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State Near Bottom of Barrel of Wine Grape Scandal : Fraud: Wineries that unwittingly bought overpriced grapes simply used them to make overpriced wine. New safeguards are now in place.


SACRAMENTO — Nobody was killed, unlike in the great Italian wine scandal of 1986, when vintners used methanol to boost sugar levels and sent two dozen wine drinkers to early graves. Now that was serious.

But by California's priggish wine standards, the scandal that is drawing to a close here in Federal Court--a series of sneaky crimes whereby cheap, characterless grapes were passed off as pricey zinfandel, chardonnay or cabernet--was the biggest in modern times.

Consumers paid some $55 million for wine that was not as advertised, five men went to jail and the president of the nation's fifth-largest winery has just pleaded guilty to a charge of conspiracy in the largest and most complex of five criminal cases arising from the schemes.

The cases showed a raw side of what is described as a generally friendly, handshake-based industry--the bargain-basement part of the wine world where a few bottom fishers care less about what is in the bottle than how much shelf space they get in the supermarket.

Very few people were directly damaged by the fraud, and even the murder of a witness in one of the cases turned out to be unrelated. And while a handful of wine outlaws collected millions of dollars they weren't entitled to, the wineries that unwittingly bought the overpriced grapes simply used them to make overpriced wine.

That left the consumer holding the bottles--in most cases a $5 bottle of bogus white zinfandel, a sweet pink wine much derided by connoisseurs. But in wine circles they say that "white zin" would taste the same whether it was made with zinfandel grapes or, say, barbera, a kind of grape blended with others to make generic jug wines.

Still, the very integrity of California's $20-billion wine industry was at stake. "Some people snicker at these cases," says one federal investigator, accustomed to arresting gun-runners, drug traffickers and other hard-core sorts. "But you've got to have standards in any industry."

The criminal investigation that began in 1988 is now complete, and authorities, growers and vintners say that it triggered new industry-funded safeguards that have all but halted the practice of misrepresenting grapes and wine. But the matter has not quite been put to rest.

Still to be decided is the penalty to be handed down against the man whom the government portrays as the chief figure in the biggest and most sophisticated of four criminal ventures unmasked in the scandal: Fred T. Franzia, co-founder and president of Bronco Wine Co., the nation's fifth largest winery.

Franzia's indictment by a federal grand jury in Sacramento in December marked the end--and arguably the high point--of the five-year investigation of fraud in California's wine industry.

(Fred Franzia and Bronco are unaffiliated with Franzia Brothers Winery in Ripon, Calif., which sells Franzia-label wines. Bronco, its name is derived from "brothers and cousin," is owned by Fred Franzia, his brother, Joseph, and their cousin, John Jr.).

Franzia, 50, a nephew of industry statesman Ernest Gallo, is a director and former chairman of the influential Wine Institute--trade association representing 80% of the wine produced in California--and a highly successful businessman who built Bronco Wine from scratch.

Franzia declined to be interviewed. He has a reputation as a bull in the wine shoppe--widely described by acquaintances as smart but boastful, arrogant and brash, ready to intimidate employees, squeeze growers and fight battles in court. By all accounts he runs the company single-handedly.

"Employees and others with whom Franzia deals are afraid of him," says Assistant U.S. Attorney R. Steven Lapham, who prosecuted all the wine cases. "I'm not sure what it is, if it's his manner or the economic power he holds."

Bronco's license was suspended briefly by state agriculture officials in 1985, a rare action, after complaints by an unprecedented number of growers.

The company was found to have repeatedly used improper tactics to lower the prices it paid growers for their grapes, typically by refusing to take deliveries until the grape quality had deteriorated. In the words of one hearing officer, Bronco's actions were "reprehensible."

Now Franzia has struck a deal with federal prosecutors to avoid a prison term in favor of a $3-million fine--much of which, the government admits, is payable from ill-gotten gains. If this plea bargain is accepted by the judge, Franzia will be the only one of six defendants identified as major conspirators in the series of wine frauds to avoid incarceration.

Franzia pleaded guilty Jan. 19 in Sacramento federal court under an agreement that reduces his role at Bronco to chief financial officer for five years, requires 500 hours of community service and imposes fines of $500,000 and $2.5 million on him and his company.

"He's bought his way out," says Jack L. Hart, a longtime wine industry lender as a Fresno-based Bank of America vice president. "That's what is so upsetting,"

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