There are some 48,000 barrels of Scotch whisky quietly aging in Martin Armstrong’s warehouses in southwestern Scotland. Last year, 17 of them became a problem.
Mr. Armstrong normally deals with companies that buy hundreds of barrels at a time from distilleries, then pay him to store them as they age. In July, he started getting desperate calls from people who had bought just one or two barrels from an investment outfit called Cask Whisky Limited. They had been told that some of those barrels were stored in Mr. Armstrong’s warehouse.
Cask Whisky had promised those investors sky-high returns. But when the company collapsed last year, it left them scrambling to find their barrels.
“We were inundated by questions,” Mr. Armstrong said.
He couldn’t help most of them. He had never even done business with Cask Whisky. Still, Mr. Armstrong knew exactly what he was dealing with: yet another in a growing number of Scotch whisky-investment scams.
There are dozens of companies like Cask Whisky, often located in London but selling barrels stored in remote corners of Scotland and Ireland, making it hard for clients to see their investments in person. Some are semi-legitimate operations that sell barrels at prices so inflated they will take decades to turn a profit; others are practicing outright fraud.
“There’s a whole range of different types of cask scams, from the mild to the just evil,” said Isabel Graham-Yooll, a whisky consultant in London. “It’s a murky old world.”
The City of London Police said it received 89 reports of alcohol investment fraud in 2023, the most recent data available, amounting to nearly $4 million in lost money. Those numbers are set to grow, experts warn, as the global economy teeters and people become more aware of the risks involved in barrel investing and try to get out. Many are about to realize that what they took to be a sound investment is anything but.
“I personally think that we’re at the beginning of what’s going to be a major industry crisis,” said Felipe Schrieberg, a journalist and a founder of the consumer-awareness website Protect Your Cask. “Bloodbath has been the word that I’ve been using.”
As a rule, whisky barrels gain in value the longer they age: The taste of the liquid improves, while slow evaporation means there is less of it each year. As a result, barrels have long been a favored commodity among fraudsters, who promise big returns to unsuspecting investors. But for several reasons, the scams have picked up in earnest over the last five years.
For one thing, near-zero interest rates pushed investors to seek out better returns than banks could offer. Government-issued stimulus checks during the Covid pandemic gave British taxpayers money to play with. And sophisticated marketing tools allowed companies to pinpoint promising demographics — often retirees with a nest egg and a poor grasp of the risks involved.
All this happened at a time when the valuations for top-rated single-malt Scotch were skyrocketing. In a 2023 report on so-called passion assets by the Knight Frank Luxury Investment Index, rare whisky grew 428 percent in value over the previous 10 years, far more than products like wine and watches.
Investment companies took such numbers and blasted them across Facebook and Google Ads, reeling in thousands of hapless clients.
“The biggest problem is that people are so desperate to make an investment that the fear of missing out means that they bypass all logical safety checks,” Mr. Armstrong said.
To insiders like Mr. Armstrong, the red flags are obvious. A new barrel of whisky should cost less than $1,000 before a reasonable markup, but these companies often sell them for as much as six times that amount.
They tout access to highly regarded distilleries like Linkwood and Deanston, without explaining that the barrels frequently come with trademark protections that forbid using the distilleries’ names, which significantly reduces their value.
And the investment companies often issue ownership documents that leave out key details, like the date of distillation, making it hard for buyers to track down their barrels among the estimated 22 million stored around Scotland.
“I think part of it is that romance of whisky, the romance of having your own cask in a warehouse, that makes people let their guards down,” said Mr. Schrieberg, the journalist.
Even the promise of steady, elevated returns is largely a myth. Value growth in whisky is not linear; a four-year-old barrel is not worth much more than a three-year-old one, and barrels reach premium status only at around 18 years old.
And only a vanishingly small number of barrels produce whisky with the right aroma and taste to fetch the sort of five-figure prices that investment companies often promise. There is simply no way of knowing whether a particular barrel, on the day it is filled, will ever reach that height.
“It’s like saying this specific blue paint was used by Picasso, this particular Picasso painting made with that blue paint went up 1,000 percent, ergo, if you buy this tub of blue paint, it is going to go up that same percent,” said Blair Bowman, a whisky broker who has been critical of the barrel-investment business.
Making the hard sell for bad investments isn’t necessarily illegal. But several companies are clearly committing fraud.
Mr. Armstrong requires barrel owners to tell him when they sell to third parties, but neither the original owners, nor Cask Whisky, informed him about their sales. As he tried to piece together what had happened, he realized that the company had likely sold the same barrels to multiple people, or sold barrels that didn’t exist in the first place.
In March, the BBC produced an exposé about the barrel-investment industry, including interviews with investors who had put hundreds of thousands of pounds into schemes that turned sour. The BBC also reported that the London police were investigating Cask Whisky Limited and two similar operations, Cask Spirits Global Limited and Whisky Scotland, for fraud.
But enforcement is rare. In Britain, the financial authorities don’t regulate barrels as investments, offering little protection for buyers. And the line between high-pressure salesmanship and fraud is a blurry one, though in some cases the country’s Advertising Standards Authority has gone after companies for misleading marketing.
Investors have slim chances of recovering their money. In March, Britain’s Insolvency Office, the government agency that is shutting down Cask Whisky, sent out a memo telling investors that it couldn’t help them recover their barrels; all it could offer was a list of email addresses for warehouses where those barrels might sit.
“There’s this kind of superhero complex, where we’re just all waiting for someone to come in and fix things,” Ms. Graham-Yooll said.
The problem is largely specific to Scotland and Ireland, where the buying and selling of barrels among businesses is a longstanding practice. It is less of an issue in the United States, where it’s harder for individual buyers to purchase barrels and where the Securities and Exchange Commission often regulates the sale of barrels as investments.
To be fair, some barrel-investment companies are legitimate, and may even offer a realistic way to turn a long-term profit. But the industry is so complex and scams so plentiful that experts advise staying away.
“In theory, there is a world in which buying casks by the general public could work,” Mr. Schrieberg said. “But if you’re a Joe Public, I’d recommend don’t get involved. It’s just too high-risk and there’s too much ugly stuff going on.”
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