Are

eBay

(EBAY) - Get Report

and other Internet auction sites cyber-bootleggers, serving as conduits for illegal alcohol sales?

Could customers, or even eBay itself, be getting subpoenas rather than checks for their efforts? The answer just might be "yes," according to sources in the attorneys general offices in three states -- California, Florida and New York.

On a typical day, a keyword search for "wine" on eBay turns up about 1,200 listings, of which anywhere from one-third to two-thirds are actual bottles of wine, some of which are pretty yummy classified growth bordeaux and hot California cabernets. Significantly, few wine e-tailers actually have as many wines for sale as eBay. But despite the selection of some pretty great bottles, if you buy or sell the wines, you're breaking the law.

"It's illegal to sell wine in California without a license," says John Peirce, an attorney with the

California Alcoholic Beverage Commission

.

San Francisco attorney Lynne Carmichael, whose firm,

Hinman & Carmichael

, specializes in alcoholic beverage law, says it is illegal in every state for an individual to sell an alcoholic beverage to another individual. Penalties can be as serious as a felony depending upon the state.

A number of states -- including Georgia, Kentucky and New York -- have made it a felony even for wineries and other license holders to ship wine directly to its residents, claiming lost tax revenues and the dangers of demon rum falling into the hands of kids. One state attorney general,

Dennis Vacco

of New York (err, make that a

former

AG), even went so far last year as to stage carefully orchestrated direct purchase stings that nabbed, among others, wine e-tailer

Virtual Vineyards

.

What's more, New York, Pennsylvania, Florida, Texas, Massachusetts, Louisiana and New Jersey have all seized direct shipments or have threatened such punitive regulatory and legal actions that

Federal Express

(FEDEX)

and

Airborne

(ABF)

will no longer ship wine there.

"We're more likely to go after eBay with a consent decree," says a source in the New York attorney general's office.

So would the states actually go after individuals or take similar action against eBay? Or against other sites with auctions that allow the sale of wine, including

Yahoo!

(YHOO)

and

Excite

(XCIT)

?

After all, the illegality arises only because of antiquated laws left over from Prohibition which are designed mostly to protect local distributors and retailers from free-market competition.

"This is an area that we're looking into," is Peirce's reply.

While the

New York State Liquor Authority

is fairly lax on license enforcement, a source in the attorney general's office tells D&D: "The Internet makes it easy to identify the sellers and we might want to set an example. We're more likely to go after eBay with a consent decree."

What does eBay think? Alas, it remains mum on the issue, despite a conversation with eBay spokeswoman Kristin Suell and nearly a dozen follow-up calls over the past week. The company was unable to muster even a "no comment."

Canandaigua Reflux ... Uh, Redux

The cat fight continues between

Canandaigua Brands

(CBRNA)

and the California wine establishment over the use of wine varietal names -- chardonnay and white zinfandel -- on so-called "formula wines," products that also contain added flavorings, water, sugar and an undisclosed amount of wine.

D&D

wrote about the

spat on Oct. 18.

Well, the

California Wine Institute

is pressing its case with federal regulators aimed at preventing Canandaigua from continuing the use of grape names for products that aren't entirely wine. The Wine Institute filed a protest in 1997 with the

Bureau of Alcohol, Tobacco and Firearms

, but so far no decision has been made. The issue erupted again in mid-1998 when Canandaigua launched Arbor Mist, a nouveau wine cooler which sold a million cases in its first 100 days. Other California vintners, including

Robert Mondavi

(MOND)

, have also aired protests against Canandaigua and others who produce similar beverages.

But realize that this is the same wine institute that has liberally supported the use of such French appellations as champagne, chablis and burgundy which would be illegal in the world marketplace. By international law, champagne is made only in the Champagne region of France.

Wine Institute spokeswoman Glady Horiuchi insists the institute is on solid ground: "Federal regulations permit the use of the term 'champagne' for sparkling wine."

This is no accident since the Wine Institute freely admits that the practice remains legal thanks to its lobbying efforts.

This situation should not be a surprise given that

Gallo

, the largest U.S. winemaker and the leading U.S. manufacturer of sparkling wine, is also the largest single dues payer to the Wine Institute. All of Gallo's sparklers are cheap charmat bulk-processed product, as opposed to higher-quality sparkling wines made by the traditional methode champenoise.

It's an unseemly practice that smacks of consumer fraud, sort of like

GM

(GM) - Get Report

deciding to make a car and calling it a

Mercedes

for sale in the U.S. With the phenomenal strides in quality and global recognition that California has achieved over the past 20 years, the refusal to honor international law leaves a bad taste in one's mouth. Put a cork in it, guys.

Lewis Perdue is the editor and publisher of

Wine Investment News ,

which covers the 22 publicly traded wine and liquor companies. While Perdue does not hold any positions in the companies discussed in this column, he is the chief technology officer (on a consulting basis) to the e-tailer Wine Society of the World which may, from time to time, discuss purchasing or other agreements with wine companies. He can be reached at

lperdue@ideaworx.com.