Profiting From the Sideways Effect: The Great Pinot Noir Fraud

Profiting From the Sideways Effect: The Great Pinot Noir Fraud

The late twentieth and early twenty-first centuries have seen the nature of crime and fraud change. While in the past all one needed to engage in a spot of crime was a tommy gun, a nearby bank and a bit of courage, today criminal activity is more often than not carried out behind a computer screen. Some things never change though and garden variety fraud remains a good way to earn an illegal dollar.

The wine industry has witnessed a boom in this particular kind of activity in recent times, often focusing on selling counterfeit vintages. But some have even gone so far as to try to mass falsify the type of grape used in the wine they were selling. Such was the case with the Great Pinot Noir Fraud, which resulted in tens of millions of bottles of cheap ‘plonk’ being passed off as Pinot and those involved eventually being fined tens of thousands of euros.[1]

The Boom in Pinot Noir in the 2000s

The Great Pinot Noir Fraud occurred on the back of the boom of Pinot Noir in the 2000s. Much of this was owing to the so-called Sideways effect, the spike in Pinot Noir sales caused by the release of the 2004 film Sideways. As this occurred, Pinot sales grew in California alone by close to 20% in the second half of the 2000s. Such a boom in sales of a particular kind of wine results in increased demand on existing producers, as vineyards cannot be repurposed overnight to produce a specific variety that is in demand. As a result, distributors in the United States began looking further afield to find new sources for wine made from Pinot Noir in the mid-2000s. And in tandem, some fraudsters were happy to fill the gap in this lucrative market with fake Pinot.[2]

Rules Concerning Pinot Noir Classification

There are very specific rules concerning the branding of wine as Pinot Noir. This is a difficult grape to grow, one which only thrives in specific environments and with proper care. Owing to this, there is a tendency by some winemakers to try to pass off wine as Pinot Noir which has been bulked out by other grapes which are cheaper to produce and easier to grow.

In response to such adulteration of Pinot (and other grape varietals for that matter) in decades gone by, viticultural organizations and governments introduced specific legislation in the twentieth century which required wine to be made from a high percentage of Pinot Noir grapes in order for that wine to be legally classifiable as Pinot Noir. This ranges from 75% in California to 85% in France.[3]

Thus, anyone who produces a wine that is made from less than 85% of Pinot Noir grapes in France and still markets it as Pinot Noir is committing fraud. The attraction of doing so is that wine made from Pinot fetches a considerably higher price than most other types of wine because the grape is hard to grow and the demand for it is more substantial.

E & J Gallo Winery and Red Bicyclette

The Great Pinot Noir Fraud centered on E & J Gallo. Based in Modesto, California, Gallo is the largest family-owned winemaker in the United States and the largest exporter of California wine. It was founded in 1933, by the Gallo brothers, Ernest and Julio, having made their initial fortune off of circumventing the Prohibition laws concerning the manufacturing of wine in a person’s home.

From the very start, the Gallo brothers focused on mass wine production, learning their craft from pamphlets they acquired from Modesto Public Library and producing 177,000 gallons of wine in their first year of business using an old tractor that was in almost constant use. The company expanded enormously over the years and by the 1990s had become the largest producer and wholesaler in the US, controlling upwards of 25% of the market.[4]

Much of Gallo’s business has focused on acquiring wine from other producers, both in California and abroad and re-selling it within the American wine market. One such wine brand which became central to the Great Pinot Noir Fraud was Red Bicyclette, a wine produced by the Sieur d’Arques co-operative in France. Red Bicyclette, which produces numerous different types of wines from different varietals, including Merlot, Chardonnay, Syrah and, of course, Pinot Noir, carries a distinctive label of a Frenchman riding a red bicycle, wearing a beret and carrying baguettes in the front basket of his bike. It would soon become well-known for all the wrong reasons.[5]

Ducasse Wine Merchants and the Fraud

Beginning in 2006 a company called Ducasse Wine Merchants, was responsible for providing Red Bicyclette’s parent company, Sieur d’Arques, with the wine which Sieur d’Arques then used to fulfill orders of Red Bicyclette to Gallo for wholesale in the United States, began fraudulently fulfilling orders for Pinot Noir wines. The fraud centered on selling wine as allegedly being Pinot Noir produced in the Languedoc-Roussillon region of southern France, just north of the Pyrenees, but in reality, the wine being sold only contained a small amount of Pinot and was largely bulked out with cheaper wine made from Merlot and Syrah.

Ducasse provided this fake Pinot Noir for a number of huge bulk orders which they received from Sieur d’Arques in 2006, 2007, and 2008. They obtained the wine from a number of wine co-operatives in southern France. It was then subsequently sold by Sieur d’Arques to Gallo and marketed as Pinot Noir under the Red Bicyclette label. Tens of millions of bottles of fake Pinot Noir were sold in this way. Gallo was the primary victim of the fraud, though others such as Constellation Brands were also targeted.[6]

Discovery and Investigation

Ducasse’s deception went unnoticed for quite some time. It was only in 2009 when the company was audited that the fraud came to light. Suspicions, quite logically, arose when individuals viewing the company’s records observed that the amount of Pinot Noir wine that Ducasse had sold from the Languedoc-Roussillon region between 2006 and 2008 exceeded the entire amount of Pinot Noir produced in this wine-producing district.

Further investigations followed, in the course of which it was determined that Ducasse had fulfilled one particular order for 18 million bottles of Pinot Noir. The company had miraculously been buying this alleged Pinot Noir for less than half of the market rate, indicating that it clearly couldn’t be Pinot that was being purchased. Instead, it was discovered to primarily have been cheaper varietals which the company then sold as more expensive Pinot, netting over seven million euros in profits in the process. Charges were soon being filed against Ducasse for having violated France’s strict laws on wine labeling.[7]

Court Rulings and Fines

The case of the Great Pinot Noir Fraud came to trial in Carcassonne in southern France in 2009. Here, in one of France’s most historically significant walled towns in the heart of Gallic wine country, the reputation of French wine was to be deliberated upon. In the end, there was little to be revealed that hadn’t already been uncovered in the initial investigation. It was clear that the fraud had in fact been carried out and that the parties were guilty.

Twelve individuals were found guilty of wine fraud, chief amongst them Claude Courset, the head of Ducasse wines. One to six-month jail sentences were imposed, though these were all suspended and instead significant fines were the primary punishment. These ranged from €3,000 to €180,000 for Courset, but perhaps the worst punishment was in the enormous amount of press interest that the case generated and the naming and shaming of those involved when sentences were handed down on the 17th of February 2010.

Gallo were found to be innocent of any crime, though the fact that such a marquee wine producer and international distributor had been duped in this way caused considerable reputational damage.[8]

Conclusion

The Great Pinot Noir Fraud remains one of the largest wine frauds in history. While the last century has seen numerous individual fraudsters sell fake vintage wine to major collectors, few have attempted to mass falsify the type of varietal they were selling on the international market. The fines imposed and the fact that consideration was given to imposing custodial jail sentences is indicative of exactly how serious the matter was treated in France and the reputational damage which the affair caused to the French wine industry. But one thing is for sure – this won’t be the last time such fraud occurs.[9]

On this Day

13 September 2004 – On this day in 2004 the film Sideways had its international premiere at the Toronto International Film Festival. The film tells the story of Miles and Jack, two old friends on a trip through wine country in California. Much of the film revolves around Miles, a wine connoisseur, educating his erstwhile companion, who is clueless about the merits and demerits of wine, famously chewing gum at one tasting, and trying to educate Jack on viticulture. In the course of this Miles expounds on his affection for wines made from Pinot Noir. The film had a major impact on the global wine market following its release, with sales of Pinot Noir in the western United States expanding by 16% in the second half of the 2000s. This is the Sideways effect. The countervailing result of all of this was that sales of Merlot, a grape varietal which is vehemently critiqued by Miles, fell by approximately 20% in the western United States in the second half of the 2000s, costing winemakers nearly half a billion dollars in revenue.[11]

17 February 2010 – On in this day in 2010 a judge in the city of Carcassonne in southern France ruled on the great Pinot Noir fraud case which had rocked the French and California wine industries in the late 2000s. The case centered on Ducasse Wine Merchants, a French wine distributor, having fraudulently sold tens of millions of bottles of cheap French wine falsely labelled as more expensive Pinot Noir to E & J Gallo in the United States in the second half of the 2000s. In the court ruling, twelve individuals were found guilty of wine fraud, chief amongst them Claude Courset, the head of Ducasse wines. Jail sentences of between one and six months were imposed on the guilty parties, though these were all suspended and the primary punishment consisted of fines of between €3,000 and €180,000. The Gallo winery was found to be innocent of any crime, though the fact that such an enormous wine producer and international wine distributor had been duped in this way caused considerable reputational damage to their brand.[12]

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References:

[1] Lana Bartolot, ‘Beyond High-Profile Scandals, Wine Fraud is Rampant’, SevenFiftyDaily, 15 February 2021.

[2] Steven S. Cuellar ‘The Sideways Effect: A test for changes in the demand for Merlot and Pinot Noir wines’, Wines and Vines, January 2009.

[3] https://cellarangels.com/9-things-that-must-be-listed-on-wine-labels-according-to-law/ [accessed 29/3/23].

[4] ‘Gallo’, in Jancis Robinson, The Oxford Companion to Wine (Third Edition, Oxford, 2006); Ellen Hawkes, Blood and Wine: The Unauthorized Story of the Gallo Wine Empire (New York, 1993).

[5] https://www.wine.com/list/wine/red-bicyclette/7155-5569#promoBarModal [accessed 29/3/23].

[6] Diane Macle and Tim Fish, ‘Red Bicyclette Suppliers Convicted’, Wine Spectator, 17 February 2010.

[7] Maggie Rosen, ‘Charges Brought in Pinot Noir-Red Bicyclette Scandal’, Decanter, 3 February 2010.

[8] Diane Macle and Tim Fish, ‘Red Bicyclette Suppliers Convicted’, Wine Spectator, 17 February 2010; Suzanne Mustacich, ‘Gallo suppliers made millions in Pinot Noir scam’, The Examiner, 19 February 2010.

[9] Lana Bartolot, ‘Beyond High-Profile Scandals, Wine Fraud is Rampant’, SevenFiftyDaily, 15 February 2021.

[10] Steven S. Cuellar ‘The Sideways Effect: A test for changes in the demand for Merlot and Pinot Noir wines’, Wines and Vines, January 2009; Avijah Scarborough, ‘How the “Sideways Effect” Helped Shape the Wine Industry’, SpectrumNews, 29 November 2019; John Harlow, ‘Oscar winner knocks sales of Merlot wine sideways’, The Sunday Times, 6 March 2006.

[11] Steven S. Cuellar ‘The Sideways Effect: A test for changes in the demand for Merlot and Pinot Noir wines’, Wines and Vines, January 2009; Avijah Scarborough, ‘How the “Sideways Effect” Helped Shape the Wine Industry’, SpectrumNews, 29 November 2019.

[12] Diane Macle and Tim Fish, ‘Red Bicyclette Suppliers Convicted’, Wine Spectator, 17 February 2010; Suzanne Mustacich, ‘Gallo suppliers made millions in Pinot Noir scam’, The Examiner, 19 February 2010.