Fine Wine Investment Scams and How to Avoid Them

 
Wine fraud has been around for years.

Con artists would swap the labels of cheap bottles of wine with high end bottles for a quick easy profit at the expense of an unwitting victim.

Fast forward to today and unfortunately the fine wine market is still rife with scams.

So if it’s been around for so long why are we only writing this post now?

Well the fine wine market has been going through a phenomenal period of growth over the past year which has resulted in an increasing number of investors getting involved in the market.

Unfortunately this increase in investment activity breathes opportunity to scam artists who are constantly on the lookout for their next victim.

 
 

But why the fine wine market?

One of the reasons why the fine wine market is somewhat of a breeding ground for fraudulent activity is because the market isn’t regulated in the same way that many other financial markets are.

In short, it’s not regulated by the FCA and therefore any investment into the fine wine market would not be covered by the FSCS (Financial Services Compensation Scheme).

Another reason why fraudsters choose to operate within the fine wine market is because it’s a very attractive investment opportunity. The combination of the market’s impressive track record for double digit returns, tax efficiency and proven supply and demand model make fine wine a prime investment vehicle for fraudsters to use to manipulate the emotions of their victims.

Especially when many members of the public have grown tired of abysmal interest rates.

So, we’re going to run you through some of the most common wine scams out there today to ensure that if you are going to invest in fine wine, you know the safest way to enter the market.

 
 

Scam 1:

The wine doesn't exist or it's not in your account


This is one of the most brutal wine scams out there.

You may think you’ve invested £10,000 in a selection of fine wines that are expected to appreciate over the next 5 - 10 years, but the reality is that you’ve just sent £10,000 to a con artist.

What happens next will either go one of two ways. Either you’ll never be able to contact them again and they’ll disappear into the hills with your hard earned capital, or they’ll continue to contact you and persuade you to invest in even more wines that either don’t exist or you don’t own.

Either way it’s not good news.

One of the main assurances of investing in fine wine is that you own the asset outright and if you or they can’t prove that the wine is in your own personal account then you should be extremely suspicious.


How to avoid:

Step 1: Check that the company you’re dealing with is registered on Companies House

Step 2: Ask the wine merchant what bond they use to store their wine and then call that bonded facility to confirm this

Step 3: Make sure you’re provided with your own personal account registration number for HMRC regulated bond where your wine will be stored

Step 4: Ask the wine merchant how long it will take for the stock to be transferred into your account. If they own the stock and it is in their bonded facility it should be a case of switching around account numbers. You should only deal with companies who already own the wine stock. The process of transferring the wine into your account should take no longer than a week.

Step 5: Once they have confirmed that the wine is in you account, don’t take their word for it, speak to the bonded facility and get confirmation that the wine is in your account

 
 

Scam 2:

Paying over the odds for your wine


So you’ve got your own personal account, you’ve even been to visit the bond where they’re being stored. Phew, what a relief.

Not necessarily.

Some scams aren’t always quite as blatant as the wine not existing, and if you’re charged over the odds for your wine there’s a good chance that you won’t find out about it until 5 - 10 years later when you’re looking to sell out of the market and you get a nasty shock.

If you're purchasing wine you want to make sure you get it at the best possible price to allow as much room for appreciation as possible, just like you would when purchasing stocks. By paying over the odds for your wine you could completely cancel out years of valuable growth and profit.


How to avoid:

Step 1: There are a few websites that you can use to check wine prices such as Liv-ex and Wine Searcher, don’t take these prices as gospel but anything way over should be treated with extreme caution. Margins can typically range from 0 - 30%, however fraudulent companies have been known to operate with margins of up to 70% and upwards.

Step 2: Don’t listen to any fabricated elaborate stories about why you should buy a certain wine unless they can be backed up by factual evidence.

 
 

Scam 3:

The Company isn’t who they say they are


Thankfully there are a number of wine merchants and companies in the industry who are reliable and trustworthy.

However, the flipside of this is that rogue salesmen have been known to pose as these companies and use their reliable name and reputation to scam investors for thousands of pounds.

Not only will they use the trustworthy company name when on the phone, they’ll forge documents using their logos too so that you don’t suspect a thing.

Then once you part with your money they’ll break off all contact with you and you won’t be able to contact them again.


How to avoid:

Step 1: Check if the number they called you from is the same number as is listed on Google for the main website for whichever company they say they are calling from

Step 2: Call up the company using the number listed on Google and ask to speak to the person who you previously spoke to on the phone.

Step 3: Ask them if they can provide you with any client testimonials to back up who they say they are.

 
 

Scam 4:

Posing as a wine buyer


Another scam that we’ve been hearing a lot more about lately is companies posing as wine buyers and contacting you to offer to buy your wine.

Once you transfer them your wine, after being quoted a very attractive price, they’ll take off with your wine and you’ll never be able to contact them again.

They’ll then sell your wine as fast as they can for a quick easy profit and move on to their next unsuspecting victim.


How to avoid:

Step 1: Make sure you do thorough company checks to see if the company is registered with companies house, members of Liv-ex and affiliated with a HMRC regulated bond.

Step 2: Never pay tax upfront for releasing your stock, this is not the normal standard procedure .

Step 3: Alternatively, our best advice would be to never sell your wine to anyone who calls you out of the blue. Stick to a reputable wine merchant who appears on the first page of Google and get in contact with them if you’ve got wine stock that you’re keen to sell.