Stephen Bystran, Lakeward Spirits Cited for Breach of Contract in Contract Distilling Scam
Stephen Bystran and his family-run distillery, Lakeward Spirits in Buffalo, New York have become synonymous with a distillery scam dubbed the “Bystran Scam”, that has become an industry case study in how contract distilling can go wrong.
Aspiring new entrants in the craft distilled spirits industry are increasingly taking the path of contract distilling to launch their new spirits brands. Contract distilling is an arrangement where a brand owner contracts with an existing distillery (with underutilized distilling capacity) to produce their brand of distilled spirits. This allows the brand owner to enter the marketplace quickly and without a heavy investment in distilling infrastructure. For the distillery owner, it provides a source of revenue to capitalize on its distillery investment that sits idle. It seems like a match made in heaven. However, brand owners need to be aware of the “Bystran Scam”.
“The Bystran Scam” is a term used to describe a scheme where a distiller contracts with a brand owner, collects money for fees and sale of the spirits products and makes-off with all the proceeds, leaving the brand owner with nothing. It is named after Stephen Bystran, owner of Lakeward Spirits distillery in Buffalo, New York. Steve Bystran and his son, Adam Bystran opened a distillery in Buffalo, New York in 2016. After several failed attempts to produce and sell their own spirits brands, the father and son team set out to lure brand owners into contract distilling agreements, trying to recoup their investments in the Lakeward Spirits distillery. The Bystran family had invested approximately $3.4 Million in the Barrel Factory building that houses the Lakeward Spirits distillery in Buffalo’s old First Ward District.
What may have started out as a dream second career for Stephen Bystran, a former software salesman, turned into a desperate scam that bilked unsuspecting entrepreneurs out of hundreds of thousands of dollars.
Lakeward Spirits is the trade name for Bystran’s company, Mainspring LLC, which is owned by Stephen Bystran, his wife Andrea Bystran and son, Adam Bystran. In 2016 the family began producing a line of gin, rum and vodka. In the two years that followed, the company’s sales declined to near zero and the Bystrans were in the hole for millions. The project was doomed from the start as the son, Adam Bystran had no experience in distilling spirits and the results showed it. Undeterred by disastrous releases of it’s Wild Gin and Evergreen Gin brands, the family tried unsuccessfully to reinvent itself with a series of rum products. The problem was that Adam Bystran, who was the Head Distiller had no experience and had improperly distilled the company’s spirits products. By 2019 the sales of Lakeward Spirits products had ground to a halt.
One brand owner that contracted with the Bystrans recounts a conversation with the father and son team about their gin production where the father, Steve Bystran talks about how they botched their Wild Gin brand production at the proofing phase of distilling/manufacturing and the entire batch turned cloudy. “This was an amateur mistake that could have been avoided simply by going online to a beginners chat room about making gin”, said the brand owner. “That conversation turned-out to be just the ‘finger in the dike’ in my experience with Steve Bystran and Adam Bystran”, he added.
The brand owner goes on to describe a bizarre tale of desperation and deception as the Bystran’s pulled-off their scam and hijacked the contracted product, stole the money from the proceeds of the sale and refused to return the products, all paid for by the brand owner. “This was a case of not doing our homework”, lamented a spokesperson for the brand owner. “If we would have just pulled back the due-diligence covers a tiny bit more, we would have avoided the Bystran Scam.”
In October, 2020 an arbitrator ruled that Stephen Bystran, Mainspring LLC, Lakeward Spirits and the Bystran family had breached their contract distilling agreement and were cited as incompetent and not financially sound to enter into such an agreement or be in the distilling business. However, after a year of litigation and tens of thousands of dollars in litigation costs, the brand owner says that the Bystran Scam was a devastating setback to the business. That company has since recovered and sales of its products have soared under an agreement with another reputable distiller.
“The craft distilling business is filled with mostly honest, hard-working and very trustworthy people”, says the brand owner involved in the Bystran Scam. “We don’t want people to think this is a dirty business, it’s not. It is the Bystrans who were dirty. The Bystrans were people who made very bad decisions, got into financial difficulties, turned into con artists and preyed on trusting business partners. This is a great industry with friendly, honest and helpful people; but I would caution brand owners to learn from the Bystran Scam and learn how to avoid and protect themselves from the Steve Bystrans of the world.”
One industry insider commented, “Buffalo, New York is a model of urban and suburban revitalization, it’s really a special place. It’s also a thriving place for craft distilling while the industry is also flourishing nationwide. So, it would take a special kind of incompetence or malfeasance to fail as a distiller in this market.”
So, what advice does this brand owner have for others looking to engage in contract distilling agreements?
- “Financial Due Diligence (Do your homework) – Steve Bystran had built a really nice place at the Barrel Factory, but it was built using other people’s money. Stephen Bystran is known for giving tours at the Barrel Factory Building, where he also runs a catering hall. During his tours he often boasts about a commercial kitchen renovation that costed over $125,000. It turns-out that the kitchen renovation investment was made by a catering vendor who also alleges that he was scammed by Bystran.
It turned-out they had no experience, mismanaged their finances and it turned-out to be a scam. He did not own the place, the bank did and he was under water and was basically insolvent. Unfortunately, we had to learn this the hard way in court. If you are going to contract with a distiller, you need to know about the finances of your distilling partner. In the case of Stephen Bystran and Lakeward Spirits, he made deceptive statements about the financial situation of his business and personal financial situation. Shortly after we entered the contract, we also learned the Bystrans were forced to sell their home in Orchard Park, New York and move into the distillery. We were stunned!
Desperate people will find ways to deceive you, you just have to go to their bankers and financial sources, it’s the only way to really be sure. If your distiller won’t allow you to investigate their finances thoroughly, you may want to avoid them. If your distiller goes under, so do you.
- Investigate Market Reputation – This is another lesson we learned too late. When we contracted with Steve Bystran and Lakeward Spirits, we did not do an adequate job in vetting their reputation as distillers. Shortly after our product was released, we began selling directly to retailers who had carried the Lakeward Spirits products. We quickly learned that Lakeward Spirits and Steve Bystran had a horrible reputation in the marketplace.
One retailer told us that several customers had returned the Lakeward Spirits “Grain Canyon vodka” thinking it had gone bad. Lakeward Spirits’ Fathoms Below Spiced rum was also not distilled properly and would separate after opening the bottle.
Others reported that the Bystran family had became so frustrated with the market rejecting their brands that they threatened to “cut-off” retailers who did not help they move the poorly-made products. Most of the retailers welcomed the severing of ties with Lakeward Spirits and that led to the Bystrans being cut-off from the marketplace in their own community. Almost unanimously liquor store owners would either laugh or scowl when Steve Bystran’s name was mentioned. It was like a gut-punch.
This is the responsibility of the brand owner and we did a poor job of thoroughly investigating the Lakeward Spirits’ market reputation. That was a hard lesson and mistake for us, one we will never repeat. We hope others can benefit from our mistakes.
- Control the Revenue – The spirits industry is highly regulated both at the federal and state levels. This includes who can legally collect revenue for sales of a product. In the case of our agreement with Lakeward Spirits, we operated under their New York State Liquor Authority distillery license and self-distribution rights. Even though our contract was solid and was upheld in arbitration, they collected the revenue from the sales of our product…and they basically stole every penny. We never received any of that money.
Brand owners should register with the TTB for a Basic Permit. This will allow the brand owner to act as a party that can collect revenue under the law. In addition, there may be state licensing permits that are required to collect revenue from sales. The TTB license only requires registration and does not have any fees associated with it. This may take 6-8 weeks.
State licensing varies from state-to-state, so check with the state you will be working in for required licensing. While most distillers are upstanding and honest, allowing others to receive payments is very risky as we learned in the Bystran Scam.
- Take Possession of Your Spirits Products – It is vitally important to take possession of your products immediately after they are bottled. To do so, you will need to have the proper federal and state permits to warehouse your distilled spirits. The warehouse requires a simple bonding registration and tax compliance. In the case of Lakeward Spirits and the Bystran Scam, we put all our eggs in one basket with Steve Bystran and once the relationship soured, Bystran and his son kept possession of our products. We had a total loss.
The Bystran Scam case study shows a lack of foresight by the brand owner in allowing so much control over their product in a contract distilling agreement. When that distiller turned out to be a con artist, things turned from bad to devastating.
A spokesperson for the company openly admits, “we are guilty of being a bit naïve and way too trusting of the Bystran family. We made a lot of mistakes. But it’s pretty clear that the Bystrans exploited our trust and their lack of ethics speaks for itself and was confirmed in the arbitrator’s ruling.”
“We hope that others can learn from the Bystran Scam, this is a great business if you do it right”, concluded the spokesperson.
- ECB Minutes Show Policymakers Saw Risks To Growth Clearly Tilted To Downside - November 26, 2020
- Sweden Central Bank Expands Quantitative Easing - November 26, 2020
- Partial Lockdown Dampens German Consumer Confidence: GfK - November 26, 2020