Thursday, January 4, 2001

Forbes' Faces: The Koch Brothers

Forbes' reports:

When the federal government drops 86 felony charges against your company, it should be cause for celebration. Not so for brothers Charles and David Koch, who run family oil conglomerate Koch Industries.

When prosecutors reduced a list of the company's alleged environmental crimes from 97 to 11 items on Wednesday, the move generated little cheer from company headquarters in Wichita, Kans. Koch Industries still faces the harshest of the government's criminal charges, in which the petroleum giant is accused of spewing the toxic chemical benzene into the environment in 1995 and then trying to hide it from government investigators.

A federal grand jury indicted the privately held company and four of its employees in September on 97 related charges for alleged violations that took place at the company's refinery in Corpus Christi, Tex. Founded in 1940 by the late Fred Koch, father of Charles and David, Koch Industries faces up to $502 million in fines. Four former company executives face fines and possible prison terms.

It's just the latest in a string of mishaps for Charles, 64, the company's chairman, and David, 60, the executive vice president. In September 1999, Koch Industries paid $8 million in damages after a Minnesota oil spill. In January 2000, the company was slapped with the largest civil penalty ever against one company. It was forced to pay a $35 million settlement for 300 separate oil spills in six states, leaking 3 million gallons of crude oil from corroded pipelines into local waters.

Adding to all this is the backstabbing within the Koch family. Estranged brother William blew the whistle on the company for stealing oil from federal and American Indian lands in the 1970s; an Oklahoma jury found the company guilty last year and slapped it with a half million-dollar fine. Charles bought out William's shares in the company in 1983.

President-elect George W. Bush cooperated with the Justice Department's investigation of Koch Industries while serving as governor of Texas. But even though company executives contributed heavily to Bush's presidential campaign, they are unlikely to see benefits from having friends in high places.

U.S. District Judge Janis Jack of Corpus Christi prodded government lawyers to streamline their charges against Koch Industries, but that's not necessarily a good thing. Prosecutors dropped 86 relatively petty allegations--including charges that the Koch refinery used improper equipment to handle benzene--and in doing so may have strengthened their broader pollution case against the company.

Charles and David both have degrees from MIT and a net worth of over $3 billion each, but their continual brushes with the law lend an ironic tone to their company's slogan: "You know us better than you think."