The fall of the prestigious New York wine shop has echoes of the collapse of the Berkeley firm Premier Cru.
The US Postal Inspection Service went out of its way last week to take credit for the New York wine shop Sherry-Lehmann being raided by authorities. That’s both amusing and very bad news for Sherry-Lehmann’s owners.
There is recent precedent for USPIS being involved in the investigation and prosecution of a wine store owner. And it did not go well for him.
If you haven’t followed the downfall of one of the most famous wine shops in the US, which was founded in 1934, pioneered wine futures sales in the 1950s, and was the store of choice for the Manhattan glitterati for decades, here’s a quick summary of where we are:
* Sherry-Lehmann’s New York liquor license expired earlier this year because the store owed the state $2.8 million in sales tax, according to the New York Times. The state ordered the store closed in March and it has not reopened. The website has gone dark. Wine Spectator reported Sherry-Lehmann also owed its landlords $3.6 million in back rent.
* The Times reported in June that the US Department of Justice convened a federal grand jury as part of a criminal investigation into the store. Both the Times and New York Post have reported that the investigation is focused, at least in part, on store owners Shyda Gilmer and Kris Green.
* Sherry-Lehmann has been sued by two doctors over Bordeaux wines they paid for and never received; they told the court those wines are worth more than $800,000.
* In June, Sherry-Lehmann lost a summary judgment in a different lawsuit for $251,000 to a Bordeaux firm that never received cases of Domaine de la Romanée-Conti wine it ordered. In the complaint, the firm (KAL Wine Source) alleged there is evidence of “passing of bad checks” and “common law fraud”.
* Last week, FBI agents along with NYPD officers raided Sherry-Lehmann’s closed store on Park Avenue.
* But more ominously, the FBI simultaneously – along with the USPIS, let’s give them credit – raided an office building in Pearl River, NY, 25 miles north of the city. The NY Post reported that 20 agents arrived at 5:30am with a warrant and a truck. They set up a tent outside the building and stayed until the next day, hauling boxes out of the building.
Nothing found in the store itself likely puts the owners in more legal jeopardy than that office-park raid. Here’s why.
Sherry-Lehmann has an associated business called Wine Caves, which stored wines for customers as well as for the store. For years these wines were stored in a warehouse in Queens. During the store’s heyday, vans made multiple trips a day between the two locations, ferrying wine back and forth.
But in August of 2022, Wine Caves abandoned the Queens warehouse; former employees told the New York Post it was evicted for non-payment of rent. The wines had to go somewhere. The Post reported that that new location was a basement computer server room – air-conditioned at least – in the nondescript Blue Hill Plaza office park in Pearl River. That office park is owned by Glorious Sun, the same Hong Kong-based company as Sherry-Lehmann’s Park Avenue building. It does make you wonder why Glorious Sun would want Sherry-Lehmann’s owners as a renter in more than one location, but maybe they just had a storage room available when Wine Caves needed it.
A problem is, that’s illegal. It’s not the biggest problem, but it’s a problem. New York licenses individual warehouses to store alcohol and that license is not automatically transferred to a new address.
There’s also a problem in that the New York Times reported that Sherry-Lehmann was selling wines while its state license was suspended.
The big deal
But the biggest problem is this: in May, the New York Times reported that four former employees said they believe Sherry-Lehmann was selling rare bottles owned by customers and stored in Wine Caves to other customers.
That is reminiscent of the downfall of the Berkeley wine shop Premier Cru. In 2016, Premier Cru owner John Fox pled guilty to one count of wire fraud. Fox admitted that he ran a Ponzi scheme out of his store, selling wines he didn’t actually have.
Fox had a lot in his favor at his sentencing. He pled guilty, explained the whole scheme and shared his falsified business records. He also helped the FBI by taping conversations with a prostitute who was blackmailing him for $10,000 a month. She was sentenced to a month in prison; Fox earned a lighter sentence for his cooperation.
That “lighter sentence” turned out to be 78 months in prison and $45 million in restitution. Fox is out of prison now, but he will be paying off that restitution every month for the rest of his life.
Which brings us back to why the involvement of the USPIS is ominous. What does the USPIS investigate? Mail fraud and wire fraud.
It’s amusing how much USPIS wants to take credit. The NY Post broke the story about the raid on the store. After it ran, a USPIS spokesperson reached out to the Post, in more than one story, to say that the agency is “co-lead” on the investigation. This is a huge contrast to the FBI and the current Department of Justice, which usually won’t even confirm that there is an investigation. USPIS wants us to know it’s on the job! Fear the postal inspector, they don’t mess around.
Whatever the outcome is, it’s a sad downfall for Sherry-Lehmann, which happened after Gilmer – who started as a wine salesman in 1996 – became co-owner in 2005.
In 2007, the store sold the building it had owned on Madison Avenue for 60 years and moved into the rented location with a tony Park Avenue address; the Post reported this cost nearly $2 million in annual rent. The plan was to use the money from the sale to open a Los Angeles location, Sherry-Lehmann West. But that store never got off the ground and in 2017 the company closed the LA warehouse it had been using, giving up its expansion plans.
Needing more cash, Gilmer brought in Green, a hedge-fund executive, as a co-owner in 2013. The Post reported the two are often seen dining at a pricey Japanese restaurant called Nobu, separately or together.
In 2016, JP Morgan Chase cut off Sherry-Lehmann’s $4.5 million line of credit. Inventory began to shrink. Director of operations Peter Ambrosino told the Times that this is when the complaints from customers about undelivered wines began. Ambrosino also said the store wasn’t paying wine distributors so it began to get fewer wines on the shelves. Ambrosino quit in 2018 after 15 years at the company. Yet Market Watch reported the store’s annual income that year as $42 million.
By 2020, according to the Times, that had been cut to $15 million. Sherry-Lehmann disputed that figure. Gilmer told the Times that the pandemic and former President Trump’s tariffs on wine were responsible.
One of the customers who says he got stiffed was James B. Stewart, the New York Times writer who has been covering the story. Stewart wrote that he was a longtime customer until he ordered a case of white Burgundy for $400 and multiple cases of Bordeaux for $6300 (The Times pays well), and didn’t receive them. Interestingly, he also wrote that while he was working on the story, Sherry-Lehmann offered to deliver his white Burgundy but he didn’t respond.
We’ll see what happens with the grand jury, but should the long arm of the Postal Service want to find Gilmer and Green, they know where to do so. Follow the sushi.
“A process server needed to serve notice of the judgment (in the KAL lawsuit) to Gilmer,” Wine Spectator reported. “He found him at Nobu 57.”
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