove a real item is real. No RFID chip with an authenticity record on the blockchain? Then it’s clearly a fake.

The reason the blockchain is key to this is because it is publically searchable and cannot be tampered with.

The tags can also be made so that they are destroyed if someone tries to remove them.

This isn’t just a pipe dream, it’s already happening at H&M

Back in my December issue of Crypto Wire I wrote about a crypto that specialises in this area called VeChain.

VeChain is already working with many luxury goods manufacturers to get its tech into their products.

Here’s an excerpt from my December issue:

A couple of weeks ago a number of videos went viral within the crypto space of people using the VeChain app in H&M stores to verify the authenticity of certain clothing lines.

It turns out VeChain has been working with Arket, which is a subsidiary of H&M on supply chain solutions. Basically implementing tags that prove an items authenticity.

From The Next Web:

“Arket has done a small Proof of Concept (POC) through a pilot testing with VeChain to use blockchain technology to secure product data traceability in the value chain,” the spokesperson told Hard Fork. “The test was made on a wool beanie from the autumn 2018 collection.”

It seems a VeChain fan found out about this and went to test it out. Given VeChain’s massive following, this then spurred others to do the same.

You can see it working in the video in this tweet. As a bonus I think that’s a London H&M store.

I thought this was a great example of an actual use case for blockchain, and a company actually using it. A massive company at that – even if it was just a test pilot.

When you start to think about it, the potential for this kind of anti-counterfeit technology is huge.

True, it wouldn’t have helped with Rudy’s case. But it can help with all forgery cases going forward.

If you’d like to know what I think of VeChain, you can take out a trial of Frontier Tech Investor.

My Crypto Wire service comes free with Eoin Treacy’s Frontier Tech Investor service. So you’ll get access to both of our work on your trial.

Actually, right now, you’ll get even more than that. You’ll also get a free copy of my publisher Nick O’Connor’s book, The Exponentialist.

If that sounds like something you might be interested in, click here to find out more.
Until next time,

Harry Hamburg
Editor, Exponential Investor

Category: Commodities

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