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Napa Wine Scammer Forced To Pay Up

From 1991 to 2001 Michael Gelven, 57, of Napa, ran a fancy wine club called California Winemakers Guild. Mr. Gelven, a native of Boston, claimed to be a member of the Society of Wine Educators and a Master of Wine. The few Americans who keep close tabs on the American Educational System would know that anyone calling themselves an "educator" of anything these days is suspect right off the bat. And a "Master of Wine"? ... Watch your wallet.

When Mr. Gelven visited Alan Green's Greenwood Ridge Vineyards operation on Highway 128 in Philo late in 2000, Green had never heard of the fast-talking Gelven or his pretentious-sounding Guild — nor did he know that Gelven had filed for reorganization under Chapter 11 of the bankruptcy code. 

Gelven, a mature 57-year old who had accumulated lots of wine experience, panache and windy wine lingo, wanted to buy hundreds of cases of Green's wine for his "Guild" members.

Mr. Green called his friend Greg Graziano, a long-time, well-respected winemaker in Redwood Valley who makes wine for a lot of small private vineyards in Mendocino County producing not only his own label, Domain St Gregory, but also several other private labels, including Ed Wallo's Yorkville Cellars wine, and Maple Creek Winery labels. Graziano had had a little experience with Gelven.

Green wanted to know if he should do business with Mr. Gelven. Graziano told Green that Mr. Gelven was "a little slow to pay, but he eventually does."

The trusting Green, as he has done on most of his other deals with no serious problems, agreed to sell Gelven dozens of cases of wine worth about $15,000 for Gelven's wine club on only a handshake and a promise.

There are a lot of wine clubs in California. Mostly they operate over the internet and sell their e-members a monthly sampler of two or three bottles of pre-selected pricy wine from small wineries around the state. Members are required to give their credit card numbers to the club in advance which charges them an automatic monthly fee — from $40 a month for basic memberships, up to hundreds a month at the high end — for their monthly samplers. The clubs' finances are heavily automated. Cards must clear a computer balance check before the member gets his shipment. As long as the club can buy their wine at substantial discounts, the wine clubs are veritable cash machines. Most clubs pander to their members' pretentiousness by mailing out promotional newsletters featuring fawning, schmoozy winemaker interviews and photos, loads of flowery text with hints of this and bouquets of that, descriptions of the tender, loving care taken in the grape growing and wine-making, and the occasional reference to the grand tradition of the late Maynard Amerine, late founder of the California Wine Industry... The kind of crap that keeps the wine snobs, er, members, coming back for more month after month.

One thing led to another and soon Maple Creek Winery and Yorkville Cellars had been visited by Mr. Gelven who wanted to buy hundreds of cases of their wine at a time.

"I called Maple Creek," admitted a somewhat chagrined Green last week. "Tom Rodrigues and Linda Stutz had just bought that winery and they had some wine from the previous owners they wanted to sell. So Gelven made a deal with them similar to the one he made with me."

Ed Wallo, of Yorkville Cellars, a certified organic winery, also agreed to sell Gelven 224 cases of one of their award-winning wines, Eleanor of Aquitane, a flavorful blend of semillon and chardonnay grapes made for them by Graziano which retails for $17/bottle or more. 

Queen Eleanor, who ruled medieval Europe for much of the 12th century, was famous for atoning for an ill-spent youth by a wise and benevolent old age. An example Mr. Gelven could have used if he'd read Wallo's label.

Gelven bought 224 cases at $132/case. It seemed like a good deal for all concerned.

But it wasn't long before Gelven's new wine club suppliers began to get worried.

"After a couple of weeks Greg [Graziano] called and asked if Gelven had picked up the wine yet," continued Green. "I said he had. Greg then said he was having trouble getting paid. I called Maple Creek and asked if Gelven had picked up their wine yet. He hadn't. I told them what Greg Graziano had said and I suggested that they not let him pick up the wine until they had a check. We thought we had caught him the day before he was coming to pick up the Maple Creek wine."

Gelven quickly agreed to send Maple Creek a check. (Green never even got a check, just Gelven's promise to pay.)

Then Gelven's check to Maple Creek bounced — after they had delivered. By that time Gelven also had written checks to Graziano and to Yorkville Cellars which also bounced.

The four Mendo wineries made a few ineffectual calls to Gelven who promised each of them that he would make good on the checks, but he never did. Since Gelven's four Mendo creditors all knew each other, however, they all soon realized they had been duped out tens of thousands of dollars each, the kind of money problem which puts small wineries — already in debt themselves and in the early phases of the post dot.com grape glut market decline at the time — in serious financial difficulty.

Soon Graziano got together with Maple Creek and hired a civil attorney. Then Ed Wallo of Yorkville Cellars and Green jointly hired another civil attorney. The attorneys set out to do what they could to collect from Gelven. And the attorney fees began to be accumulated.

As the weeks and months went by, the attorneys discovered that Gelven's company was already in bankruptcy and he was going to be hard to collect from.

Since Lynn Roman, wife of Mendo District Attorney Office Administrator Al Roman, had previously worked for Green, Gelven's four creditors soon found themselves in a meeting with Tim Stoen at the DA's office. Before he moved to Humboldt County to work for Humboldt DA Paul Gallegos, Stoen was Mendo DA Norm Vroman's white collar crime prosecutor.

Stoen zeroed in on the fact that Gelven had not disclosed that he was in Chapter 11 when he made the deals with the four Mendo wineries. This made the case into a garden variety intentional bad check case — although the amounts involved were much higher than usual — since the bankruptcy made it likely that Gelven knew his checks would bounce when he wrote them.

Stoen filed bad check charges against Gelven in May of 2001 in the Maple Creek, Domain St. Gregory and Yorkville Cellars cases. After Stoen moved to Humboldt County, Assistant DA Myron Sawicki took over the case, telling Green that, although he hadn't actually received a bad check, he should stand by while the investigation proceeds.

Meanwhile, the two attorneys hired by the four Mendo wineries — David Bolls in the East Bay and Andrew Mansfield in Mendocino — buttressed by the additional leverage and resources of the DA's office — continued to discover just how deep in debt Gelven was.

After several more months of investigation, the attorneys and the DA's office obtained bank records showing that Gelven had bounced at least 104 checks. Gelven had also spelled his name differently for different credit applications, and one of the investigators thought Gelven was using the same collateral for different loans using different spellings of his name.

When charges were first filed against Gelven in May of 2001 he had juggled things enough to pay off 65 of the 104 bad checks, most of them for smaller amounts. Gelven and his civil attorney claimed that his financial problems were caused by that universal business excuse known by its common shorthand: 9-11. Gelven and his civil attorney said over and over again that the wine club business had dropped dramatically in the wake of the trauma of losing the twin towers, offering no evidence to support this convenient, after-the-fact excuse.

Nobody believed Gelven. Nobody else in the industry had suffered such large losses after 9-11. Gelven also claimed that he'd suffered an employee theft in his warehouse, of unspecified amount and also without backup. Further, Gelven said he had indeed told the four wineries he'd ripped off that he was "under reorganization." All four Mendo wineries insist that he never said any such thing.

Gelven's other defense was that he had offered to return the unsold portions of the wine he had taken from the four Mendo wineries but that they refused. The four wineries don't recall getting this offer either, but even if they had, Gelven's credibility was so poor at that point that it's unlikely they'd believe anything he said.

When it became clear that none of his excuses were holding up, Gelven hired Mendo's top legal fixer, Richard Petersen of Ukiah, who explained to Gelven that the evidence against him on the bad check charge was pretty good and that he'd better cop a plea.

After several more months of legal machinations, an arrangement was worked out where Gelven would plea to one felony count of issuing bad checks — in return, he'd get a promise that the felony would be reduced to a misdemeanor if he paid off all four Mendo creditors in full. Gelven, who realized that having a felony on his record would make it virtually impossible for him to ever get a liquor license, agreed to the deal and pled guilty to the felony.

When Probation Officer Tim King reviewed the case for a sentencing recommendation, he wrote to Judge Henry Nelson saying that if Gelven had not already been promised a reduction of charges upon restitution, he'd have recommended a state prison term. But under the circumstances, King recommended 120 days in county jail and five years probation.

In attempting to get Judge Nelson to give him a light sentence, Gelven and Petersen assembled a small collection of character reference letters to show the judge that Gelven didn't have criminal intent — he was a good guy, active in his synagogue, community minded, no criminal record — who simply and stupidly followed the example of the country's leadership in thinking he could recover from the 9-11 business loss by going further into debt. "I fully intended to pay off those checks," Gelven told the court. 

Conspicuously missing from Gelven's character references, however, was anyone from the wine industry — and his wife. Only his wife's sister, his daughter and his son — who had had no business dealings with Gelven — were willing to go on the record on his behalf.

Gelven's four Mendo winery creditors, on the other hand, insisted that he had intentionally defrauded them and that he deserved the maximum penalty. Mr. Wallo at Yorkville Cellars, told the court, "Immediate cash was at the heart and soul of our transaction." Wallo noted that half of Yorkville Cellars' sales are at their tasting room. The 224 cases they'd sold to Gelven were worth at least $40,000 at retail, almost 13% of their total gross sales for the year, and they stood to lose it all.

More months went by. Then, to add insult to injury, by this time Gelven's other creditors had seized all the remaining wine that Gelven had in stock. The seized wine found its way onto store shelves in the Bay Area at a very cheap price, which, Wallo said, caused him to suffer brand devaluation and possibly lose one of his distributors who mistakenly thought Wallo had something to do with dumping the wine and undermining the distributor's retail price.

After converting his bankruptcy filing to Chapter 7, essentially giving up on reorganization, all of Gelven's remaining civil debts were written off last year. He was off the hook and his remaining civil creditors would get nothing. But he still had to pay off his four Mendo creditors to get his criminal charges reduced.

The only asset Gelven had left after the bankruptcy was his upscale home in Napa, which had been exempt from the bankruptcy. Gelven decided that he'd have to sell the home to get the charges reduced. But, not so fast. Another creditor surfaced. Mrs. Gelven, the same wife who had chosen not to write a character reference letter to the court, had filed for divorce and wanted her share of the house.

Along the way, DA Sawicki told Gelven that he also faced possible fraud charges unless he made good on what he owed Green as well, bad check or no bad check. 

Finally, Gelven got the house sold and paid off his debts to the four Mendo wineries, totaling more than $100,000. Presumably, Mrs. Gelven got her piece of the house.

When proof of restitution was submitted to the court, Judge Nelson finally got around to sentencing Gelven last week: 45 days in the county jail and 100 hours of community service for misdemeanor writing of bad checks to the Mendo wineries. 

Gelven will do his short jail time during a leave of absence from his new position working for his daughter's order fulfillment business, CSA Shipping Services (a spin-off of Gelven's defunct Wine Club which does the order, inventory and delivery work for a number of internet food and wine outfits) for an impressive $78,000 a year. Some observers think Gelven got off light with only the one misdemeanor, considering how widespread his bad debts were and how many people he'd stiffed.

The four local wineries think that they were lucky to have gotten their money back — otherwise they would have been just four more unpaid creditors among Gelven's many disparate victims had they not worked together to find out what he was doing and consolidated their cases with the assistance of the DA's office. 

"We are a small community that must stay together and support each other against criminals who intentionally try to defraud and harm us," Yorkville Cellars Ed Wallo declared.

"This was a case of a man already in bankruptcy purposely deceiving the wineries," said Deputy DA Brian Newman, who had picked up the case when Sawicki was assigned to the DA's Willits office a few weeks ago. "It points out how careful they need to be in who they sell to."

Alan Green agrees.

"We have to get much more serious on checking references, especially on the bigger orders," said Green. "You just can't go on handshakes or one reference. When I first met Gelven he had one casual reference and it became a kind of pyramid scheme pretty quickly. We all made deals based on that one shaky reference. I know I'll be more serious about checking references in the future." 

"I'm doing whatever I can to see that Gelven doesn't do this again," added Green. "I want people in the industry to know who this guy is and how he operates."

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