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  The standards imposed a sweeping blanket of secrecy over Koch’s operations, stating that “all financial data, business records, technology and information on corporate strategy, objectives or on modeling and other analytical and/or management techniques” were to be considered secret and proprietary information that belonged to the company. In other words, virtually every piece of information at Koch Industries was confidential. This would include any training documents for oil gaugers or any tally sheets that showed overages or shortages in the oil gathering division. The standards barred any employee from sharing any of this information with an outside party without prior approval from a Koch Industries manager. The flow of information about Koch’s measurement practices was being bottled up.

  On July 11, 1988, Koch’s president, Bill Hanna, sent a companywide memo informing employees how to handle company records. He reminded employees about the code of secrecy for Koch’s records that had been distributed before. Then he ordered that “written materials which would be useful to our competitors should be destroyed by shredding, burning, or some equally effective method.”

  Hanna’s memo was a license to destroy evidence. And it was issued at a time when top executives at Koch were aware that the US Senate was investigating Koch’s oil measurement practices. Under such circumstances, corporate lawyers and executives often order their employees to take special care to retain records that might be relevant to a lawsuit or investigation. Koch Industries did the opposite. It is unknown how many documents were destroyed because of that memo.

  Don Cordes eventually reversed course and told Koch employees to retain evidence that might pertain to oil theft, but he didn’t do so until November of 1988, months after Hanna’s memo went out. The only reason that Cordes changed the policy was because a Koch employee in Texas complained to Cordes that he had been told to destroy all written evaluations he had made of Koch’s truck drivers and oil gaugers.

  Bill Koch only fed into the company’s sense of embattlement. He launched a privately funded investigation into Koch’s measurement practices. He paid private investigators to interview Koch gaugers, and he paid Koch gaugers to speak with his investigators. He submitted some of this evidence to the Senate, even as the Senate was doing interviews of its own. An internal FBI report, which wasn’t made public until 2018, indicates that Bill Koch helped submit fifty statements from former Koch employees to US Senate investigators, claiming that the gaugers were stealing oil. The Senate ignored the statements because Bill Koch’s involvement made them “suspect,” according to an FBI memo. Rather than rely on Bill Koch’s help, the Senate and the FBI relied on Agent Jim Elroy’s investigation.

  Charles Koch did more than circle the wagons. He helped coordinate a broad counterattack aimed not just at his brother but also at the US Attorney’s office. This marked a turning point in Koch’s history and in its efforts to influence US politics and public policy. His intentions were reflected in a lengthy written response that the company submitted to the Senate after Charles Koch refused to testify at the hearing. The most revealing part of the response was the headline of its first section: “The fact that the hearings were devoted almost exclusively to Koch Industries, Inc., is the result of the activities of William I. Koch and his vendetta against Koch Industries, Inc.”

  “Koch presented an easy target,” the statement said. “It was politically unimportant, and because it would not have an opportunity to present its case or cross-examine witnesses, a one-sided presentation was possible.”

  At the time, it might still have been accurate to call Koch Industries “politically unimportant.” The company didn’t have a major lobbying operation in Washington and kept away from the spotlight. Charles Koch spent most of his time funding think tanks, university professors, and litigation in an effort to quietly shift American political culture.

  But when faced with the threat of criminal charges, Charles Koch redirected his political efforts. Rather than simply hire lawyers and lobbyists, Koch used a network of front groups, training centers, and political operatives to combat the threat. This time the network wasn’t focused on changing political culture; it was focused on the targeted, tactical goal of derailing legal efforts against Koch’s oil gathering operations.

  A former Koch Industries employee named Ron Howell was at the center of the effort. Howell was the ideal employee to spearhead Koch’s political reformation effort in Oklahoma. During his tenure at Koch, Howell had specialized in commodity trading, the same kind of complex and opaque deals that Bill Koch had specialized in back in his days in Boston. Howell knew how to work in murky networks and connect the needs of several parties in ways that could ultimately benefit Koch. He was well suited for operating in the world of politics.

  Koch’s first tactical goal was to change the political landscape around the issue of oil theft. In its final report, the US Senate had categorically accused Koch Industries of systematic theft. Koch needed to undermine that claim if it wanted to forestall future investigations and litigation.

  Howell was well connected in Oklahoma, and was a true believer in Koch Industries. Howell was appalled when he heard that Koch was accused of stealing oil from Indians. He was convinced the allegations were entirely false.

  “I’d been in the boardroom many, many, many times for many, many years,” Howell said. “It’s just a very, very honorable company. . . . So I got angry as much as anything else.”

  Howell’s first job was to reshape the political narrative about Koch Industries in Oklahoma. His strategy was to reach the “producers” themselves, meaning the oil drillers who sold to Koch Industries. The Native American tribes who owned the oil well leases were the most important target. The tribes were the most visible victims of the theft, and they were also the most sympathetic. If the Indian tribes could be brought on board with Koch Industries, it would undermine the entire rationale for a criminal inquiry into Koch’s measuring tactics. If there were no victims, then how could there be a crime?

  One of the primary victims of Koch’s theft was the Osage tribe in Oklahoma. Charles O. Tillman, chief of the Osage tribe, said that a team of employees from Koch Industries came to talk to him about the oil theft allegations after the US Senate released its report.

  Koch sent a team of auditors to review receipts from oil leases owned by the Osage tribe. These receipts were compared against Koch’s internal figures to determine if Koch had indeed been underpaying the Osage, as alleged by the US Senate. Tillman said the tribe had little capacity to double-check Koch’s work. The tribe didn’t have an army of accountants at its disposal. The tribal members simply got checks in the mail for their oil leases and trusted the numbers.

  “Koch was such a gigantic company,” Tillman said. “To me, they were doing good accounting. They were doing good business with the Osage. . . . We didn’t have anybody to rely on to refute Koch Industries.”

  When Koch Industries completed its audit, the company came back to Tillman with surprising news: Koch Industries had not been underpaying for oil. The company told him that it had, in fact, been overpaying the tribe. The audit showed that the tribe actually owed Koch Industries about $22,000. Koch’s interpretation was backed up by federal authorities at the Bureau of Indian Affairs, Tillman said. He didn’t feel like the tribe could question it.

  Tillman and other Osage leaders went public with their belief that Koch Industries had not stolen oil from them. In March of 1990 the local Osage newspaper, the Osage Nation News, published a story in which the Osage chiefs said Koch was innocent. The story was quoted in the mainstream Daily Oklahoman newspaper, and Koch made maximum use of the chiefs’ statements. Don Cordes, Koch’s attorney, told the Daily Oklahoman that the Osage statement “completely undermines the false allegations of the Senate subcommittee.”

  Charles Tillman would later regret his role in tamping down concerns over Koch’s practices. His mind was changed after learning of testimony unearthed years later in federal lawsuits. He became convinced
that Koch had, in fact, stolen oil from Indian wells. “We were wrong,” Tillman said. “We were badly informed.”

  Dudley Whitehorn, another Osage chief who worked with Tillman, also became disillusioned. Several years after the Daily Oklahoman article appeared, Whitehorn was sitting in a local auto shop waiting for his car to be repaired. A former Koch Industries oil gauger sat down next to him and struck up a conversation. Whitehorn said the gauger eventually told him: “We did steal from you.” The man seemed contrite. Whitehorn didn’t dwell on it. He didn’t want to carry a grudge against Koch.

  The Osage chiefs might have felt duped later on, but their public comments in the early 1990s achieved an important goal. The government suddenly looked overzealous and unfair. This fed into Koch’s broader efforts. While Howell was reshaping the story in Oklahoma, Koch was working to do the same thing in Washington, DC.

  Charles Koch understood now that he needed a political operation in Washington. Up until that point, he operated as if he could stay out of the miasma of the nation’s capital, staying true to his libertarian beliefs and focusing his efforts on the business in Wichita. This left Koch vulnerable. When Ken Ballen was conducting his investigation, he was contacted frequently by high-paid attorneys and experts who worked for companies like Exxon and Chevron. They defended their clients and even helped focus attention on Koch Industries. Koch had no such presence. This would change in the early 1990s.

  Koch Industries deepened its relationship with Kansas senator Bob Dole. The Kochs already contributed to his campaigns and political causes, giving $245,000 between 1979 to 1994. David Koch would abandon the Libertarian Party to become the vice chairman of Dole’s presidential campaign against incumbent Bill Clinton in 1996. By that time, the family would become Dole’s third-largest financial supporter, according to an investigation later published in Businessweek magazine.

  Dole helped Koch delegitimize the issue of oil theft. Dole submitted the story from the Daily Oklahoman into the Senate record, and said that he was concerned that the Senate had rushed to judgment to condemn Koch. Koch amplified his concerns by helping to draw other senators into the fight, including Nancy Kassebaum of Kansas and David Boren and Don Nickles from Oklahoma.

  During a speech on the Senate floor in 1990, Dole criticized the committee’s work, saying: “Several senators, including myself, Senator Kassebaum, Senator Boren, and Senator Nickles, had very real concerns about some of the evidence on which the special committee was basing its findings, concerns we raised with the committee in successive letters before the report was issued. It now looks like those concerns were well founded.”II

  As senators fought against the findings of their own committee, Koch put another piece of its plan into place. The biggest threat wasn’t emanating from the Senate but from the courts and the US Attorney’s office, two institutions that could not be influenced by campaign donations or lobbyists. In response, Koch initiated a long-term plan to reshape America’s judiciary system.

  Ron Howell founded an obscure nonprofit group called Oklahomans for Judicial Excellence. It did something unheard of: it started grading local judges based on their fealty to free-market economic theory. The group created scorecards for state judges, measuring how well their verdicts conformed with the teachings of Hayek and von Mises. The group publicized these rankings with public opinion articles published in places like the Daily Oklahoman. The grading system created a way to embarrass judges in the local press by publicizing their low scores. Koch Industries also offered them a way to escape this embarrassment: the company sponsored a series of free seminars that judges could attend if they received poor grades from Koch’s rating system. The seminars were not held in stuffy classrooms. Koch Industries paid for judges to travel to a ski resort in Utah or a beachfront condominium, among other locations, relaxing places where the judges might be more open to Koch’s message. The company held lectures that emphasized the importance of market forces in society, and warned against the consideration of things like “junk science” that plaintiffs often used to prove corporate malfeasance. The seminars were well attended, sometimes by more than sixty judges at a time. A Kansas state district court judge named Michael Corrigan attended a Koch-sponsored seminar at the Sundial Beach Resort in Sanibel, Florida, and another at the University of Kansas; in between these seminars he handled two cases involving Koch Industries without disclosing the potential conflict of interest, according to an account later published in the Wall Street Journal.

  The junkets that it organized might have been disclosed or even regulated if they were enjoyed by other public officials, such as members of Congress. But there were no such restraints on treating judges to all-paid vacations, perhaps because no one had thought to organize such events on such a large scale before. Koch’s efforts to sway judges evolved over many years. By 2016, it had transformed into a new program that offered free seminars to judges called the Law & Economics Center, which was housed at George Mason University in Fairfax, Virginia, along with Koch’s free-market think tank, the Mercatus Center. The Law & Economics Center claimed to have hosted more than four thousand state and federal judges from all fifty states at its seminars. It offered up to a dozen events a year.

  This long-term effort would do little to solve Koch’s immediate problem, which emanated from the office of Nancy Jones. She and Jim Elroy were making strides in the case. They believed they were close to proving that Koch’s oil theft was directed from the highest levels.

  Then they hit a wall.

  * * *

  Jones and Elroy had zeroed in on one particular set of Koch’s internal documents they felt would show how the oil theft was directed from Koch’s senior leadership. They had subpoenaed those documents, and were waiting for Koch Industries to supply them to the grand jury. Then Nancy Jones got a letter from Koch’s lawyer. The company could not provide the documents Jones had requested. Those documents had been accidentally destroyed, the letter said.

  This was puzzling to Jim Elroy. He knew that Koch Industries kept backup copies of its corporate documents in an underground storage area; the kind of place where company papers were treated carefully. Elroy said the documents in question were kept under lock and key in the storage area. Elroy later discovered that the documents had been checked out of the storage unit, in the same way books are checked out of the library. The man who took custody of the documents was named David Nicastro.

  Nicastro was no ordinary document courier. He was head of Koch Industries’ security operations and had been deeply involved in the company’s response to allegations of oil theft. He had also been dogged by accusations of document destruction. Back in 1988, Nicastro traveled to Koch’s far-flung oil gauging offices and collected documents that might have described the Koch method of oil measurement. Nicastro later told investigators that he’d simply collected the documents and copied them. But a Koch employee named Stephen Marshall testified in an unrelated court case that Nicastro ordered employees to destroy documents. Nicastro strenuously denied the allegation in court, and the judge ruled there was not enough evidence to prove the claim. The judge also pointed out that Marshall had asked to be paid for his testimony and that he found Marshall’s testimony “not credible.”

  When the Oklahoma grand jury requested documents from Koch, Nicastro apparently made a special trip to the underground storage unit to retrieve them. He then reported that the papers had been accidentally destroyed. Koch Industries informed Nancy Jones that the documents in question had not been converted into digital files, as had many other corporate documents.

  “There was no reason why those records shouldn’t still exist. But when the grand jury wanted them, then they were not available,” Jones recalled.

  The investigation had led them all the way to this batch of documents, and without those documents they didn’t feel they could go any further. But that didn’t mean that they were going to give up. Jones and Elroy began discussing other ways they could move forward with the case, o
ther investigation tactics they might use, such as wiretapping and gaining informants inside Koch Industries. They would keep pressing, whether important documents were destroyed or not.

  Then something happened that punctured a hole in the case—something that would derail the investigation, arguably killing it. Jim Elroy quit. He left Oklahoma for personal reasons. The FBI had offered him a transfer to the Miami office. As a California boy, Elroy had a strong desire to get back to the ocean. He wanted to spend time on a boat and travel on the sea. He had been in Oklahoma for many years and was ready for a change.

  Jones wasn’t too happy about it. She told him, “You are leaving me now?! And you said you would help me do this case!” Elroy recalled. Elroy was a driving force behind the investigation, and there was no guarantee that the FBI agent replacing him would be as passionate or as skilled. But he was determined to go.

  Decades later, Elroy would regret the decision. “It was really selfish. I should have stayed and finished this job,” he said. He was pursuing the two brothers who had control over Koch Industries and was confident he would have gotten them. “I know if I had stayed, that Charles and David would be in jail now,” Elroy said.

  In Elroy’s absence, however, the investigation took a sharp turn in Koch’s favor. There was a growing body of evidence that Koch Industries might be innocent. Now, in the summer of 1990, the FBI interviewed dozens of Koch gaugers throughout Oklahoma and Texas, and the gaugers all said essentially the same thing: Koch had never instructed them to steal, they had never heard of the “Koch method,” and they never falsified their measurements. The gaugers said this even when they were alone with their FBI interrogators—one gauger was interviewed in a Dairy Queen parking lot. Other gaugers would contradict this testimony under oath in later court cases, but the litany of interviews undermined the case dramatically. The FBI was searching for corroboration, but just as the interviews started to cloud the picture, there was a management shakeup at the US Attorney’s office. Nancy Jones’s boss, US Attorney Bill Price, quit his job to run for higher office. Price’s replacement would be selected by Oklahoma senator Don Nickles, a close ally of Koch’s. Nickles had previously spoken about the case with Koch’s lobbyist Ron Howell, who remembered pulling Nickles aside at a luncheon to discuss the case. Nickles would later leave office and open a lobbying shop in Washington, DC, where Koch Industries was one of his clients.