The Oeno Group scandal that unfolded a week before Christmas, but had been years in the making, struck at one of the most crucial, least regarded issues in wine: ownership.
On December 19th, the London-based wine investment, at the request of the City of London Corporation Trading Standards Service firm, published a notice stating that “Oeno has recently ceased trading.”
While there is more than a hint of foul play, what has perhaps left most Oeno Group customers perplexed is that despite promising customers “complete peace of mind” by issuing invoices and certificates of authenticity and ownership, the City of London Trading Standards Service found that “only 20% of client wine is held in individual customer accounts that the customer will be able to access.”
For all the technology and sophistication of modern financial markets, commodities remain one of the last corners of the economy where the physical reality of the asset matters most – and wine is no exception.
Base metals still rely on warehouse receipts to prove existence and ownership, and those same documents underpin trade finance, with the commodity pledged as collateral. When receipts are forged, banks and traders can end up lending against, or buying, inventory that doesn’t exist.
The most common commodity fraud is physical-commodity scams, substituting valuable goods for worthless. Painted rocks passed off as copper or nickel, a scheme that reportedly left commodity trader Trafigura facing around $600m in losses, or, months earlier, the London Metal Exchange discovering bags of stones instead of nickel in one of its warehouses.
Wine went down a similar path in the early 2000s when fraudster, Rudy Kurniawan orchestrated one of the largest wine scams in history, selling millions of dollars’ worth of fake rare wines, fooling both collectors and major auction houses.
Another classic mechanism is paperwork fraud which involves multiple, fake receipts issued against the same (or non-existent) inventory and sold to different parties. In the case of Oeno, Mark Sutherland, CEO of Stone Ledge Spirits, revealed to me that clients were sold as many as 300 non-existent barrels of Oeno’s whisky.
What these schemes have in common is the failure of the customer to secure and verify physical ownership. Does the asset exist? Where is it stored, and in what condition? Who holds it? In whose name is it recorded? Can it be identified as unique?
It can happen to anyone who loses sight of the stock itself. In commodities, everything revolves around assurance of physical ownership, whether the trade is worth £5,000 or £5 million.
Oeno did not appear to be running an “investment” firm in the classic sense. Instead it acted as a wine merchant, buying (and sometimes selling), but what customers didn’t’ know for sure was whether the wine was actually in Oeno’s possession and registered in its name, in a way they could access and manage their investments. If they can’t, and the merchant becomes insolvent and it’s not in a segregated account, the stock can be treated as part of the estate and swept into the liquidation process, potentially ranking behind secured creditors.