Free booze to big-name establishments draws record fine
What if when you placed an order for your business, you got a little something extra? Maybe a lot of something extra? For free. Like three cases of Ketel One vodka worth $377. Or a case of New Amsterdam vodka worth $196. Or lots of “tasting samples” and around $3,500 in free booze?
One restaurateur in town says that’s the way the liquor industry does business. But in a record settlement agreement, the state Regulation and Licensing Department’s Alcohol and Gaming Division says handing out that kind of freebie is against the law if it undercuts the competition.
On March 1 the division’s general counsel issued subpoenas to the benefactor passing out the free liquor, National Distributing Company, and to the recipients — Scalo Northern Italian Grill, Vintage 423 Restaurant and Lounge and The Local Brewhouse.
Less than two months after the demand for invoices, National paid a $205,000 fine to make the case go away.
A May 26 agreement signed by Michael A. Thomas, executive vice
president of National Distributing Company in New Mexico, acknowledged that Alcohol and Gaming Division Director Mary Kay Root and her staff “have concluded that sufficient evidence exists that could sustain violations of the Liquor Control Act against (National, and National) wishes to resolve this matter without the filing of formal charges by the (division).
The company strongly disputed it did anything wrong and did not admit wrongdoing, “guilt or civil liability.”
Thomas’ only comment to the Journal came via email in which he said that “in the interest ... of bringing these concerns raised by the Alcohol and Gaming Division to a rapid conclusion, the parties mutually agreed to resolve this matter through NDC’s making a payment to the Division.”
Thomas said in his statement that the matter had been resolved “to the satisfaction of the AGD; hence, NDC now considers this matter closed.”
Big deliveries
The 28 batches of invoices provided to the Journal in response to an Inspection of Public records request show a whole lot of liquor being dropped off for no charge.
The Local Brewhouse, on Unser in Rio Rancho, has the vaguest invoices, with 16 “Tasting Sample” line items along with a free keg of Big Sky Moose Drool Brown Ale (list price $129.99) delivered at no charge. Stephen Pitt, named in a subpoena as the registered agent for the bar, said in an interview he “got like $3,500 worth” of free liquor because his was a new business and new account.
After working 15 years in the bar business, he says the subpoena and settlement “were a bit of a shocker. I called the Alcohol and Gaming Division right away; they said ‘you didn’t do anything wrong.’ ”
Joseph Cueto of the state Regulation and Licensing Department, which oversees Alcohol and Gaming, says “it’s not against the law for the bars to accept the free liquor.” But “it’s against the law for alcohol distributors to give out free products meant to undercut competition.”
At Scalo on Central, the invoices show $00.00 charged for liters of Jameson Irish Whiskey ($35.39 a bottle), Hendrick’s gin ($39.50 a bottle), and lots and lots of vodka, including a case of New Amsterdam Vodka ($196 for 12 bottles). The tally of free booze adds up to around $650.
Scalo owner Stephen Paternoster has been in the business for almost three decades and said in an interview “free goods have always been used to get you to purchase something. You buy a case and get two bottles on the side. It’s a pretty common occurrence in the industry. We would never take a chance with our liquor licenses (if we thought it wasn’t legal); it’s not the way we do business.”
Liquor licenses are now going for around $300,000 to $350,000 each, he says, and because he’s still paying off the loan on his, he is concerned the National drama could cause him problems.
“It’s a big bucks business,” he adds, and the freebies are “enticements to make a big purchase” and come from all the distributors, big and small, as well as manufacturers.
“I run a clean business,” he says. “I can’t be cavalier with $300,000; it’s not something we mess with.”
Invoices for Vintage 423, on Paseo del Norte, are the most extensive, with liters of flavored vodkas, whiskeys, gin, proseco and wines, and several cases of Russian Standard Vodka ($155.36 list price) and Ketel One Vodka (3 worth $377.92) delivered at no charge.
Invoices show Vintage 423 would buy a case of Russian Standard and get one free, six cases of Ketel One Vodka and get three free, eight bottles of Johnny Walker Black ($49.72 each) and get two more free, you get the idea.
The invoices show Vintage received more than $4,300 worth of liquor at no charge, not counting whatever the two “Tasting Samples” were worth. Vintage and registered agent Rudy A. Guzman did not respond to requests for comment.
Cueto says “a tip from marketplace contacts led to the investigation into National Distributing Co., which ultimately led to fines. The Department will continue to enforce the law.”
As for freebies being the norm, Cueto says “according to the Alcohol Gaming Division director, more than $5,000 in free product was provided to retailers by National Distributing Co. A fine was then levied equal to one day’s gross revenue loss, which amounted to $205,000. Any free products valued at more than $300 can be considered an inducement meant to undercut competition.”
New York case
While the recent settlement here reflected “the largest fine levied in state history,” it’s likely a deal National’s affiliate, Republican National Distributing, wishes it could get. RND is facing a 23-count federal indictment filed May 24 alleging a $9 million scheme to smuggle booze from Maryland to New York to beat New York’s state excise tax, which is $7.44 on a gallon of alcohol for retail sale. (That tax is just $1.50 a gallon in Maryland.)
The company and three employees are facing $250,000 fines and up to 20 years in prison.
Last week New York’s largest distributor, Empire Merchants, fired its CEO and filed federal fraud charges against one of its owners for alleged involvement in the interstate smuggling scheme.
RND, the nation’s second-largest wine and spirits distributor, denies wrongdoing in a May news release and says it “looks forward to our day in court” and the indictment is “a rogue effort by a federal agency to seize control of state regulation of liquor sales in violation of longstanding law.”