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Seed International Ltd. lose appeal in Guernsey On 18th December the Appeal Court in Guernsey threw out Seed International's appeal against the judgment on 3rd November 2003 by Guernsey's deputy-bailiff upholding the injunctions granted on 22nd November 2002 that froze Seed's assets in Guernsey and required their bank to disclosure full details from the accounts held. The Royal Bank of Scotland International is now required to make a full disclosure before the end of this year. It is understood that some 260 pages of documentation will have to be disclosed. The Appeal Court's judgment is yet to be published. Seed International Ltd fought for more than a year to prevent disclosure of the money trail through the Royal Bank of Scotland. Seed's defence included three affidavits from Paul Freeman, who although he is a director of Seed International Ltd and prior to this appointment was involved in the management of Seed, was not one of the respondents. Freeman was also a Strategic Director of Ocean International Marketing BV from 1998 to November 2000. A period that covered most of the bogus Bordeaux trades carried out in Seed's name. In a separate development investdrinks understands that police officers from Rotterdam travelled to the US during the autumn and interviewed a number of Seed International Ltd's clients. Kansas issue a Cease & Desist order On the 6th November the Kansas Office of the Securities Commissioner issued a Cease & Desist order against Ocean International Marketing and Seed International Ltd. The State had signalled their intention to issue a cease & desist order as long ago as 13th May 2002. Seed and Ocean requested on October 21st 2002 a hearing before the Securities Commissioner. This request was withdrawn on 3rd November 2003 as Seed and Ocean were not intending to do any further business in Kansas. Although the two companies stated that this withdrawal was not an admission of liability for violation of the Kansas Securities Act, the Securities Commissioner deems that the allegations of fact contained in the notice of intent (May 2002) are 'admitted by the respondents' and are 'true and correct Findings of Fact'. Ocean-Seed are barred from doing any further business in Kansas until they comply with the Kansas Securities Act. Paul Freeman's strategic directorship: becoming decidedly curious Further correspondence (see below) with the amiable David Wilcock, vice-president of Seed International, throws up more intriguing questions. My response to Wilcock's earlier email (12.11.03 and posted 17.11.03) had been brief - 'Many thanks for your message. I can only suggest that you read Ocean's accounts for 1998, 1999 and 2000.' (received 21.11.03 from SeedCayman@aol.com) Hello Jim Against my better judgement I have researched (via our lawyers in Holland) the comments in your above email and I find that: 1) The OFFICIAL accounts of Ocean International BV have been filed and published for the years 1996,1997,1998,1999 and 2001. The annual accounts of 2000 have not been published and the Chamber of Commerce have informed us that they do not know the reason why these accounts have not been filed. I have read these OFFICIAL accounts as suggested by you, and in not one of these OFFICIAL PUBLIC DOCUMENTS does it make any mention whatsoever of Mr. Paul Freeman. 2) According to the OFFICIAL filings at the Dutch Trade Register there have been two previous directors of Ocean International Marketing BV both of whom resigned this year, leaving currently one registered director. Again according to the OFFICIAL PUBLIC RECORDS Mr.Paul Freeman HAS NEVER been registered as a director of Ocean International Marketing BV or of Heros Global Marketing Services BV. I would be grateful if you would break the habit of a lifetime by publishing this unambiguous OFFICIAL information accurately and completely on your website. I don't know what unofficial, internal or probably invented information you based your original allegations upon, but you really shouldn't keep trusting Gekes ( sic ) bearing Gifts. Regards as ever David PS: I shall be raising an invoice to you for the amount of ludicrous time spent on dealing with your trumpery.' investdrinks has now seen both the official Heros/Ocean accounts and the company register. David Wilcock is absolutely correct that Paul Freeman is not listed as a director either in the filed accounts or the company registration. Nor, for whatever reason, were the 2000 official accounts filed. However, Paul Freeman is certainly listed as a strategic director in the accounts for 1998, 1999 and 2000 prepared for Heros/Ocean by D P Klop of DéPé Klop BV, a now retired accountant whose business used to be based in Maarn. The accounts were drawn up by Klop 'on the basis of information received from the management'. The officially filed accounts are a summary of these more detailed accounts. They just cover a summary of assets and liabilities. Wilcock may be interested to know that it is these more detailed accounts from 1996 to 2001 inclusive that have been filed by Ocean International Marketing BV, Craig Garrett and Sean Stockdale as part of their defence in the civil litigation now underway in Holland. It is these accounts that list Paul Freeman as strategic director between 1998 and November 2000 as well as Anil Kohli as juridical director. Whether the information about the directors was based on information supplied by the company or was, perhaps, inserted by Mr Klop as providing an accurate picture of how Heros/Ocean was managed is not know. It is interesting to note that the sole director of Ocean still listed on the official register is Ranjit Singh Bhamra. He 'had to retire as result of a serious autocar-accident' in 1997 (Ocean's company accounts). Garrett resigned as a director on 17th May 2003 and Stockdale on 31st October 2003. investdrinks can only assume that the detailed company accounts have been filed as exhibits by Ocean International Marketing, Craig Garrett and Sean Stockdale because they are accurate. Wilcock's magnificent bluster is richly and wonderfully comic. Of course the fact that Paul Freeman was effectively Ocean's strategic director, even though never officially registered, has to be described as a 'load of old rubbish', 'bizarre assertion', 'what complete drivel, don't make me laugh', and 'your trumpery'. Why? Because it blows the elaborate pretence that Ocean International BV and Seed International Ltd are entirely separate companies, bound only by a marketing agreement, clean out of the water - or to borrow a phrase from our blunt friend Wilcock - 'complete drivel'. Paul Freeman is revealed as the central figure in the whole Ocean-Seed imbroglio. investdrinks has some sympathy for the unfortunate Wilcock. It would appear that he was rightly reluctant to pursue this can of worms - 'Against my better judgement I have researched etc.' (21.11.03). Although he used Seed's Dutch lawyers, who presumably furnished suitably accurate legal phrases - 'Mr.Paul Freeman HAS NEVER been registered as a director of Ocean International Marketing BV or of Heros Global Marketing Services BV etc'. - it is revealing that investdrinks did not receive any legal demand to retract and remove its report of Freeman's strategic directorship. Nor any word from Seed's president in Monaco. Instead poor Wilcock was pressed into service to deny facts filed by Ocean in their civil case in Holland. Being a vice-president has never been easy. Seed's fine wine trades (an update) investdrinks ' analysis now covers of some 635 wine positions (mainly Bordeaux) involving 1.14 million bottles of wine for an alleged total value of $79.2 million, with $21.9 million in deposits. It is increasingly evident that this was a fantasy market with both the quantities involved and the prices these wines were sold to investors and the profits made were largely conjured up out of thin air. The recent Guernsey judgment by the deputy-bailiff sets out details of 'the Churchill Collectables Programme' (page7). Central to the programme was the selling of parcels of wine between members of the programme - a private market. '"Seed was empowered to execute the Membership Agreement on behalf of the investor. Purchase of a parcel of wine would be transacted by way of telephone dealing based on offer prices. Seed was an intermediary between the purchasing and selling member. A member his rights to be informed by Seed of the identity of the seller of the parcel to the member.' 'The Agreement provided that a member could not sell or otherwise deal with an investment parcel without Seed's agreement etc.' If Seed International Ltd had arranged genuine trades between the members of the Collectables Programme you would expect to see the investors' price for later trades to reflect the alleged increase in the selling price. This is not the case: the price that members paid for a parcel of wine generally remained the same irrespective of any profit a completed trade apparently made. Take, for example, the 42 trades of Haut- Brion 1997 involving 9,357 bottles (779.75 cases) between 20th August 1998 and 2nd October 2000. Between 20.8.98 the buying price ranged from $5,544 to $6,000 a case with most investors either buying at $5,544 or $5,600. The selling price ranged from $6,514 (a trade on 19.7.99) to $8618 (a trade on 19.8.99). However, on 17th November 1999 the buying price dropped to $1930.56 and remained at that price until 2nd October 2000. Curiously this dramatic drop did not affect stock already purchased: a parcel of 60 bottles bought on 29th October 1999 for $5,600 sold on 13th January 2000 for $7,840 - a profit of 40%. Had the Seed investors preferred not to use the Collectables Programme they could have purchased Haut-Brion 1997 for around $1,200 a case. On October 31st 2003 Richard Kihl Ltd, a fine wine-broker in the UK, was offering Haut-Brion 1997 at $1,135.60 a case. Did Seed fund the profits out of the absurd discrepancy between the price in the real world and that of the 'Collectables Programme' or where they among the great philanthropists of the 20th century? Possible but pretty unlikely, much more likely is that the analysis of the wine trades shows that this was an organised and systematic fraud. It is small wonder that, despite, repeated prompting, Seed International Ltd have been unable to offer any explanation of how these trades worked. Guernsey Appeal Seed's request for leave to appeal against the deputy-bailiff's judgment of 3rd November was considered on 14th November and was granted. investdrinks understands that the appeal is expected to be heard on December 15th 2003. It is customary for the three appeal judges to give a verbal judgment before they leave Guernsey with a written judgment later on. Ocean's strategic director: A need for clarification? investdrinks regrets that the last posting (10.11.03) may not have been sufficiently comprehensive with regards to Paul Freeman's appointment as strategic director of Heros Global Marketing BV, later Ocean International Marketing BV. An email (see below) received from David Wilcock, vice-president of Seed International Ltd, suggests that it would have been useful to have included both the source of the information and the dates when Paul Freeman was a strategic director. 'Hello Jim Long time no speak. As you know, like most normal people I don't visit your website, however someone told me about your latest bizarre assertion about Paul Freeman and so I felt compelled to read it. Who fed you that load of old rubbish Jim? "Paul Freeman was a director of both Seed International Limited and Ocean Marketing BV"? What rubbish, of course he wasn't. If you read the sworn Guernsey affidavit of Craig Garrett (who was a director of Ocean) it clearly confirms that Paul Freeman had no connection with or management role within Ocean. "He was strategic director of Heros/Ocean during the time when most of the Bordeaux trades took place". What complete drivel, don't make me laugh. I know that Paul won't mind me saying this but he wouldn't know what a "strategic director" was if it poked him in the eye, let alone be one. I've said it before and I'll say it again, you are an incorrigible wag Jim aren't you? Regards David' Pity David Wilcock didn't read the Heros/Ocean company accounts for 1998, 1999 and 2000, prepared by Depe Klop BV of Maarn, before firing off his email. Then he would have seen that Paul Freeman was a strategic director, indeed the only strategic director, of Heros/Ocean between 1998 and November 2000. Unfortunately investdrinks has not had the opportunity of reading Craig Garrett's sworn affidavit. It is, however, decidedly curious that Garrett was not aware that Freeman was a director of Heros/Ocean since Garrett himself was, like Freeman, appointed as a director in 1998. Heros/Ocean's board meetings must have been fascinating - did directors sport balaclavas or wear paper bags over their heads to hide their identity? Didn't Garrett ever read the company accounts? investdrinks trusts that the rest of Garrett's sworn affidavit is considerably more accurate. It is interesting to note that the DB's resumé of Freeman's affidavit of 10th December 2002 says that Freeman 'initially he had helped with the financing and establishment of Ocean but presently had no involvement in it' but there is no mention that Freeman was a strategic director with Ocean. Possibly it slipped Freeman's mind. Matters here, perhaps, for the forthcoming Appeal Court to consider? investdrinks is very happy to accept Wilcock's customarily robust assessment of Freeman's suitability for the post of 'strategic director'. Guernsey Judgment The 76-page document makes fascinating reading. Geoff Rowland, the deputy bailiff, spends 60 pages reviewing the evidence, which includes outlining the terms and conditions attached to the wine contracts. Set out in normal size print they are so advantageous to Seed that it is hard to believe that their clients would have signed the contracts if they had bothered to read the small print. On page 66 and 67 Rowland states that the evidence alleging fraud before him and bailiff 'was not strong enough to support a Norwich Pharmacal relief' or 'to make a Bankers Trust Co v Shapira order.' It is, however, clear that he has considerable doubts over the wine supply contracts (p63-64). 'Seed has provided some documentation as evidence that it has entered into wine supply contracts but has not given the full picture. It has not been willing to provide a more detailed response to the Applicants' claims that no wine or contractual arrangements exist to acquire wine in order to satisfy Seed's contractual obligations to them. Near the end of the hearing a copy of the wine supply agreement with Paradigm was produced. Its terms raised almost as many questions as it purported to answer. Despite some prompting on my part Seed did not produce any accounts or balance sheets to give an indication of its financial strength and accounts are not filed on any public register.' Rowland commented that; 'Seed's affairs are somewhat complicated. Permanency is not a hallmark of its business relationships or its financial affairs.' (p63). One of the judgment's highlights is the first affidavit of Paul Freeman. Take page 25: 'Mr Freeman asserted that Seed has always been in a position to meet its contractual obligations to its clients, as Seed was either in possession of the wine or in a position to procure the wine for delivery. Seed also sourced other wines. Mr Freeman listed companies that supplied wine to Seed. A copy of one of Seed's Purchase Contracts was appended.' As a director of both Seed International Ltd and Ocean International Marketing BV, Freeman is uniquely qualified to make this assertion since to the best of my knowledge no one else has been a director of both companies. He was strategic director of Heros/Ocean during the time when most of the Bordeaux trades took place. Therefore it is particularly curious and disappointing that, so far despite an offer by Seed International in November 2002 to answer investdrinks' questions, that neither Seed nor Freeman has offered any substantive explanation for the Bordeaux trades. In particular no explanation of how investors in the en primeur programme made handsome profits on wines that did not yet exist. No explanation, for example, as to how Ocean/Seed might have sourced 75 cases of Pétrus 1997 or 62 cases of Penfolds Grange 1987 - one of the few non-French fine wines Ocean traded at this period. It would seem possible that even though he was a director of Heros/Ocean Freeman himself did not understand the wine trades. In February 2003, following a series of detailed questions from investdrinks about the wine trades addressed to Seed International, Seed's London solicitor wrote to the solicitor of an ex-employee of the Seed group. "Mr Budd continues to ask for information about individual trades, the details of which are known only to your client." If Freeman did not have the details how can he be sure that Seed could meet 'its contractual obligations'? It does seem a trifle extraordinary that the strategic director of a company that traded fine wine with a total alleged value of hundreds of millions of dollars neither understood those trades nor did he have access to the details. This may also explain why Freeman's affidavits, as recounted in the Guernsey judgment, scarcely allude to the Bordeaux trades. In spite of Freeman's assertion that 'Seed has always been in a position to meet its contractual obligations to its clients' it appears highly likely that Seed's Italian wine positions were not covered in early 2002. investdrinks understands that 'Mr Middlemiss, of Paradigm Wine Services Limited, wrote to David Wilcock as General Manager of Seed International Limited on 22 January 2002 confirming that Seed had sold certificates of conditional title to its clients and then traded its positions (reporting profits to clients on these trades), though it did not hold conditional title to the vast majority of the wines it sold to its clients.' Furthermore 'the true circumstances are also well known to Marcus Rutherford of DJ Freeman as he was presented with this failing in a meeting between all of the senior members of the Seed group and Mr Middlemiss and his legal team on 22 February 2002.' investdrinks understands that the total wine positions amounted to $504 million. There is a touching modesty about Mr Freeman. At the end of 2002 and early 2003 I spoke to him on the phone a number of occasions as he generously offered to meet me in London to explain Seed's business. Unfortunately this meeting did not happen but Freeman was keen to stress that he had stepped in to take a more executive role in Seed during 2001 to sort out various problems that had arisen. Doubtless it was due to an excess of modesty that Freeman didn't mention that he was a strategic director of Heros Global Marketing BV, later Ocean International Marketing, from 1998 to early November 2000 when the bulk of the questionable trading in fine Bordeaux took place. Private detective I was much amused to see that Paul Freeman and the respondents' lawyers made much of the use of a private detective by Harmen Hoek of Kernkamp Advocaten in Rotterdam to discover details of Ocean/Seed's banking arrangements. Their froth of indignation would be considerably more convincing if a Seed employee had not obtained by illegal means and entirely without my permission details in 2000 of both my bank accounts and itemised telephone bills. Several years ago another employee of the Seed group of companies employed a private detective to follow me. I trust the pictures of me visiting the Forest Hill Post Office in South London justified the expense. Costs The deputy-bailiff has yet to resolve the question of costs but indicates that 'I presently incline to the view that the Applicants are entitled to their costs.' 'If I had found in favour of Seed I would have been inclined to the view that Seed has the power to execute any order which I might have made for costs against assets of the Applicants under Seed's direct and indirect control in the form of the Applicants wine contracts.' The injunctions requiring disclosure by Disney Ltd and The Kensington Corporation Ltd remain stayed. Craig Garrett's valuations In early February 2002 Craig Garrett emailed an Ocean client, who had raised a number of concerns. Garrett's email gave 'the current list of wines and the current market value that you hold with your deposit. Please note that the expiry date for the completion of this contract, in other words to pay the outstanding balance and receive your wines, is the 28th February 2002.' Garrett's valuation reveals how uniquely volatile was the fine wine market in the fashionable dockland area of Rotterdam. Some of Garrett's valuations were over 40% above price of the same wines from Farr Vintners, one of the world's largest fine wine brokers. For instance Garrett valued Lafite 1985 at $3,334.30 at 47% above Farr Vintners' price of $2,262. However, Ocean had sold a Lafite 1985 position in January 1999 to another client for $6,000 and then sold it for them in July 1999 for $7,500. Garrett's valuation on a Lafite 1990 at £3,810.60 was 43% above Farr's price of $2658.24. Ocean sold Lafite 1990 in October 1999 for $7,500 that jumped a remarkable 40% in a just a month to $10,500 in November 1999. Who would have thought that its value would fall by $6,690 in just over two years - worst than junk bonds! Garrett's market value for Ducru-Beaucaillou 1997 was $539.83 compared to Farr's $405.60 (-33%). Ocean sold it to an investor for $956.78 in November 1999 and apparently sold it on for $1,315.58 the following month - showing a 37.5% profit. The client's portfolio has several interesting peculiarities. It is unusual in that all the wines listed are for full cases and for the first time a Barbaresco and a Burgundy are included. The Count of Monte Carlo/ Count of Monte Marina Whatever the eventual outcome Ocean-Seed is a 'cracking' yarn spanning various continents, mind boggling amounts of money, smart addresses in London and Monte Carlo, a large body of duped professionals, a captain of industry and various blue-chip lawyers and more. One has to wonder how Alexandre Dumas, one of France's greatest storytellers, would treated the tale. The title would be easy: The Count of Monte Carlo . Dumas would have rightly eschewed The Count of Monte Marina as lacking breadth even if it is more geographically precise. Nor, I suspect, would Dumas have been too concerned whether Barclays Bank is at 31 Avenue Costa, 98000 Principaute de Monaco or number 33. Breaking news - Guernsey judgment - investors win on two counts In a long awaited judgment Geoff Rowland, Guernsey's deputy-bailiff, ruled on Monday 3rd November that the freezing order granted by the bailiff on 22nd November 2002 should remain in place and that the Royal Bank of Scotland International must disclose all documents relating to accounts Seed International held with the bank, including transfers in and out. This information must be supplied by 17th November. However, counsel for Seed International Limited has indicated an intention to lodge an application for appeal against the decision of the Royal Court to the Guernsey Court of Appeal. The full text of the judgment is now available on bltguernsey.com. investdrinks will carry a fuller report on Monday 10th November. Arizona fine Ocean -Seed / Iowa Cease and Desist On 28th August 2003 the Arizona Corporation Commission issued the following Press Release: Commission Corks Fine Wine Scheme, PHOENIX - The Arizona Corporation Commission ordered several companies and individuals to return nearly $715,000 to investors and pay penalties totalling $160,000. The Commission sanctioned three companies for fraudulently offering and investments in fine wine. Two other cases involved the fraudulent sale of unregistered securities in a farming operation and a dot-com company. Ocean International Marketing, Ltd., et al. The Commission entered a default order against three international companies, ordering them to stop fraudulently selling unregistered securities in a fine wine business and pay almost $100,000 in restitution and $75,000 in penalties. The Commission ordered the following companies to stop violating the Arizona Securities Act:
The Commission found that these companies, directly or through their representatives, offered or sold fine wine investment contracts to at least three Arizona residents. Doctors and dentists were specifically targeted for these investments. The companies are not registered to offer or sell securities in Arizona. The companies represented that they would manage a wine "portfolio" that would, over time, appreciate in value. The bottled wines could either be stored by the promoters or the investor, but the Commission found that investors did not receive the wines or any appreciable return on their investment. The companies solicited investors with letters that showed how their fine wines were steadily increasing in value. Investors who requested a refund were told that they instead needed to pay additional money because their investment was in jeopardy. The Commission found that the companies failed to provide prospective investors with any financial background or other crucial information to make an informed decision on the risks of the investment. The companies told investors that the risk of loss was "extremely improbable." (For full release go to: cc.state.az.us/news/pr08-28-03.htm) Iowa cease and desist order On the 11th July 2003 the Superintendent of Securities by Iowa Code Section issued a cease and desist order against Ocean International Marketing, LTD and Seed International LTD. They 'shall cease and desist the offer or sale of, aiding and abetting the offer or sale of, and participating in the offer or sale of the securities described above or any other securities in the State of Iowa while those securities are unregistered and non-exempt, in violation of Iowa Code Section 502.201 (2003).' Ocean and Seed had 30 days in which to ask for a hearing. Iowa are now the four American state to have issued a cease and desist order against Seed and Ocean. The other States are Arizona, Mississippi and North Dakota, while Kansas signaled an intent to issue a permanent order back in May 2002. Scam Alert CDA Update, a dentists' magazine in California, ran an article entitled Scam Alert in their September 16th issue. Here is the opening paragraph: 'Dentist warns about wine investment fraud A San Gabriel Valley dentist reported to CDA that he invested nearly $100,000 over four years in a company that appears to be running a large internationally based scam operation targeting the American medical community.' Although, perhaps out of excessive caution, CDA do not name the company operating the scam, it is clearly Seed International. investdrinks is cited as Wine Business Insider. CDA's caution is all the more surprising as the Arizona Corporation Commission has recently fined both Ocean and Seed for fraudulently selling unregistered securities. I understand that the Mississippi State Dental Association will be running a reprint along with an addendum of another dentist affected by this company. Seed International: snails overtake Guernsey law procedures When thirteen American doctors obtained an injunction in Guernsey on 22nd November 2002 prohibiting the disposal of assets and ordering disclosure of information against Seed International Ltd, Ocean International Marketing, Craig Garrett, Sean Stockdale, Disney Ltd (a company based in Alderney), The Kensington Corporation (also in Alderney), The Royal Bank of Scotland Ltd and the Royal Bank of Scotland (Guernsey) Ltd, they must have thought they were making progress. They were due for a bitter disappointment. The defendants appealed against the injunction. The hearing was endlessly postponed until it was finally heard over three days starting on 19th May 2003. Judgement was expected within two to three weeks. Incredibly four months later judgment is still awaited. Odds on the deputy-bailiff producing his judgment after the next millennium have shortened from 495-1 to 475-1. Clients investments 'forfeit' During July several Seed investors have received termination notices from Seed International Ltd. They have been told that Seed is 'no longer in a position to grant any further extension for payment' and as a consequence 'we regret to inform you that you have forfeited all rights to, or interest in, the deposit and any other monies that have been paid by you or credited to you under the contract.' One investor followed this up with emails and letters to Seed in the Cayman Islands received on 23rd July a three-page reply from Seed. Although the signature is a mere squiggle, the letter may well have been written by David Wilcock, vice-president of Seed, as it has some of the hallmarks of his robust style and boisterous sense of humour. Wilcock, or whoever wrote the letter, builds an elaborate and ornate structure attempting to show that Seed have acted in good faith and berates the investor who has sought 'to extricate yourself from a bona fide wine purchase agreement and then coerce return of funds for the same by involving authorities from the State of Mississippi (presumably at Mississippi tax payers expense) in order to try and avoid your freely concluded contractual obligations. Seed will not be a party to such grubby tactics under any circumstances.' Unfortunately the foundations of this fine structure rest on a noxious swamp - the fraudulent, fantasy Bordeaux trades that Seed/Churchill ran before persuading investors to move into the Italian programme. Therefore the claim that the Italian wine purchase agreement is 'bona fide' is as bogus as the earlier claim that because of the length of the investor's involvement with Seed, they possessed 'a full knowledge of the nature of Seed's business'. See what I mean by a boisterous sense of humour? As far as investdrinks knows David Wilcock, who was appointed vice-president of Seed International in November 2001, has never looked in any detail at Seed's Bordeaux trades from 1998 and 2000. He has been keen to dismiss this as something in the past - no longer relevant - 'dog eared' (DW: 20.12.2002). Whether it is time constraints that have so far prevented Wilcock from taking a detailed look at these trades or that such a gargantuan can of worms is best left undisturbed is not clear. David Wilcock is an experienced businessman and director: he has previously been a director of West Anglia Great Northern Railway Ltd, Harlow Enterprise Agency Ltd and C2C Rail Ltd. He has also had senior management roles in General Electric and Federal Express. It was presumably this experience that apparently prompted Ernest Saunders to recommend Wilcock as the man to take over the Wine Corporation in February 2001. As an experienced businessman Wilcock has presumably sought assurances from Paul Freeman and other senior figures in Seed that all of the wine trades were 'bona fide'. Nevertheless it must be concerning that Seed have yet to answer any of my questions about how various trades worked. It is, of course, possible that the necessary records may no longer be available for it is not known what was removed from Ocean's offices during the police raid of 17th January 2003. If this is the case, investdrinks would be happy to discuss with Mr Wilcock the findings of its analysis of Seed's wine trades between 1998 and 2000. Following receipt of a new batch of certificates, the analysis now covers just over 580 trades - $20 million in deposits, total value $72.4 million for over a million bottles of fine wine and much of it pure fantasy. Return to sender Finish Line Packaging, a small mail forwarding company in Illinois, have ceased to forward mail for Seed International Ltd effective from Monday 21st July. Apparently Finish Line were contacted by a Seed investor who informed them of the four cease & desist orders against Seed International Ltd. Seed contacted the company several months ago and asked them to forward mail to their clients. The recent final demand was sent out by Finish Line. 'I had no idea, until recently, that Cease and Desist orders had been issued to Seed by the States of Kansas, North Dakota, Arizona, and Mississippi,' company owner John Fluent informed investdrinks. 'We have no desire to violate any State laws nor to handle mail forwarding for a firm who may be unreputable.' investdrinks understands that some Seed investors are receiving letters post in Kansas City. On 13th May 2002 the office of Kansas Securities Commissioner issued notice of intent to issue a permanent cease and desist order against Ocean International Marketing and Seed International Ltd. No permanent order has so far been issued. Securities reform bill As a number of States that have issued permanent or temporary cease & desist orders against, Seed, Ocean or their employees, investors ought to consider the following message from an investor: 'You may be aware that one of the amendments to a securities reform bill in Congress would prevent states from doing securities investigations. I'm just guessing, but I believe most of us would take issue with this.' The betting: The Great Guernsey judgment stakes Although the three-day hearing into the case, arising from the injunction obtained on 22nd November 2002 by 13 Seed investors, started on Monday 19th May, the deputy bailiff has yet to produce his judgment. This was initially expected within two weeks. It will be soon be three months since the hearing. investdrinks, however, has not been idle during the long wait and has consulted a highly experienced bookmaker, who has kindly offered the following odds on when the judgment might eventually be given:
Ladies and gentlemen place your bets. investdrinks will be delighted to accept enormous quantities of non-refundable deposits as bets, especially from medical practitioners. These deposits will either be spent on madcap business schemes, high living or luxurious apartments in sunny climes. Culled from Seed's Little Book of Jokes: 'The Company's network of wine experts operates globally to identify stock worthy of collection. Authenticity and marketability is thoroughly evaluated before Seed International judges it worthy of any client's attention. By this reliable route, Seed International is able to recommend purchases at levels below actual market value, likely to appreciate in value, and provide resale potential for the client.' investdrinks can only assume that Seed took the 'actual market value' to mean the price these wines might be in high class Parisian brothels and, in some instances given the huge price, might well have included the 'entertainment'. Otherwise this is arrant nonsense and designed to mislead Seed's clients. investdrinks has now analysed wine trade certificates from 43 investors involving 520 wine trades with a total value of $64 million and $18 million in deposits. It is more and more evident that the trades are both preposterous and fraudulent. Fazorak CC and MSI Nolands Staff from Fazorak CC, customer service agents for Seed International, continue to contact Seed investors to find out whether they intend to accede to Seed's final payment demand, sign up to AoW, or default. As Seed's final demand is, at least in part and in most cases, based on the wine trades of 1998-2000 it merely continues the fraud. Fazorak CC is a client of MSI Nolands, an accountancy company in Mowbray, South Africa. MSI is an association of 'high standing' accountancy firms around the world. Nolands obviously supply Fazorak's business address. What other services Nolands provide is not known as Nolands have declined to answer questions about Fazorak on the grounds of client confidentiality. investdrinks has told Alan Keet, a director of Nolands, that Seed International Ltd are under investigation by the FBI and the Dutch police, that the Netherlands Authority for the Financial Markets has issued a warning, and four US States have issued cease & desist orders against them. Alan Keet replied that Nolands only deal with Fazorak and not Seed International Ltd. investdrinks did express mild surprise that 'MSI Nolands wish to have any association however distant with the Seed group of companies' which prompted the following reply: 'Finally, I am not at all happy that you, as a complete stranger to me, can doubt our firm's integrity'. Mississippi cease and desist order Eric Clark, secretary of state for Mississippi, has issued a Summary Cease and Desist Order and notice of intent to impose administrative penalty against Seed International and Ocean International Marketing Ltd. It was issued on 24th June 2003. Seed and Ocean have 30 days from receipt to request a hearing. investdrinks understands that Mississippi have so far had no response from either party. Mississippi has judged that the wine program offered by Seed and Ocean constituted a security and that neither company was registered to offer or broker securities in the state. The Secretary of State intends to impose an administrative penalty of up to $25,000 per violations plus costs. Any further infringements may incur fines up to $25,000 or five years in jail or both. Mississippi is the fourth state to issue a cease & desist order. Kansas (May 13th 2002), North Dakota (March 19th 2003), Arizona (April 2nd 2003), have already done so and investdrinks understands that there are, at least five other states, where complaints have either are being filed or have been filed or an investigation is underway. Guernsey judgement still awaited investdrinks understands that there is some astonishment that the Deputy Bailiff's judgement is still awaited after the three-day hearing that started on Monday 19th May. "I'm amazed at all the delays," one Seed investor recently told investdrinks. "It was back in late November last year that we obtained the restraining order and the order against Disney Ltd and the Kensington Corporation Ltd to disclose the money trail." Seed press for payment Investors are continuing to receive Seed International Ltd's ludicrous final demand. For all those investors who were alleged to have made profits in Seed's fantasy Bordeaux wine program this final demand is clearly fraudulent. Seed's fraudulent final demand was posted in the US. investdrinks understands that the letters are being sent out by Finish Line Packaging, 888 E. Belvidere, #218 Grayslake, IL 60030. Tel: 847-223-0844 and email: info@finishlinepack.com Included in the final demand is a remittance advice sheet. Clients wishing to pay by check are asked to send them to CVM, 1455 Tallevant Road, Suite L/3221, Sarasota, Florida 34243. A Google search on this address produces 1520 results. 1455 Tallevant Road is presumably an accommodation address/ managed office for a wide range of companies. Businesses also using that address include Railroad Video Warehouse with videos of old locomotives, Warm Wisdom Press, Kasamba, Custom Plush Toys, Synapse Communications, a popcorn company and at least a couple of porn sites - Live-X.net and Première Investments Inc. Credit card companies may be liable Many of Seed's clients, who paid for their wine investments by credit card during 1998 and 2000, may be able to claim money back from their credit card company as the transaction was fraudulent. Seed created a fantasy wine market and their clients were systematically misled over the profits their 'wine investments' made. Seed's clients may prefer to claim against credit card companies rather than either paying more money to Seed International Ltd or signing up to the AoW offer. Andrew Crossley, Ocean International and AoW The first issue of Veritas, the newsletter of the Paradigm Group, has a feature on Architects of Wine. It is written by Andrew Crossley, sales manager. Andrew Crossley will be known to a number of Seed Investors as he worked at Ocean International Marketing in Rotterdam for a number of years. Unfortunately investdrinks doesn't know when he started with Ocean as that is one of a series of questions I put to him on the 27th May to which I have yet to receive any reply. Crossley was certainly working for Ocean, or Heros as it was then called, in September 1998. He would therefore have been present for much, if not all of the fraudulent Bordeaux wine program. At some point he was promoted to executive portfolio manager. Crossley remained with Ocean until late 2002 before joining the newly set up AoW. It is now clear that Seed International Ltd's Bordeaux wine program was a systematic fraud. investdrinks has analysed 420 wine positions dating from 1998 to 2000 with a total value of $53.5 million. The profits that clients were alleged to have made were a fantasy. It appears that there wasn't even trading between clients - most of the time the initial price of the wines remained the same irrespective of the often substantial profits alleged. The intriguing question is whether Andrew Crossley had misgivings about how Seed's wine positions business operated. Did he know that he was being used to defraud American doctors? The very same doctors who are mentioned in the AoW newsletter feature - 'Having recently acquired the licence to a database of some 2500 high net worth customers (largely US based doctors and dentists)' In late 2001 one of Crossley's clients refused to transfer to the Italian Wine program, although they came under some pressure to transfer and Crossley explained the benefits: 'He (Crossley) also said that the Bordeaux was of an inferior quality and didn't think that we could get a buyer to take our position for a good price and that's why they want to trade for the Italian wine.He said the new contract doesn't have the 12 month moratorium on selling our positions and getting our money out. He said if we bought the wine for the additional $400,000 then he could provide us with rotation numbers." Quite why Seed would get people to invest in 'inferior quality' Bordeaux is not entirely clear. Having put in over $100,000, the clients were initially offered around 6% of their $140,000 investment (principal and alleged profits). However, by dint of asking awkward questions about where the wine was stored, the rotational numbers on the cases, and contacting Seed's lawyer in Paris, the client was offered their principal back, although not the alleged profits. Didn't this not all strike Mr Crossley as a little odd? AoW sends Final Offer Bob Middlemiss, managing director of Architects of Wine, has recently sent out a final offer to those Seed investors who have received an offer from AoW to switch from Seed International's Italian programme to AoW's. AoW is part of the Paradigm Alliance, whose website paradigm-wine.com is due to go live very soon. The Wine Corporation in Northampton is also now part of this alliance In his letter Middlemiss sets out the history of their dealings with Seed International. He makes it clear that Paradigm Wine Services, part of the Alliance, did not supply Seed's French wine programme - mainly reds from Bordeaux. In September 2001 Paradigm agreed to supply Italian wine to Seed International and made the necessary commitments with producers to fulfil this agreement. Unfortunately by December 2001 Seed were already in default on its payments to Paradigm. Although not covered in the letter, investdrinks understands that this led to Middlemiss writing to David Wilcock, vice-president of Seed International, on 22nd January 2002 warning that Seed had sold and traded certificates of conditional title to clients although Seed itself didn't hold conditional title because of their failure to pay the agreed instalments. (Further detail in posting of 26th May 2003.) Paradigm considered taking legal action against Seed International but instead in October 2002 concluded a new agreement with Paul Freeman of Seed that allowed AoW to contact Seed's clients direct. A number of Seed's clients have asked investdrinks whether they should accept AoW's offer. investdrinks response is that investors (either individually or as a group) should do their own due diligence into the Paradigm Alliance just as they should before making any investment. The posting of March 3rd 2003 lists some of the questions investors may want answered before making their decision. investdrinks, however, does believe that the Paradigm Alliance is separate from Seed, although AoW has employed a number of the sales team that were previously with Ocean International Marketing in Rotterdam. The AoW sales team is managed by Andrew Crossley, who was employed by Ocean for a number of years. AVE, the 'global wine positioning and distribution channel of the Paradigm Alliance' will be exhibiting at Vinexpo (June 22nd-26th) in Bordeaux. The bi-annual Vinexpo is the largest professional wine trade fair in the world. Seed issues final demand Seed International has written to its clients, who are still in their Italian wine programme and are alleged to have outstanding instalments to pay, giving them 21 days to pay up or 'forfeit all rights to, or interest in, the deposit and any other monies paid under the contract and will lose any rights to any further wines'. As the Bordeaux trades were clearly fraudulent and Seed operated, through Ocean International Marketing, a fantasy market awarding clients profits that bore no relation to reality, it is highly likely that many courts would declare the Italian Wine Purchase Agreement to be null and void as it is based on fraudulent figures, at least in respect of the Bordeaux trades. If this agreement is invalid, then this final demand is presumably merely a continuation of the original fraud. Seed has arrangements for clients to pay by credit card. Credit card companies might wish to know that a number of Seed's clients have and are attempting to claim refunds from credit card companies because of alleged fraud on earlier transactions with the Seed group of companies. Were the Italian Wine Purchase Agreement to be declared null and void, then the credit card companies might face further claims. The credit card companies concerned may not be aware that Seed International Ltd is under criminal investigation in Holland and that the Securities Commissions of Kansas and Mississippi are also carrying out investigations into the company. Seed's letter also announces that Seed 'have engaged the services of Fazorak Limited to act in its behalf regarding client service issues.' Fazorak Ltd is a South African company and was founded on 28th June 2000. Its address is Noland House, River Park, Mowbray 7700 with a postal address in Cape Town - P O Box 2881, Cape Town 8000. The telephone number is 27.21.552 3045 and fax: 27.21.552.8285. Fazorak Ltd is a close corporation. As the South African company regulations explain: 'Although a Close Corporation is required to have an Accounting Officer, audited financial statements are not required. The Companies Act prescribes compulsory meetings for Companies, especially as regard Public Meetings, however there are no requirements in this regard for Close Corporations. Meetings are usually held between members on an ad hoc basis.' Nolands House is the headquarters of Nolands, a firm of chartered accountants as their website (nolands.co.za) explains. 'Nolands was first established in the 1970's and over the past 30 years, through both organic growth and a series of acquisitions that have suited both the culture and the client profile of the business, the company has established itself as one of the leading firms of Chartered Accountants in the Western Cape, servicing small to medium-sized businesses and the dynamic individuals who direct and drive them. In 1993 Nolands became an associate of Maclntyre Sträter International (MSI), the largest multidisciplinary association of independent professional firms of accountants, lawyers and tax consultants in the world. This association provides Noland's clients with access to international legal, accounting, taxation and general business services in more than 86 countries.' Guernsey hearings - 19th - 21st May Following the three day hearings last week, investdrinks understands from David Wilcock, vice-president of Seed International, that 'we all await the view of the Guernsey Bailiff which we understand will take a further short period. At least we know it will be based on proper evidence, not fairy tale rubbish.' New Seed website Wilcock has been busy putting together Seed's new site seed-int-mark.com. It provides an interesting account of how Seed used their clients' non-refundable deposits on a series of ventures, which have often turned out to be expensive failures. It could do with being more detailed but, of course, this is early days. For instance investdrinks looks forward to reading about the cost of maintaining Seed's head office on the Monaco waterfront as well as a lot more details about Seed's fantasy Bordeaux trades including the reason why Paul Freeman cancelled the 1999 en primeur campaign. Sadly it seems doubtful whether the meeting of the 22nd February 2002 between Bob Middlemiss (AoW/Paradigm etc.) and his legal team with senior members of the Seed group as well as Marcus Rutherford of djfreeman will feature. Investdrinks understands from a solicitor's letter that this meeting confirmed the details of a letter Middlemiss sent to Wilcock on 22nd January 2002 that 'Seed had sold certificates of conditional title to its clients and then traded its positions (reporting profits on these trades), though it did not hold conditional title to the vast majority of the wines it sold to its clients". When asked about this meeting Wilcock was blunt: 'your assertions about cover are as ever complete twaddle'. Apparently the inaccurate hate site cited is investdrinks. I have urged Wilcock to send details of inaccuracies both to me and to Tera-Byte, investdrinks ISP in Canada. Back in April 2000 Tera-Byte issued an invitation to Seed to send details of anything that was inaccurate on investdrinks to them. As far as I know Seed have never taken up this invitation, which seems perverse if they really believe that there are inaccuracies on investdrinks, which Wilcock alleges have damaged their business. If all the Bordeaux trades of 1998-2000 were based on wine to which Seed either held title or had an option, all Wilcock has to do is to send details of the physical wine Seed held plus its options with Bordeaux Index and any other wine brokers to Tera-Byte. An experienced executive like Wilcock ought to be able to get that organised in half an hour. Seed in South Africa Callers to the now closed Ocean office in Rotterdam are referred to 27.21.552 3045. This is presumably the number for Seed's new operation in South Africa. AVE International launch at LIWSF - 20th-22nd May AVE, part of the Paradigm Alliance that includes AoW, launched its UK operation in London last week at the annual London International Wine & Spirit Fair. This follows the initial launch at Vinitaly in Verona in April. AVE is described as 'the global positioning and distribution channel of the Paradigm Alliance'. Guernsey hearings - 19th - 21st The frequently delayed hearing of the case arising from the injunction obtained on 22nd November 2002 by 13 Seed investors is due to take place this week. Whether the defendants will have to disclose the money trail is likely to be the crux of the argument. For further details please see posting of 16th December 2002. Completely cuckoo The more investdrinks investigates the Bordeaux trades the more ludicrous and completely cuckoo they appear. Take, for instance, various parcels of Cheval Blanc 1990 that were traded in the summer of 1999. Although 1990 is a very good vintage and Cheval Blanc a top property, the price charged -- $ 13,612.50 a case - is absurd, when it could have been bought in the UK for the equivalent of $3915. Even more absurd is the idea that a position started in mid-July would make a 40% profit when sold at the beginning of September, so taking the case price to $19,057.50. Although Cheval Blanc has risen in value, it can still be bought for $6,228 (May 2003). Perhaps this stock is very volatile as another investor who bought in early August 1999 saw his position gain only 25% when he sold six days after the above trade. Or is it just a question of how the client accounts needed to be massaged? Giving a discount for quantities is standard business practice but Ocaen-Seed honed this to new levels. In late May 1999 a Seed client took a position on a pair of two case lots of Haut-Brion 1997 at $5,544 a case. Despite the high price they were sold in July 1999 for a 17.5% profit. In mid-December another investor bought a position on a lot of 1554 bottles of the same wine at $1,930.56 a case. Not only was this a very generous discount but the lot was sold at the end of February 2000 for a 33% profit. The Haut-Brion 1997 could have been bought elsewhere in July 1999 for $1,200. investdrinks could quote many other bizarre examples. I could ask Paul Freeman and Seed International Ltd for an explanation but, from past experience, they are unlikely to provide one. 744 bottles of Penfolds Grange 1987 Seeking advice on whether it would be easy to acquire such a substantial number of bottles (see posting of 12th May), investdrinks contacted Andrew Caillard MW, director of Langton's Fine Wine Auctions in Sydney and the leading market for Grange. Here is his reply: 'The 1987 vintage averaged around $190-220 AUD per bottle from Jan-Dec 1998 - occasionally spiking up or down. The volume - 62 dozen - is almost unprecedented - unless the stock somehow came directly- or indirectly from Penfolds/Southcorp. It seems the price per case (1987 was sold in 12 bottle cases) seems unusually low.' Ernest Saunders. the scuppered AIM launch, and the strategic review On the 5th February 2001 the following message arrived in investdrinks' mailbox. 'Over the last few weeks I have seen a tall, half bald, distinguished white haired man going into 58 Grovesnor Street, W1 most Thursdays. His face was familiar, but I couldn't place it. I didn't really give it any more thought. This morning I woke up and it was there.- Ernest Saunders (Alzheimer and Guinness fame).' This was the first indication I had that Ernest Saunders was employed by the Seed International group of companies as a consultant. 58 Grosvenor Street, an elegant Georgian building in the heart of London's Mayfair, was the headquarters of Seed's UK operation. It housed Zecca Properties, Fine Wines of Mayfair, Optidisk (UK) Ltd, Global Venture Services and cupidus.com - the still-born internet incubator company. As chief executive of Guinness, Saunders was involved in the illegal support of shares in Guinness during the 1986 take-over battle for the drinks company, Distillers. Following a lengthy trial Saunders was convicted in 1990 of false accounting, theft and conspiracy to contravene the 1958 Prevention of Fraud Act. He was sentenced to five years in jail for his part in the Guinness scandal. His jail term was cut in half on appeal and Saunders was released after 10 months apparently suffering from Alzheimer's. It subsequently appeared that this was not the case - he was suffering instead from stress. Since his release he has built up a lucrative consultancy business. Saunders was appointed as consultant to the Seed group around August 2000 and continued until either late 2001 or 2002 - between 14 and 18 months in total. Several sources have suggested that Saunders' consultancy fee was in the region of £500,000. It is clear that, although Saunders had a wide-ranging brief, he was never one of the architects of the Seed International group of companies, which were set up by Paul Freeman and Anil Kohli in 1996. Kohli was disqualified from being a UK company director for 12 years in December 1997. Saunders' initial role was to advise on the immediate flotation of The Wine Corporation, part of the Seed group, on AIM. The Wine Corporation had been set up in 1998 by Giles Cadman, who from 1996 had made reservations of Champagne on behalf of Churchill Associates Ltd later called Seed International Ltd. He also sourced wine and negotiated options on Bordeaux and other wines for Seed. However, it was Freeman as CEO of Seed who was responsible for signing off agreements. Saunders appointed the Pelican Partnership plc as management consultants. Seed employees were soon jokingly referred to Pelican as 'the company with the big bills'. During his consultancy, Saunders was often based at 58 Grosvenor Street. The floatation of The Wine Corporation was stalled by comments on investdrinks, which pointed out the close relationship between The Wine Corporation and Seed International Ltd and raised questions about some of Seed's wine trades but not about the operation of The Wine Corporation itself. Stockbrokers, Peel Hunt, declined to continue to work on the AIM flotation and a number of wine suppliers refused to deal with The Wine Corporation. Towards the end of 2000 Saunders proposed that the advice of a QC should be sought. Their advice was that full documentation should be obtained from Seed to show the true position of its wine trading. Seed declined to produce this information and Paul Freeman, head of Seed, said it was not necessary for Seed to buy wine that was being traded. investdrinks understands that Cadman disagreed and said that Seed's wine trades needed to be adequately covered. Having reviewed The Wine Corporation, the Pelican Partnership presented their findings on 11th January 2001. Among those present at the meeting along with Ernest Saunders were Freeman, Kohli, and Lance Terry, Seed's in-house lawyer. It was agreed that Cadman, who was not at the meeting, would cease to be chairman of the company and that a five man executive committee would be formed to take strategic decisions and manage the change. Saunders was one of the five. Copies of the minutes of the meeting went to Freeman, Kohli and Saunders. Saunders' brief was extended to carry out a strategic review of the whole Seed group. A memo sent by Paul Freeman on 18th January 2001 to senior executives of companies within the group stated that 'effective immediately no further expenditure shall be incurred unless pre-authorised in writing by two of the following: Anil Kohli, Ernest Saunders and Paul Freeman. This is to enable Paul and Ernest to finish their review of all aspects of the company. No new charges or expenditure of any kind regarding company affairs shall be incurred until further written notice from the above.' Since the wine trades carried out in Seed's name from the Ocean offices in Rotterdam were the group's major income stream it seems reasonable to assume that any strategic review would look at these trades, especially as there were a number of indications that all was not as it should be. The allegations on investdrinks that scuppered The Wine Corporation float have already been mentioned. In April 2001 a briefing paper prepared for Saunders warned that: 'Currently Senior Management and Account Managers decide the returns offered on any particular parcel or lot at the Ocean offices. This should be controlled through the command and control process to ensure that no parcel or lot is traded at a percentage gain that is not sustainable from the wine position. This should be monitored and controlled through Albion Contracts, the company that acquires the wine positions to cover our trade.' Furthermore Seed International did not have proper controls over Ocean International's work. 'All three Ocean International Offices were created to reward key individuals rather than to meet set or planned business objectives. All three offices have marketing agreements with Seed International. All have separate structures and relevant autonomy of action in all matters. There is no independent quality or compliance routine carried out by Seed, as would be expected in any such relationship.' Saunders was not the first high-powered adviser to be hired. In August 2000 Gerald Edelman, the chartered accountants, assisted in planning a new fine wine trading system for Seed. However, work on this new system and database was suspended by Paul Freeman with immediate effect on 18th January 2001. Doubtless this was done for good reason but it might have reinforced the need to look closely at Seed's wine operation. Unfortunately Ernest Saunders has declined to receive any questions, so it is not known whether he looked at this aspect of the business. If he had I suspect the ex-Guinness boss would have found much to concern him. investdrinks has now analysed over 100 wine trades carried out in Seed International's name. Most of the trades I have looked at started during 1999 and 2000 and, with one or two exceptions, involved positions of over 500 bottles. It is clear that Seed created a fantasy market and that many of the Bordeaux wine trades were fraudulent. Not only were the profits invented by Ocean as the briefing paper warned but so were the quantities of the wines available. The analysis shows that:
In short here is nub of the fraud that generated the vast profits that permitted Seed to fund other parts of the group, of which some parts were legitimate. It has also allowed Seed to maintain a head office, doubtless in some style, on the Monaco waterfront. It is no surprise that Seed have failed to answer investdrinks' detailed questions about the Bordeaux wine trades. In part I suspect that this is because the record keeping in Ocean's offices was very poor - having three shredders (one of industrial capacity) cannot have helped. Instead for obvious reasons Seed prefer to defend the Italian wine programme. But the level of instalments in the Italian trades is based on the earlier fraud and it is here that the various criminal and regulatory investigations now going on around the world should be looking. Although most of the positions analysed were started and some were finished before Saunders arrived, there were still many that had not completed. As Ernest Saunders has unfortunately declined to receive questions on his role as consultant it is not known whether he looked at this core business in detail. Nor, if he did, whether he made recommendations to legitimise it nor whether these proposals were carried out. It is also unclear whether Saunders looked closely at cupidus.com, housed at 58 Grosvenor Street. The incubator start-up company was memorably described in an internal memo to Paul Freeman (Spring 2001) as 'the ticking time bomb called cupidus. A $400M company with 2 directors, 4 computers; for which we have just raised $30 million on a Private Memorandum.' Here are some questions investdrinks would like to ask Ernest Saunders:
Subject to the normal conditions investdrinks will post any answers it receives from Ernest Saunders or his legal advisers. The en primeur puzzle Although investdrinks is still seeking an explanation for the 1999 en primeur positions offered by Seed International in 1999, there now appear to be some pointers.Apparently the idea was raise $7.5 million in 1999 ready to buy as much en primeur 99 (1st and 2nd Growth) when it came on the market in May/ June 2000. Whether this was a collective investment scheme is an intriguing question. Also whether it would have really made commercial sense to buy en primeur in 1999 is another matter. Bordeaux's mistake in over-pricing the 1997 vintage stuffed the en primeur market for several years and it wasn't until 2000 that it really recovered. Had the last year of the millennium been a great vintage, there would have doubtless been a demand but when 1999 turned out to be a no more than reasonable vintage there was no great interest. It may have been this that led Paul Freeman, CEO of Seed International Ltd, to cancel the en primeur project in January 2000. Whether investors holding en primeur positions in January 2000 were fully informed about the cancellation has not yet been established nor whether their deposits were refunded. What also remains unclear is how some positions were sold for a profit of between 30%-40%. To whom were these positions sold? Why did the buyers consent to pay 30%-40% more for an option on wine, which in some cases hadn't yet been made, or, when it was in the process of being made, hadn't yet been given a price? All very puzzling and a puzzle that over six months on from my questions of November 2002 that Seed International Ltd appear to be unable to supply any answers. Which leads on to another question - how could Seed International Ltd, or Churchill Associates as they then were, issue certificates which alleged substantial profits on a project that they appear not to have understood? Temporary cease and desist orders by Arizona and North Dakota The Arizona Corporation Commission Securities Division issued a temporary cease and desist order on 2nd April 2003 against Ocean International Marketing, Heros Global Marketing, Seed International, GFH International and others. The order came into immediate force and will last 180 days unless the respondents provide satisfactory replies or the order is made permanent. The respondents had 20 days to request a hearing and 30 days to file an answer. The order was issued on the grounds that the respondents had broken Arizona regulations because they were offering and selling unregistered securities, that the dealers/salesmen were not registered, and that fraud was used in connection with the offer or sale of securities. In particular the respondents' conduct included 'Failure to provide prospective investors with adequate information to enable them to fully evaluate the potential risks of the investment, particularly including the financial background of RESPONDENTS, e.g., audited financial statements; b) Specifically stating that risk of loss is "extremely improbable" in connection with the investment program promoted by RESPONDENTS, without providing any basis in fact for that representation.' Sales literature sent to potential investors in Arizona included the following claims: 'Our independent team of specialists and financial analysts make it possible for our clients to acquire wine assessed as having the potential to increase in value. An added bonus is that each client's collection portfolio is managed on their behalf by Seed International. The Company's network on wine experts operates globally to identify stock worthy of collection. Authenticity and marketability is thoroughly evaluated before Seed International judges it worthy of any client's attention. By this reliable route, Seed International is able to recommend purchases at levels below actual market value, likely to appreciate in value, and provide resale potential for the client.' investdrinks' detailed analysis of a number of the Bordeaux trades shows that wines offered during 1999 and 2000 were invariably sold for a substantially higher price than would have been paid if the same wines had been bought from specialist wine brokers. Take the large parcels of the Calon Ségur 1997 and 1998 offered at the end of 1999. Positions on 18812 bottles (1567.67 cases) of Calon 1997 were sold to two investors for $350 a case. In August 1999 it was available in the UK for the equivalent of $217 (£150 - £1 = $1.45). It is now available in the UK for the equivalent of $270 (£170 - £1 = $1.59). One Seed investor, who bought at the beginning of December 1999, was fortunate that their position was sold in early February 2000 for a 27.5% profit taking the case price to $432. Positions on two large parcels of Calon 1998 - totaling 18610 bottles or 1550.83 cases - were also purchased by Seed investors in late November and early December 1999 for the equivalent of $322 a case. One position was sold in early February 2000 for $411 a case (a 27.5% increase), while the other sold in early April for $394 a case (a 22.5% increase). Had the investors bought elsewhere they would have paid less but also have seen less of a profit. Calon 1998 was available in the UK for the equivalent of $217 (£150 - £1 = $1.45) in August 1999. It can now be bought in the UK for the equivalent of $286 a case (£180 - £1 = $1.59). It is, of course possible, that an analysis of all of the Seed wine trades in 1999 and 2000 would show that overall the wines were offered at 'below actual market value' but of the more than 50 positions investdrinks has looked at the purchase prices are always above actual market value. investdrinks understands that the North Dakota Securities Commission also issued a Cease and Desist Order on 19th March 2003 following a complaint from a Seed investor. Optidisc (UK) Ltd in voluntary liquidation The company went into voluntary liquidation on 8th April 2003. The liquidator is Peter Hickman, Birches Meadow, The Wytchwoods, Pettaugh, Stowmarket, Suffolk IP14 6TB. Accounts were overdue from 31st January 2002. Remarkable Seed letter to clients - breathtaking admissions Blaming the messenger Some Seed International investors have recently received a Client Information Update' dated April 2003 from Seed International Limited. (This can be downloaded here.) The Update explains where the money investors sent as a deposit on wine went. Seed International attempts to blame its woes, particularly in relation to The Wine Corporation, on a 'hate website of a UK based, self-styled wine journalist'. This website apparently contains 'bilious', 'inaccurate and defamatory' comments. As investdrinks is run by a self-styled UK drinks journalist and Seed have never availed themselves of the opportunity, freely given since April 2000, to point out inaccuracies either to myself or to my ISP they must be referring to another site. This other site might characterise Seed's Update thus: 'We trousered your money and instead of spending it on wine blew it on a number of projects that have failed. Now there is no money left.' Instead investdrinks will comment in more moderate terms. The Update does make it clear that investors' deposits were not spent on wine but instead they became 'the normal day-to-day cash flow and turnover of the business' and instead were spent on various running costs and as loans to a number of other businesses such as cupidus, Optidisc and The Wine Corporation. It is also clear that only around $30 million was spent on 'physical wine stocks, cover, reserves, and options through Albion and a variety of other third parties'. It is therefore evident that only a small part of the total value of the wine positions ($504 million) were covered. The Update raises a number of questions:
There are also a number of details that are missing from Seed's April 2003 letter.
More curious trades Furtyher intriguing wine trades have come to light. Take, for instance, two parcels of Château Leoville-Poyferre - one 1997 (2893 bottles) and the other 1998 (2445 bottles). The trades started in mid April 2000 and were completed some six weeks later at the end of May. Coincidentally both recorded a profit of 35%. The price of the 1997 rising from $518 to $699.97 and the 1998 from $613.50 to $828.22. These two wines could have been bought in the UK in 2000 for a mere $319 (1997) and $275.50 (1998). From these and other trades Ocean-Seed do appear to have operated a rather special market. The number of lots that do not divide by 6 or 12 is striking. One well-placed source has suggested that the Ocean sales force sold round dollar positions and then worked out the number of bottles later. If this is correct, it would explain why investors were not sold complete cases of young wines. The explanation for the remarkably rapid increase in value may lie in a briefing document prepared in April 2001. In a section called The Trading System it warns: 'Currently Senior Management and Account Managers decide the returns offered on any particular parcel or lot at the Ocean offices. This should be controlled through the command and control process to ensure that no parcel or lot is traded at a percentage gain that is not sustainable from the wine position.' The more investdrinks looks at the wine trades, the more it looks like the profit was invented in the Ocean offices. Whether those wines had ever been bought or were covered by an agreement to purchase is another matter. Still silence from Marcus Rutherford of djfreeman Unfortunately I have yet to receive any response from Marcus Rutherford in relation his allegation that I have defamed his clients, Seed International Ltd. Defamation: My questions to Marcus Rutherford On the 20th January 2003 Marcus Rutherford of London solicitors, djfreeman, wrote to me about a number of matters relating to his clients Seed International. He told me that I was defaming his clients: 'You continue to labour under the belief that Seed has to be the owner of a particular quantity of wine of wine prior to Seed being able to agree to sell and deliver that wine at a specified future date. You have been advised that this is not correct as a matter of law. Your assertion that Seed committed fraud by conducting its business in that manner is therefore defamatory.' This argument echoed that put forward in Seed International's response (29.1..02): 'You do however appear to be labouring under the mistaken belief that it is necessarily fraudulent to sell goods which are not owned by the seller at the time of contract. There is no legal reason why we cannot enter into contracts to sell goods at a future date. This is a commonplace event in a variety of commercial contexts e.g an agreement to sell a new motor vehicle which has not yet been built.' investdrinks is well aware that a seller does not necessarily have to own what they sell - estate agents do not own the houses they sell, wine merchants sell the top wines of Bordeaux while they are still in barrel before they have paid for them and before title of ownership has passed from the châteaux. All perfectly legal providing they have an agreement/ contract to cover this. Indeed Seed acknowledged this essential condition in the passage above with 'into contracts' and 'eg an agreement.' Without an agreement or contract or even a reasonable expectation of being able to acquire something one can surely not legally offer it for sale and certainly not trade it and inform your clients that they have made a profit on the transaction. If you can legally offer anything for sale irrespective of whether you have title or even an expectation of being able to acquire the goods, then investdrinks could quite legally offer for sale the Statue of Liberty, the Empire State Building or even 43 Fetter Lane, London EC4A 1JU, the offices of djfreeman. Were investdrinks to manage to flog off 43 Fetter Lane, it would seem unlikely that Mr Rutherford and the other partners of the firm would be impressed when the 'new owner' turned up and tried to take possession. Following receipt of Marcus Rutherford's letter of 20th January 2003 stating that I have defamed his client I have asked him, since 21st January, a series of questions. Unfortunately I have yet to receive any answer. In essence I have asked two questions:
I am still hoping for a response and will be happy to post Mr Rutherford's response on investdrinks. Guernsey hearings These are now set for 7th-9th April when the deputy bailiff is due to consider the order freezing assets and to divulge the money trail. No comment and the 160 million dollar question - Where's the money? On 4th March 2003 investdrinks received the following message from Marcus Rutherford of London solicitors djfreeman, who represent Seed International Ltd. 'I understand that my client's Dutch lawyers have advised it that due to the investigations in Holland, it should not make any statements to the media or conduct any correspondence, publicly or privately, which may relate to the investigation.' investdrinks assumes that this refers to investigations presumably being carried out by the Dutch authorities as a result of the raid by the Dutch police on Ocean International Marketing's Rotterdam offices on 17th January 2003 and perhaps the subsequent warning issued by the Dutch financial authorities As Mr Rutherford represents Seed and not Ocean, it would appear from his message that the Dutch authorities are investigating Seed as well. Unfortunately it looks as though the Dutch lawyers' advice will mean that my projected meeting with Paul Freeman, Seed's chief executive, will not now go ahead. investdrinks assumes that any investigation will want to establish not only how far were the wine trades carried out by Seed International backed by ownership or by contracts and how credible were the profits investors were alleged to have made but even more importantly - where did the money go? Investors sent their money, often by credit card, to Heros Global Marketing BV/ Ocean International Marketing. As Heros/Ocean acted as agents for Churchill/Seed the money was presumably passed onto Churchill/Seed. Does the money trail stop there or does it lead elsewhere? It is clear that Seed only bought or had contracts for a small fraction of the wine positions it sold and traded to its clients. It would have required between $500-$600 million to cover the full position of the Bordeaux wine trades. As yet there is no evidence to show that Seed had stock, contracts or options to cover anything like this position. This would appear to be implicitly accepted by Seed International and by Marcus Rutherford who have argued that it is not fraudulent to offer for sale something you don't own. (investdrinks intends to look at this in more detail next week.) Despite Seed's praiseworthy willingness, since early November 2002, to answer my questions, they have yet to provide any answers to my questions about how certain of the wine trades worked. So if Seed did not use the approximately $160 million sent by investors to buy wine, where did it go? There would be Ocean's administrative expenses and their staff's commission to pay. With only an accommodation address in the Cayman Islands and Cyprus, Seed's admin expenses on the other hand would presumably have been and are minimal. It is not clear whether David Wilcock's appointment as vice-president of Seed International in November 2001 meant that a new post had been created or whether he was, in effect, taking over from Anil Kohli. If it was a new post Seed's admin expenses would presumably have risen a little as investdrinks assumes Wilcock is paid a salary and expenses but this would hardly dent the $160 million even though he is an experienced executive. Some of the $160 million will have gone to pay various lawyers. Seed International did lend money to set up and support The Wine Corporation but this must have been separate from the wine money as these sums had been sent specifically to buy wine and not to set up wine mail order businesses in Northampton, UK. Equally the rent on the offices at 58 Grosvenor Street in London's Mayfair must have been high but again with the exception of Fine Wines of Mayfair, the businesses housed there were quite separate from the wine positions and must have been separately financed. It is probable that the decision to base Seed's chief executive, Paul Freeman, in Monaco would have cost more than if he had been based in Peterborough, for instance. Although here, too, the company was admirably frugal: Seed did not set up an office in Monaco nor does Freeman have an email address. There were doubtless sound business reasons for locating Freeman in Monaco, although as Seed's business centres on wine it might have made more sense to base him in Bordeaux, London or New York. Perhaps the balance from the $160 million is in an interest earning account until the time Seed have to pay for the wine positions. However as investdrinks recently received a message from an American attorney, whose client had been told that Seed has run out of money, this prudent option would appear unfortunately unlikely. If Seed has run out of money, only bought a fraction of the wine its investors paid for, the question remains - where is the money? Or rather, perhaps, where did it go? Hearings in Guernsey postponed again investdrinks understands that the hearings in Guernsey have been postponed yet again. The hearing has been put back until April. It appears that the deputy bailiff is proving to be just as busy as the bailiff was and it appears to be very difficult to find a slot in his crowded diary. At this rate if the defendants are required to divulge any money trail it will be stone cold. Architects of Wine Offer investdrinks has received a number of enquiries about the AoW offer. Here is a typical example: 'Jim Does anyone know anything about this new offer from Architects of Wine? Is this just the same scam operation under another name. I am certainly not willing to send any more money but apparently if we don't sign we essentially lose our deposits.' Among some of Seed clients there is undoubtedly a suspicion that AoW is just Seed under another name. The fact that the company is registered in the Cayman Islands and has employed some of the sales staff who previously worked for Ocean International Marketing has helped to foster that suspicion. Although I understand investors' suspicions, I believe them to be mistaken. Last October I met Bob Middlemiss of Architects of Wine for some six hours. I believe that AoW are a legitimate company who originally had an agreement with Seed in 2001 to supply them with Italian wines. Middlemiss told me that Seed failed to pay many of required instalments and this is why they negotiated a new agreement that allowed them to approach Seed's clients directly. Seed dispute this, saying that no final agreement was signed in 2001 only a heads of agreement. What is not in dispute is that Seed and AoW signed an agreement in October 2002 that allowed AoW to approach Seed's clients directly with a new offer. Clearly there must be something in this agreement for Seed - presumably some sort of licence payment based on the volume of business that AoW gets from ex-Seed clients. Middlemiss is certainly a wine enthusiast and is keen to promote quality wines irrespective of where they are produced. His business is searching out high quality wines from lesser known areas. He was director of Cellar Select Ltd that operated as Winefinds, a mail-order wine company. The company was founded in 1993. Cellar Select Ltd went into administrative receivership on 10th March 1998. Middlemiss then acted as a consultant to the reborn Winefinds, the trading name for Consulate Wines Wines plc and Discern Ltd. These companies in turn failed and went into liquidation in June 2000, when Winefinds and its customer database was purchased from the liquidator by The Wine Corporation, part of Seed International. Middlemiss acted as a consultant to The Wine Corporation for part of 2000. In the same year he set up Orchestra International Ltd, based in the Cayman Islands, which provided an injection of capital into Orchestra SRL, an Italian company based in Treviso that had been set up some eight years previously to distribute the wines from small high quality, boutique Italian producers. Unfortunately investors' positions in the Italian wine contracts are highly likely on the current evidence available to be based on fraud and deception carried out either by Seed International Ltd, formerly Churchill Associates Ltd, or by its agents, Ocean International Marketing. On present evidence and on the continued inability of Seed International to be able to offer any explanation as yet of how the Bordeaux trades, especially the en primeur ones, worked, investdrinks believes that investors were deceived and defrauded. The alleged profits appear to have been invented and it is clear that Seed International held to title to only a small fraction of the Bordeaux it sold and did not have any realistic hope of acquiring the quantities of fine wine, such as Leoville Barton 1997 and 1998 or Calon-Ségur 1997, in the volumes that were being 'traded'. Most of the Bordeaux wines sold and traded by Churchill Associates Ltd (now Seed International) in 1999 and 2000 were 1997s and 1998s. 1997 is definitely not an investment vintage. Although there are some charming, early drinking wines, the quality is mediocre and this has been apparent from the beginning. Unfortunately the Bordeaux producers priced the wine far too high and, in general, the price has been sliding back ever since the wines were first offered in May 1998. Château Lafite 1997 cost £995 a case in bond in September 1999 but can now be bought for £716 a case - a fall of 28%. Why Seed ever thought 1997 Bordeaux was a suitable investment is a mystery. Even more mysterious are the alleged price increases of more than 30% over a few months in many of the 1997 trades. The profits are as incredible as those from Mr Charles Ponzi's postal coupon enterprise in 1920. Furthermore it appears that Seed International sold and traded certificates of conditional title on wines from Paradigm Wine Services Ltd to which Seed did not have conditional title. investdrinks understands that this situation was known both to the senior management of Seed International Ltd and its lawyers in February 2002. On 9th December 2002 I outlined what I think are the four options that clients of Seed have and I consider this still holds true. I think the AoW offer is worth serious consideration, although I do understand some investors' reluctance to send more money. The deal being offered by AoW appears to be better than that was offered by Seed and this may be the best chance of investors recovering their money. I suggest that the questions that need to be asked and answered are normal straightforward business ones, along the following lines:
If I had the misfortunate to be a Seed International client, I would certainly be inclined to walk away from the AoW offer if I could afford to write off the money I had 'invested' with Seed. I would hope to be able to declare this as a tax loss. More Philanthropy? investdrinks has now received copies of further certificates covering trades of fine Bordeaux involving very large quantities of bottles from individual châteaux. The Leoville Barton mystery has deepened. Two more investors put down deposits on similarly large batches of 1997 and 1998 Leoville Barton. On 6th September 2000 one put down deposits totalling $200,000 for four lots - two of 1997 (4603 bottles in each lot) and two of 1998 (5547 bottles in each lot). The another investor acquired 9206 bottles of the 1997 in August 2000. In each case the investor paid the same price as the investor, who had bought in November 1999 and sold for a 37.5% profit a month later. The ways of these wine trades do indeed seem mysterious! investdrinks is now aware that in September 2000 Seed clients held certificates of conditional ownership to 49,807 bottles of Leoville-Barton. This does appear to be a remarkably large quantities to hold from a popular 2nd Growth estate in St-Julien with an annual production of 250,000 bottles. This means that three Seed clients either held title to or Seed thought they could acquire 10% of both the 1997 and 1998 vintages from Leoville-Barton. As far as investdrinks is aware none of these positions were sold on. I hope nobody made a mistake and sold the same position twice. There is also a puzzle over a Pichon Longueville Baron trade. On 2nd September 1999 a Seed client started a trade on 3919 bottles of the 1997. This was sold at the end of November 1999 for a 25% profit. On 12th June 2000 another Seed International client put down a deposit on 3919 bottles of 1997. Although the lot number is different, the price to this fortunate client was the same of the original client had paid in September 1999. Were Seed running a business or a charity shop perhaps? Whatever, the position sold out at the end of August 2000 for a 32.5% profit. This is also curious as the price of 1997s has rarely increased, instead it has tended to decrease. Clearly an astute piece of broking. There were also some very large parcels of Calon Ségur 1997 and 1998 traded between November 1999 and April 2000 totalling nearly 29,000 bottles. Because the label has a heart shape on it, Calon Ségur is apparently very popular in Japan and much of the production goes there. Putting together such a large parcel was a remarkable achievement and investdrinks may well return to this trade next week. Meanwhile investdrinks awaits a detailed reply from Seed International to explain the various Bordeaux trades. 1999 En primeur trades - Fraud? It is fast approaching three months since I asked Seed International Ltd to explain the 1999 en primeur trades. I have now sent them certificates covering three sets of trades: a '2nd Growth' that started in early May 1999 and completed in June 99; a 1st Growth that started in June 1999 and completed in July 1999; and another 1st Growth that started in October 1999 and completed in November 1999. As yet no explanation has been offered as to how wines that did not exist in the summer of 1999 could have been traded for a profit. Nor how they conformed to item 6 of the Terms & Conditions as set out in the Churchill Portfolio Management Limited Agency Agreement between C.P.M. and the Members: 'The Seller warrants to the Buyer that the deposit will correspond to a physical item.' A bunch of leaves and hard green grapes the size of peas? investdrinks does understand that there was a project in 1999 to raise several million dollars so as to be able to enter the en primeur 1999 market when it opened in May/June 2000. The sales force at Heros (now Ocean) set about raising the finance from Churchill clients. Apparently it was intended that this money would have been held in an escrow account or similar. This, of course, is an entirely legitimate thing to do, assuming Churchill's clients were given accurate information about the scheme. Whether the scheme made real commercial sense is, of course, an entirely different matter. However, there is no way that these lots or positions could have been properly traded until the 1999 en primeur prices had been released by the Bordeaux châteaux in May/June 2000. Despite having no possible title to the wine nor any way of knowing the future price, a number of positions were traded and investors told that they had made a profit even before a single grape for the 1999 Bordeaux vintage had been picked. On the evidence available this is surely fraud. (investdrinks is happy to be able to offer three Eiffel Towers, two Statues of Liberty and several Taj Mahals at knockdown prices. Don't delay - offer must end soon.) In the absence of any explanation from Seed International investdrinks can only assume that in all probability the so-called 'profits' these trades in imaginary wine made were concocted in the 'dealing room' of Ocean International Marketing's offices in Rotterdam as an internal briefing document prepared in April 2001 makes clear: The Trading System Currently Senior Management and Account Managers decide the returns offered on any particular parcel or lot at the Ocean offices. This should be controlled through the command and control process to ensure that no parcel or lot is traded at a percentage gain that is not sustainable from the wine position. This should be monitored and controlled through Albion Contracts, the company that acquires the wine positions to cover our trade.' A bunch of philanthropists? investdrinks has a set of certificates to cover trades involving two very large parcels of Château Leoville-Barton, a highly regarded 2nd Growth in St Julien. On 4th November 1999 a client of Churchill Associates Ltd put down deposits on 9,206 bottles of 1997 and 11,095 bottles of 1998. Seed's price ($651.75) for the 1997 was 57% above the cheapest price then available in the market and at $540.78 for the 1998 .27% above. Both parcels were sold for a substantial profit of 37.5% on 14th December 1999. At that time the 1998 Leoville-Barton would still have been in barrel and probably not due to be bottled until the middle of 2000. Equally very few of the 1997s have ever risen in price because the Bordeaux producers hugely over-priced a moderate vintage. But these Ocean boys are clearly persuasive. The same investor then bought (or was sold) the same quantity of 1997 and 1998 on 9th February 2000 for the same price as he had paid on 4th November 1999, although the lot numbers were different. It does appear strange that the price the investor paid in Feb 2000 did not reflect the higher price that the wines fetched in December 1999. Again these very large parcels of wine must have been difficult to assemble and it is curious that the quantities do not divide by 6 or 12 since these wines are sold in cases of six or 12. investdrinks is sure that Mr Micawber would not have thought such a generous reward for loyalty to be prudent. It is possible that readers of a flippant disposition might be reminded of the schemes run by the late, great Mr Charles Ponzi. investdrinks, however, is confident that this is arrant nonsense, and is sure that Seed International's eagerly awaited explanation of the Leoville, Pétrus and 1999 en primeur trades will be both comprehensive and fully convincing. Dutch authorities issue revised translation of Ocean-Seed warning Revised version (28.1.03): Warning by the Netherlands Authority for the Financial Markets to investors regarding foreign companies This press release replaces the press release dated 23 January 2003. Amendment to third paragraph. The Netherlands Authority for the Financial Markets (the 'Authority') is advising investors not to take up offers of securities by Ocean International Marketing B.V., Seed International Ltd., Cupidus.com Ltd., Cupidus.com (Turks & Caicos) Ltd., which are all firms operating internationally. In the interests of protecting investors, the Authority is issuing a public warning against these firms. Ocean International Marketing B.V., acting as a marketing agent on behalf of Seed International Ltd. and Cupidus.com (Turks & Caicos) Ltd., is offering stockbroking services from the Netherlands without having a licence for such activities from the Authority. Intermediary services are being offered regarding the sale of bonds of Cupidus.com (Turks & Caicos) Ltd. and shares in Cupidus.com Ltd., Optidisc, CD Fender and shares in the 'wine program' of Seed International Ltd. Ocean International Marketing B.V., acting on behalf of Seed International Ltd., Cupidus.com (Turks & Caicos) Ltd., and Cupidus.com Ltd., is offering securities at issue in or from the Netherlands beyond a restricted circle or is holding out the prospect of such offer by means of advertisements or documents. These firms are breaching the Act on the Supervision of the Securities Trade 1995 (Wet toezicht effectenverkeer 1995 / Wte 1995). In the light of these breaches, the Authority advises the investing public against conducting business with these parties. The advice of the Authority to investors is to find out from the Authority before using the services of securities institutions or offerors of securities whether such institutions are licensed to offer securities services in the Netherlands or are covered by an exemption. The telephone number of the Supervision Information Line of the Authority is 0900 540 0540. The register of licensed institutions (the Wte Register) is also available on this website. Pursuant to the Wte 1995, the Authority supervises securities institutions and offerors of securities. The Act lays down the requirements that have to be satisfied by securities institutions and offerors of securities. The aim of the Authority in this is to protect investors against buyers of capital, against intermediaries and against other investors. In addition, it is the role of the Authority to ensure that the market operates fairly, transparently and efficiently. Seed International website (mediamoment.com/seed) investdrinks much enjoyed the following from Seed International's site: Professional Standards Seed International places high value on establishing long-term professional relationships with all clients. An international team of wine specialists provides a world-class cadre of knowledge and connections. Through this network, and Seed International's extensive computer database, we locate for our clients excellent collectable parcels of wine. Seed International acts as agent for a client on the purchase of fine wine for collection purposes. Every effort has been made to ensure that all clients enjoy a long-lasting association with Seed International.' investdrinks assumes that enjoying 'a long-lasting association with Seed International' doubtless includes taking the company and its associates to court in Holland and Guernsey. The site appears quite authoritative - not surprising as many of the features come from Decanter magazine. investdrinks assumes that Seed has obtained the necessary permission from AOL Time Warner, the owners of Decanter. Unfortunately when investdrinks tried to contact Seed through the site to propose a reciprocal link, perhaps one similar to that so kindly provided by Ocean last year, the email bounced back - 'all relevant MX records point to non-existent hosts'. Dutch authorities warning: Ocean, Seed and cupidus.com Raid on Rotterdam offices of Ocean International Marketing On Thursday 23rd January the Dutch authorities issued a warning (see below) that investors should not deal with Seed. International, Ocean International Marketing or cupidus. The warning can be found on autoriteit-fm.nl under News. This concluded a difficult week for the group for on Friday 17th January the Dutch fraud and tax authorities raided the offices of Ocean International Marketing in Rotterdam. investdrinks understands that the authorities were at the offices for some 16 hours. Seed International has today issued statements on both the securities' warning and the raid on Ocean's offices. See below. 'Warning by the Netherlands Authority for the Financial Markets to investors regarding foreign companies The Netherlands Authority for the Financial Markets (the 'Authority') warns investors against the offering of shares by Ocean International Marketing B.V., Seed International Ltd., Cupidus.com Ltd., and Cupidus.com (Turks & Caicos) Ltd. Ocean International Marketing B.V. ('Ocean'), located in Rotterdam, The Netherlands, is part of an international organisation. Ocean offers investment broking services to investors on behalf of Seed International Ltd. and Cupidus.com (Turks & Caicos) Ltd. Loan notes in Cupidus.com (Turks & Caicos) Ltd. as well as shares in Optidisc, CD Fender, and the 'wine program' of Seed International Ltd. are being offered by Ocean. Lacking the required licence, Ocean is in breach of the statutory requirements with regard to investment broking services. Seed International Ltd, Cupidus.com (Turks & Caicos) Ltd. and Cupidus.com Ltd. offer shares without satisfying the statutory requirements regarding prospectus. Firms mentioned above are in breach of the 'Act on the Supervision of the Securities Trade 1995' (the 'Act') (Wet toezicht effectenverkeer 1995 / Wte 1995). The Authority supervises compliance with the Act. With a view to investor protection, the Authority issues this public warning and advises investors against conducting business with these firms. Additional information with regards to the regularity of any transaction proposed can be found on the 'warning list' on this website, or through direct contact with the Financial Markets Supervision Information Line at +31 900 5400 540 (0.35 Euros per call will be charged). The register of licensed institutions (the 'Wte Register') is available on our website under Public database. The warning raises the question whether all the agreements negotiated with investors by Ocean International on behalf of Seed International and the associated companies are now null and void. investdrinks understands that there is some Dutch case law that supports the view that the failure to have the requisite licence invalidates the agreements.' This afternoon Seed International issued the following statement: 'Seed International Limited became aware yesterday of a statement made by the Dutch financial markets authorities in respect of the business of Seed and the activities of its marketing agent, Ocean International Marketing BV. Seed has been advised by its Dutch legal advisors, Simmons & Simmons Trenite, that the statement is an opinion issued in the discretion of the authorities and does NOT constitute a formal decision or order by such authorities. Neither Seed nor Ocean have been contacted by the Dutch FMA or afforded the opportunity to present any case or even supply any information to the authorities. This is so even though Ocean through its lawyers, AKD Prinsen Van Wijmen, had requested the opportunity to do so. It goes without saying that Seed will comply with Dutch law if and where Dutch law applies to its business. It remains Seed's view that the sale of wine under the wine program agreement does NOT constitute the sale of a security in ANY relevant jurisdiction. Seed will be taking appropriate steps to respond to the statement by the Dutch authorities.' Seed's statement also accuses a Dutch lawyer, involved in contractual litigation against the company, of influencing the authorities. Although the move by the Netherlands Authority for the Financial Markets move is welcome, there will doubtless be a number of Ocean-Seed investors who will wish that the Dutch authorities had issued such a warning four or five years ago. Seed's statement on raid on Ocean's offices: 'Seed International Limited were notified last Friday January 17th 2002 by their marketing agent Ocean International Limited that the offices of Ocean in Rotterdam had been visited by police acting on an anonymous phone call which alleged amongst other things that Ocean were vacating their premises, and that on the strength of this phone call a warrant had been issued to prevent this from happening. Despite realising that this tip off was factually incorrect, police removed documents, computer data and even the personal photographs and effects of some employees allegedly 'pending further investigation'. Much of this equipment was later returned and Ocean was able to resume normal working conditions by Monday afternoon. Seed are aware that it is Oceans belief that the malicious phone call was made by a former disgruntled employee who was recently made redundant in the winding down process at Ocean following the termination of their contract by Seed which was delivered in October 2002. Seed understand that Ocean have appointed criminal lawyers in connection with this matter.' The en primeur puzzle and a large parcel of Pétrus investdrinks now has further examples of the 1999 en primeur trades that Seed International has so far been unable to explain as well as a certificate for a remarkably large and expensive parcel of Château Pétrus 1997. Buying top wines en primeur can often be the way of obtaining these wines at the best price ie at their initial price. For Bordeaux the en primeur sales campaign starts in the April following the vintage. Taking the 1999 vintage this would have been from April 2000. The world's fine wine brokers/merchants and the wine press, including Robert Parker and other luminaries, visit Bordeaux at the end of March and early April to taste and judge the young wines. In April 2000 they would have been tasting the 1999s as barrel samples. At this stage they are far from finished wines - they have been only been in barrel a few months, the final blend will not have been decided and they probably won't be bottled until the summer of 2001. Nevertheless initial judgements are made and wine brokers and merchants around the world make their selection and Robert Parker and others publish their verdicts on the vintage and the wines. From April until early June the top châteaux gradually reveal their prices. The First Growths (Lafite, Latour, Margaux etc.) are always the last. All top Bordeaux wines are sold through the Bordeaux négociants (merchants). It is they who offer the wine to merchants around the world. Remarkably Ocean, on behalf of Churchill Associates Ltd, started offering 1999 1st Growth and 2nd Growth En primeur from early summer 1999. The earliest example investdrinks has is a 2nd Growth En Primeur certificate from 5th May 1999. At this stage the vines haven't even flowered and it is four to five months before the grapes are picked. Despite this, the option was sold on 2nd June 1999; the deposit having risen in value from $30,000 to $42,000 in less than a month. Goodness knows how the value was decided as this was entirely an internal market devised by Churchill Associates Ltd for its investors. To the best of my knowledge no other option/ futures trading system exists for en primeur Bordeaux. In any case the wine trade's enthusiasm for en primeur from the 1998 vintage and 1999 vintages was depressed because of the Bordeaux châteaux.'s foolish mistake in over-pricing the pleasant but not great 1997s. Did Seed rely on a consultant to fix the price of this as yet imaginary wine? Or were the prices and profit just invented by the sales team at Ocean? Or perhaps Seed hired Nostradamus or Mystic Meg or just looked at patterns on the moon or tea leaves? The Pétrus parcel Château Pétrus in Pomerol (Bordeaux) is one of the most expensive and collected wines in the world. The property's 28 hectares produces around 5,000 cases (60,000 bottles) a year. Pétrus is much smaller than the top châteaux in the Médoc - Lafite has 225 acres and Margaux 209. It is very rare, therefore, to come across large parcels of Pétrus. Farr Vintners, one of the largest fine wine brokers in the World currently has, excluding a few magnums and double magnums, just 9 cases and three bottles in total for sale from various vintages ranging from 2001 to 1970. From wine-searcher.com only four wine merchants around the world are now offering Pétrus 1997. Paul Marus, director of wine broking services for Corney & Barrow who are the UK agents for Pétrus, told investdrinks that such a large parcel of Pétrus was unlikely but not impossible to put together, although it would require a lot of work assembling it from various sources. Despite its rarity Churchill Associates were able to offer 824 bottles of Pétrus 1997 to a client in late September 1999. It must have been a remarkable coup to assemble such a large parcel of 68 cases and 8 bottles. The eight bottles are curious as the wine was then ex-cellars (in-bond) and would normally be in cases of six or 12. At the equivalent of $7,281.60 per case (£5021.79 @ $1.45 to £1) Pétrus was no investment bargain. In September 1999 Farr Vintners were offering four cases and 6 bottles of Pétrus at £3,500 ($5,075) a case - approximately 30% cheaper. Perhaps Seed's price was a fair reflection of the work that presumably must have gone into assembling such an enormous parcel. Ocean's contract extended until March investdrinks understands from Seed that they 'extended the contract with Ocean for a further 60 days primarily at the request of AoW since their new offers to Seed's clients were taking longer to put together than originally anticipated. Christmas with its extended break got in the way too. Ocean, however, now operate with a small skeleton staff simply administering the transfers over to AoW.' List of attorneys supplied by the U.S. & Foreign Commercial Service Seed investors may wish to note that Trenite van Doorne is acting for Seed and Nauta Dutilh has acted for AoW or Paradigm. Nauta Dutilh also acted on behalf of a Seed investor in the past. Seed International Ltd I have now received the clarifications I asked Seed International to provide following their letter of 29.11.02. Extracts are posted below, while parts are omitted pending further clarification. Although Seed International explained how the 1999 en primeur 1st Growth lot came to be on the system and so could be offered to clients, no explanation has been given as to what this wine was and how it made a profit. I have not declined to meet Paul Freeman rather I am keen to do so. It is just a matter of finding a practical date. Response to questions by Mr Jim Budd for publication on investdrinks.org website 16 January 2002 (Assumed to be 16.1.03) Dear Mr Budd We have received your list of questions dated 1 December 2002 and your supplemental question dated 16 December 2002 and respond as follows: Your questions dated 1 December 2002: In d) did clients of Seed purchase Bordeaux in accordance with the 'Churchill Associates Limited Agency Agreement between Churchill and the Members' or through the 'Wine Program Agreement' drawn up by Seed International Ltd or was it through another agreement and, if so, what was this agreement and when did it come into force? 1. Clients of Seed entered into contracts to acquire Bordeaux wine in accordance with the Limited Agency Agreement and Members Agreement incorporating the Terms of Purchase. Clients of Seed have entered into contracts to acquire multi-vintages of Italian wines in accordance with the Wine Program Agreement. The latter agreement was implemented from approximately September 2001 and superseded all prior agreements. In f) Seed's only shareholding is listed as 5% in The Wine Corporation. Has Seed International (formerly Churchill Ltd) ever held shares in the other companies cited in the paragraph? If so when did Seed dispose of them and to whom? It is also stated that Seed's only business is the selling of wine. Has Seed (formerly Churchill) ever been involved in other businesses and, if so, what were these businesses and when was Seed involved in them? 2. Seed International Limited was formerly called Churchill Associates Limited (not Churchill Limited). a. Seed has never held shares in the other companies referred to in paragraph (f) of statements dated 29 November 2002. As previously stated, Seed itself has invested in these companies. Such investments have taken the form of loan finance which either ranks alongside or is subordinate to investments made by any clients of Seed who have invested in these companies. It should be noted that all investments (properly described as "investments" as opposed to purchases of wine) which have been made by clients of Seed in these other companies, have been effected pursuant to formal private placement documents and comprehensive information memoranda. b. Seed's business is indeed the selling of wine. When Seed was originally incorporated it did explore the possibility of selling antiques, art and other collectibles but this line of business was not fully developed and instead it concentrated on the sale of Champagne and more recently wine. In i) it is stated that there is no common ownership between Seed and Ocean? Were Paul Freeman or Anil Kohli ever involved with Ocean International Marketing (formerly Heros Global Marketing Services B.V.)? 3. It is correct that Seed and Ocean are separately owned companies. Paul Freeman and Anil Kohli did assist with the setting up of Ocean (then called Heros Global Marketing Services BV) and sometime ago did render certain consultancy services to that company. Does the termination of the Marketing Agreement with Ocean on 10 January 2003 include Ocean in South Africa or just Ocean in Rotterdam? 4. Given the developments with Architects of Wine Limited, Ocean in South Africa ceased operating in August 2002 and is presently in the process of being closed down. 5. (May be posted later.) I understand that the total cost (including unpaid balances) of the Bordeaux contracts held by Seed International investors was in the region of $500 - $600 million. It is apparent that the wine held by Fine Wines of Mayfair Ltd plus the physical wine bought and the fixed term options agreed with Bordeaux Index Ltd only covered a small fraction of this sum. A number of Seed's clients were told by Ocean-Seed that some of their wine positions had been traded profitably. I would be grateful if your client would explain how the entirety their Bordeaux wine trades had a legal basis. As Seed are not wine experts who ensured that no parcel or lot was traded at a percentage gain that was not sustainable from the wine position? (Supplementary question of 16.12.02) 6. We have pointed out previously that Seed does not need to own a particular parcel of wine in order to enter into an agreement to sell it at a future date. In every instance delivery of a parcel of wine would not fall due until after the full purchase price had been paid. Lastly, we confirm that we have made several requests for a face-to-face meeting with you over the past few weeks but that you have declined such a meeting at this time. SEED INTERNATIONAL LIMITED Continued correspondence with David Wilcock This has continued and the new letters have been added to last week's posting. It can be read by clicking here. A question for AoW? Seed clients considering the offer from AoW may want to ask whether the AoW/Paradigm/Orchestra International Ltd has sufficient capital to carry through its plans. The wine-making business is Italy, southern France and Slovenia is expanding fast, the negotiations with Seed International were costly in lawyers' fees etc., and it will take considerable capital to both establish a distribution network in the US as well as revive and reactivate the Wine Corporation in the UK during the second half of 2003. Is there a danger of them becoming over-stretched? AoW acquires The Wine Corporation AoW has now taken over The Wine Corporation, the mail order company supported initially by Seed International and then by Worldwide Wine Ltd. This is part of the deal signed between Seed and AoW on 10th October 2002. Mike King has been appointed company secretary and Bob Middlemiss director, the previous directors and company secretary have resigned. investdrinks understands from Mike King that about 500 contracts have now gone out from AoW to investors and that the remaining 1,600 or so should go out in the next six to eight weeks. To Christmas about 65 investors had accepted AoW's offer. Correspondence with David Wilcock, vice-president of Seed International Following Seed International's welcome invitation to investdrinks to ask questions, David Wilcock sent me a letter on 20th December 2002, which has sparked a correspondence. This can be read by clicking |