Heritage Fine Wine was Australia's largest speculative wine investment operation and went belly-up in spectacular fashion last year, burning investors in the process. Recently I was lucky enough to come across one of their investors who was prepared to bare his soul and provide all the gory details of his unfortunate experience. Whilst this is a true-life real story, his name has been changed as he doesn't wish to be identified, and as I have a warped sense of humour, we will call him Maxwell Smart.

Max lives in Adelaide, is 47 years old, works for the State government, is married, and has been into wine since he was 18 when he first went visiting cellar doors, as a super cost-effective way of getting plastered, but he found that he really liked red wine and has now paid the wineries back for his “free drinks” many times over. He maintains a cellar of between 700 and 800 bottles and is smart enough to have some Grange that was purchased for about $20 a bottle, back in the dim dark days when it was only a little more expensive than most other premium wines, but in reality, Max has only being seriously collecting for about the last five years. When I asked Max the value of his cellar, he was a little coy, not because he was embarrassed by the value, but his wife was within hearing range, and he is in enough trouble already over their Heritage fiasco, and that was without his wife knowing the gory details of the cellar value.

Living in Adelaide, Max is in the centre of wine heaven, and due to his affiliations has access to some excellent wine bargains. In fact, when I asked Max about his normal wine buying habits, the first thing he responded with was, "I look for a bargain." Max is a member of a number of different tasting groups that meet regularly and club together to purchase wine and get large-deal discounts. He is also very friendly with some incredibly knowledgeable wine people, both private individuals and people who work in the wine business, so he has access to excellent information. From this picture, we can glean that Max has a reasonable level of wine experience and that he is no fool. This will be further reinforced as the story unfolds, so it will be interesting to follow his journey and see how he wound up investing and losing money with Heritage.

It all started a few years ago with an advert in the paper. Max sent an e-mail in response asking for details. A representative of the company, Joe Baker, apparently one of the big guns, rang Max with the heavy sell and was the consummate salesman. Although Max has been pressured, he didn't rush in, doing his research and homework. The first wine he was offered that seriously interested him was the Balnaves 1999 Cabernet Sauvignon at $32 a bottle, and that price included two years storage.

He checked the cellar door price and found that it sold for not much less than that at the winery, and as the 1999 vintage had been superseded with the release of the 2000, it was selling in the bottle shops for around $32 at the time. The Balnaves offer seemed attractive; Max was well acquainted with the winery, having drunk many vintages of their wines. He was aware that the winery had an excellent reputation, had won numerous awards for its wines, and their winemaker had won the Gourmet Traveller winemaker of the year. He also checked with some of his knowledgeable wine friends and asked for their advice about the deal. At the time, there was also some positive press in the Weekend Australian which further helped Max make up his mind.

Max's first purchase was 150 bottles of the Balnaves and considering the cost included two years storage; it was not over the top. The plan was that at the expiration of two years, Heritage would ship the wine to the US and sell it there for a handsome profit. (Perhaps this was a flaw in his research; the US buys mainly Shiraz form Australia in that price range.) Given the positive feedback about the wine and the winery, he thought it was a pretty good risk and whilst there was always a niggling doubt at the back of his mind, Max wasn't worried because if the worst came as to the worst, he could always drink it and share the wine with friends. He said “The bottom line is that I knew there was a risk, but you have to be prepared to take a risk if you are after an investment gain.”

Max's intention was to let the Balnaves deal run for the two years, liquidate his holding, and see if the deal was all it was cracked up to be before investing any more money.

After the first deal had been made, the pressure from Heritage intensified and they pestered him non-stop. Max finally explained that he was not a big investor with loads of spare money lying around, and the pressure reduced, but didn't go away completely.

At the time, they were all sorts of big names being bandied about by Heritage. They had got some of the industry's most respected winemakers like Rolf Binder (Veritas) and Kevin Mitchell (Kilikanoon) making wines for them.

Heritage kept in contact with Max and maintained the pressure, offering him many deals via e-mail (and phone) and whilst he did look at a number of them, none of them seemed particularly attractive. Finally, Heritage presenting him with another “wonderful opportunity,” a big name was involved; the big name was none other than Troy Kalleske. Kalleske wines shot to prominence with the release of their 2002 vintage and some excellent press from Robert Parker. This Shiraz, which was released in Australia for around $35, was selling in the US for the equivalent of about three times that price.

Once again, Max did his homework and spoke to his knowledgeable wine-loving mates. The information confirmed that Kalleske was an “emerging name” and his wines had already gained an excellent reputation. His Johann Georg was selling for $100 in Australia and flying off the shelves; the secondary market was already clamouring for it. Max decided to put his trust in the producer and purchased 150 bottles of Kalleske 2004 (Langhorne Creek) Mouthpiece Shiraz (en primeur) for $30 a bottle, which also included two years storage. This purchase was made about 12 months ago, just prior to Heritage going belly-up, and that really complicated and messed up the deal. More about that later.

Max had a theoretical 300 bottles of wine worth $9,300 when Heritage went into liquidation. Needless to say, when he heard the news his heart sunk. To make matters worse, he copped a lot of flak from his wife because she didn't want him to go into it in the first place and whilst Max knew it was a risk, he deemed it should be a low-risk situation. Low-risk it may have been, but it was an expensive mistake. The $9,300 “investment” suddenly grew more expensive.

When Crouch, the liquidator took over, things were an unholy mess. The investors had been told that all the wine was stored in one warehouse; that that was not the case, it had been stored in multiple warehouses and Heritage's record-keeping was a disgrace.

Rational people would think that once you have paid for the wine, including two years storage, in a situation like this, all you would have to do would be to go and collect your stock; unfortunately nothing could be further from the truth. Not all the wine was there; not all the wineries had been paid for the goods they provided (one winery I know was owed $50,000) and whilst the investors had paid for two years storage upfront, Heritage had not paid that money to the storage company. Finally, the liquidator's fees had to be paid as well.

The situation meant a levy had to be imposed to cover the expenses, in Max's case, the storage of the wine as well as the picking, packing, insurance and delivery cost him a further $1451.08 but unfortunately the pain did not end there. Whilst Max received his full 150 bottles of Balnaves, they could only find 87 bottles of his Mouthpiece Shiraz. As a result, the Balnaves wound up costing him $38.12 a bottle whilst his Mouthpiece Shiraz cost $57.84 a bottle.

When the “Kalleske” was delivered, the wine had not been labelled, rendering it a clean skin and to further confuse the issue, the pallet tag had a job number and “Blue Horizon Wines,” whoever they are. According to what Max was told, the grapes actually came from Kalleske, hence the use of his name, but the wine was not made by Kalleske. Needless to say Max was not impressed that he had paid $30 for a clean skin and the deal was misrepresented, as Troy Kalleske was not the winemaker. As a side issue, I was reasonably sure Troy Kalleske didn't own any vineyards in Langhorne Creek, so what his association with this wine is was a complete mystery, so I rang him.

What a coincidence! When I first met Troy in May 2004, in my Tour Diary I wrote, “We walked into the winery as Troy was working on a 2004 Langhorne Creek wine and it smelt fantastic. This was not a smell to die for; it was a smell to live for, the open top fermenter bubbling away with a collage of wonderful wafting wine scents.”

The wine, a Langhorne Creek Shiraz was made by Troy for a second party who owned the grapes. Troy had little to do with the wine, the grapes arrived at the winery; Troy crushed and fermented it and made the necessary adjustments. As it was a small, single batch, there was not even any blending involved. The wine was sold by the second party to a third party who then on-sold it to Heritage, and they in turn sold it to investors as the Kalleske Langhorne Creek Shiraz, which is something Troy was not happy about as Heritage did not have permission to use his name.

As soon as the wine was finally delivered, Max cracked a bottle of the 2004 Mouthpiece Shiraz and whilst it's quite drinkable, if it was labelled, Max thought it would be about an eighteen dollar bottle of wine. As a clean skin, it's about an eight dollar bottle of wine. Bear in mind, this clean skin Shiraz wound up costing him $57.84 for a bottle.

If you think Max got burnt, he got away reasonably lightly in comparison to many others. The liquidator provided a list to all investors with the names of the creditors, and according to Max, there were many superannuation trusts as well as well-known identities, some of which who had invested large amounts. The former New South Wales Premier, Nick Greiner was apparently one of them and was sitting as an adviser to the investors, encouraging them not to sell, as they were afraid if all the wine hit the market at once, it would flood the market and destroy the potential return. Sometime ago I saw a list of over 30,000 bottles that had been circulated asking for tenders to be submitted, and this represented only a small component of the total Heritage fiasco.

Needless to say, Max would like to see the Directors of Heritage brought to account, either by way of a class action, by ASIC for breaches of the Companies act, or by the police with criminal charges.

So where does this leave Max? Max thinks he will be able to unload about twenty percent of the total quantity to friends, but this will still leave him with a hundred and twenty bottles of Balnaves and seventy bottles of the clean skin Shiraz. The clean skin is not worth selling at auction, but some of the Balnaves may wind up there; otherwise at twenty four bottles of wine a year, it will take five years to go through the lot. At least that is something to look forward to; that and his wife’s continuing wrath, and her eagle eye on his credit card statement to make sure he is not spending too much on wine; something that Max feels is a great shame as there are some great bargains out there at auction now. The irony is the great auction deals may be around for sometime as investors unload excess inventory.

At least Maxwell Smart was careful enough to weigh up the risks, only dip his toes into the water, did not get burnt that badly and has some good wine to drink; he is luckier than a lot of others.