Feds Indict Napa Wine Scammer

A young Napa Valley winemaker named Jeffry James Hill was indicted, arrested and charged with fraud on Thursday by federal authorities. The fraud involved mislabeling cheap grapes and wine as pricey Napa Valley wine.

Hill has pled not guilty to all charges.

How was the alleged “fraud” uncovered? Did some exquisitely endowed wine palate go to the authorities whining that his $100 bottle of Napa Cabernet tasted more like grape-flavored koolade than a hundred dollar bottle of Chateau WalMart? Did Hill enter his 95-point pinot in a wine tasting contest only to come away with a 70?

No. He got ratted out.

"Mr. Hill's crew was harvesting grapes from Howell Mountain Vineyards when vineyard manager Jesus Fernandez received a strange text message from one of his truck drivers saying that Mr. Hill had told him to drop several tons of grapes at Hill's Napa winery on the way to delivering the larger load to its actual customer. The vineyard manager who was not aware that any of his grapes had been sold to Mr. Hill and was suspicious of the delivery. When the same thing happened again the next week, Hill was being watched by an employee of the winery the grapes were intended for. Vineyard manager Hernandez was fired for blowing the whistle so he retaliated by calling the Alcohol Tobacco Tax And Trade Bureau (formerly part of the ATF) and filing a complaint. Investigators were called in. Documents and computer records were examined, witnesses were interviewed, testimony was taken, and dozens of related incidents were uncovered.

In the wake of the alleged fraud it emerged that Hill stiffed his investors, his bank, his suppliers, his customers, his employees, and then filed for bankruptcy soon after the federal investigation began last year.

The Feds finally filed charges this week, more than a year after their investigation began. (Every idiot in the country imagines himself a wine expert, including federal bureaucrats.)

The case has embarrassed the wine industry to the point that several of Hill's victims have referred to Hill as "a vineyard terrorist" (atta baby, Hill!) because of the "chilling effect the thefts have had on the wine industry."

Amazingly, before Hill began his upscale Napa operation, he had previously filed for bankruptcy, albeit on a smaller scale, in 2009. But the gregarious wine promoter was undaunted and proceeded to convince his wife's wealthy uncle (a stockbroker) and aunt (a licensed bookkeeper) to lend him $2.2 million to restart, this time with much more grandiose plans. The aunt and uncle also helped him borrow $1 million from Umpqua Bank. (Hey! If you're going to commit big time fraud, who better to have on your side than a stock broker and a bookkeeper?)

Hill proceeded to lease a large Napa winery for $33,000 a month, telling investors that he would upgrade it with the $1 million bank loan. But that proved inconvenient, if not too expensive even for magic money, and it never happened. So Hill decided to take maximum advantage of the Napa Valley price mystique by turning much cheaper grapes into high-priced wine and by putting cheaper wine made from cheaper grapes into bottles with Napa Valley labels. (The guy clearly knew who he was dealing with.)

Since Hill never got his own winery going, he used his vineyard management connections with other wineries in Sonoma County to conceal the fact that his grapes were not Napa Valley grapes.

"Mr. Hill was committing the perfect crime until his worker spoke up," David Del Dotto, owner of Howell Mountain Vineyard, said in a letter to the court. "He stole just enough grapes so that the amount fell within the margin of error."

Until Hill was caught, that “margin of error” was big enough to drive an 18-wheel wine semi through.

Coverage of the case began over a year ago when the vineyard manager first reported the problem and local Napa authorities started looking at the case as a simple theft. The recent news reports don't go into the case much, reporting only report that Hill has been arrested and charged with wine fraud. (Which may account for the black armbands at the Santa Rosa Press Democrat.)

But a few of the earlier reports are full of unintentional humor — unless you're in the wine industry and don't appreciate people like Hill revealing the jive juice business for the, ah, jive it is.

Here's just a small sampling from the earlier coverage of the case:

“The alleged scheme went on between August 2012 and December 2013, if not longer” …” “Since the customers believed the wine was made from Napa Valley grapes, they paid higher prices for it.” … “Napa cabernet sauvignon grapes are among the most valuable in the United States. A well-made cabernet from Lake County, which abuts Napa to the north, typically sells for $25 to $30 a bottle, while a bottle of Napa cab of equivalent quality often fetches $100 or more.” … “Emmanuel Kemiji, who owns Miura Vineyards in Novato, is a master sommelier, a level of wine expertise so difficult to achieve that only 220 people in the world hold the title. In an interview, he said that even top tasters like himself would find it nearly impossible to discern the true geographic origin of a well-made cabernet. ‘You line up cabernets from Napa and good-quality cabernet from Sonoma and Lake County, and it’s really tough to say where they are from,’ Mr. Kemiji said. ‘A lot of guys would be embarrassed.’ (He later tasted Hill’s top-end cabernet and found it green and underripe, but not unusual for the 2011 Napa vintage.)” … “While outright wine fraud is rare, many bottles on wine-store shelves aren’t what they seem because of loopholes in American wine labeling laws, Mr. Kemiji said. Legally, a bottle that says Napa Valley cabernet sauvignon must contain 75% wine from Napa cabernet grapes. A further 10% must come from Napa, but can be a cheaper grape varietal like syrah or zinfandel. And the remaining 15% can be red wine from anywhere else in the state, like Fresno, where cabernet commands one-tenth the price it does in Napa. ‘There is an incentive to fudge because the price of Napa cabernet is so high,’ Mr. Kemiji said.” …

…“Among other claims, the agency said Mr. Hill had falsified documents to misrepresent the wine or grapes he was selling, failed to pay liquor taxes, falsely claimed that his wines were organic on labels and in advertising, and lied under oath when he concealed a previous felony conviction for insurance fraud on his application for a wine permit.”

(Remember, all this was revealed after the fact, after the vineyard manager spilled the grapes. Otherwise, none of this would have been noticed.)

“The [bankruptcy] trustee, Judge Lois I. Brady, wrote in a complaint that Mr. Hill operated an illegal tasting room and altered official tags recording the weight and type of grapes harvested and sought to ‘pass off inferior Lake and San Joaquin County wines as premium Napa Valley appellation wine.’ She also disclosed that one of Mr. Hill’s biggest victims, the Sebastiani winery, was seeking $3 million from the bankruptcy estate because it had been forced to recall mislabeled wine bought from Mr. Hill. (The winery declined to comment.) Few of those affected have been willing to talk about the collapse of Mr. Hill’s business. Trinitas Cellars received Lake County cabernet misrepresented as Napa cabernet, according to court documents, but, in an email, the winery’s chief executive, Garrett Busch, said only, ‘Honestly I’ve just gotten through mentally and emotionally putting this behind me and I really don’t feel like discussing it at all’.”

“ ‘Most Napa wines to me are way overpriced,’ said Tony Westfall, co-founder and chief executive of Invino, an online wine seller based in Sonoma. ‘A lot of people would say Lake County is just as good as or better terroir than Napa.’ To persuade someone to spend $30, $50 or $100 for a bottle of wine, wineries need to not just produce quality juice, but also build an emotional connection with the customer.”…

“Fraud is hardly new in the wine world. Two millenniums ago in ancient Rome, Pliny the Elder complained that wine was frequently adulterated. ‘In the wine business, there’s always been some level of this,’ said Rob McMillan, executive vice president and founder of Silicon Valley Bank’s wine division.”

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The moral of the story? The price of a bottle of wine has very little to do with what it tastes like or what it’s made from. There is very little enforcement of the laws regarding the winemaking process — and even if there were, the practice is fairly common and very hard to spot.

And if you think the problem is limited to the wine industry, wait until the Jeffry Hills of the world get their hands on legal marijuana.

In the mean time, GO JEFF HILL!