Fraud At China Organic Agriculture?

No More Grapes For You

Monday, October 31, 2011, 7:00 am
Lender puts Bellisimo Vineyard into receivership
China Organic purchased estate, vineyards in 2008 for $14.75 million

By Jeff Quackenbush, Business Journal Staff Reporter 

The 5,300-square-foot main house and guest houses have had solid bookings, according to local real estate agents. The property also has a 53-foot-long pool overlooking the vineyard.

SONOMA COUNTY — The 153-acre Bellisimo Vineyard estate Sonoma County’s Knights Valley attracted attention in early 2008 when a publicly traded Chinese agriculture company purchased it for $14.75 million more than three years ago, but it passed quietly into receivership as this harvest was about to begin.

China Organic Agriculture, Inc., based in northeast China, acquired the luxurious estate and 75 acres of vines at 8322 Franz Valley Road in February 2008, announced plans to import wine to that continent and took a majority stake in a wine marketing company in China. But on Sept. 14 of this year, an affiliate of Iowa-based insurer Transamerica, which financed $8.52 million of the purchase price, filed a notice of default, claiming $508,374 in missed monthly payments and other costs since June, according to public records. A receiver was appointed for the property on Sept. 20.

The phone number for China Organic’s Los Angeles office has been disconnected, and the company website was removed in the past month. Attempts to reach company officials by email were unsuccessful. The New York-based attorney for the company listed in the most recent federal securities regulatory filings from May and June said he is no longer representing China Organic.

The appointed receiver, St. Helena-based veteran wine industry turnaround, bankruptcy, management and marketing adviser John Hawkins, did not return calls for comment.

Default and receivership actions surprised some wine industry mergers-and-acquisitions experts who have been working with a new wave of foreign investors, including a number based in China.

“I’ve never heard of a Chinese investment company having problems in this area,” said Mario Zepponi of Zepponi & Company in Santa Rosa.

For example, Goldin Financial Holdings, a Hong Kong-based publicly traded company, purchased the 40-acre Sloan Family Winery property in Rutherford on June 10 for $40 million and announced plans to build a $30 million wine distribution center in China. Zhang’s Winery Inc. acquired the 40-plus-acre Lupine Hill Vineyard in Napa Valley in April for $3 million.

A number of well-publicized problems with the financial backing of China-based investors are giving some financiers pause. Allan Hemphill, a longtime wine industry consultant and property agent as well as current chairman of Summit State Bank, said the lending community is starting to raise the collateral requirements for foreign investors beyond just securing financing by the property itself.

“If the money is in China, you can’t get the money,” he said. “I know of some lenders that are looking at lending to Chinese companies now are looking for large compensating balances or a source income on this side of the water,” he said.

The Bellisimo Vineyard lender moved quickly to take control of the property, according to documents. In July, a letter went to China Organic about a pending default notice and accelerated loan maturity for the $7.87 million outstanding balance and pursuing receivership in a Sonoma County court a month later. On Sept. 20, a Sonoma County judge granted receivership under Mr. Hawkins. His Realty Capital Solutions advisory represented unsecured creditors in the massive Legacy Estates bankruptcy and was the receiver for Kirkland winery near Napa.

Real estate agents involved with the 2008 sale of Bellisimo Vineyard said they have talked with Mr. Hawkins about some interests from buyers for the property. He was brought in so quickly to ensure revenue from the pending harvest of 250 tons of grapes on the property, according to Will Densenberger and Mark McLaughlin of Pacific Union Real Estate — Christies’s Great Estates.

“There was substantial income ready to come in,” Mr. Densenberger said.

Over the years, the grapes have been sold to Dry Creek Vineyard, Clos Du Bois and more recently Ledson Winery and Gallo Family Vineyards. In December 2007, Steve Ledson filed to trademark the Bellisimo name and was granted registration two years later.

A class-action lawsuit against China Organic was filed in federal district court in December 2008, claiming the company’s reports and press releases misled investors about the value of ventures, including the Bellisimo acquisition. The company settled the suit a year ago for $300,000.

The company’s stock price in Pink Sheets trading late last week was 3 cents a share. The company was founded in 2005 and went public in 2007 in a reverse merger.

In July I had an email conversation with a lady called Jennifer Yang from China Organic. I asked when we could get some updates. The answer you see below.
 
Firstly, the management are negotiating with the candidates and present subsidiaries about the future cooperation possibilities and manners. As per the audit issue. I can only say sorry that we cannot control or order the auditor. We cannot make ourselves clear why on earth they refuse to sign the financials off until now. The management keep on communicating with them and their response is to wait and see. They also haven't signed off their other two companies' financials yet.

We still need your patience anyway.

Best,

Jennifer