Kochland Page 74
Michael Corrigan attended a Koch-sponsored seminar: Fialka, “How Koch Industries Tries.”
The Law & Economics Center claimed: Law & Economics Center website, https://masonlec.org.
Jones and Elroy . . . Koch’s internal documents: Nancy Jones, Elroy, interviews by author, 2014–16.
Nicastro was no ordinary document courier: David Nicastro, deposition with US Senate investigators, transcript, April 24, 1989; United States of America ex rel. William I. Koch and William A. Presley, Plaintiffs, v. Koch Industries, Inc., et al., Defendants, Order, August 6, 1998, 45.b.i.
When the Oklahoma grand jury . . . Nicastro apparently made a special trip: Nancy Jones, interviews by author, 2015–16. David Nicastro declined to be interviewed. He left Koch Industries after these events and became president of Secure Source International, an independent corporate security firm. On his website, Nicastro claims to be able to penetrate even the most sophisticated corporate security systems, as a way to show clients how those systems are vulnerable.
Then something happened that punctured a hole in the case: Elroy, Nancy Jones, interviews by author, 2014–15.
In Elroy’s absence . . . Koch’s favor: FBI “302” reports summarizing interviews with Koch gaugers in in Oklahoma and Texas, 1990; FBI internal memorandum, Subject: “Koch Industries,” August 20, 1990; FBI internal memorandum, 196B-OC-48271: “[L]eads assigned in June 1991 have been put on hold until further notice.”
one gauger was interviewed in a Dairy Queen parking lot: FBI 302 report (REV. 3-10-82), June 18, 1991.
The FBI was searching . . . shakeup at the US Attorney’s office: Nancy Jones, Leonard, Don Nickles, interviews by author, 2015–2018; Zweig and Schroeder, “Bob Dole’s Oil Patch Pals.”
She said there was lukewarm enthusiasm . . . the Koch case: This account is based on Nancy Jones’s recollection of events. Arlene Joplin refused to discuss the meeting or anything having to do with the Koch Industries investigation.
In April of 1991 . . . Nickles nominated Timothy Leonard: Nancy Jones, Leonard, Nickles, interviews by author, 2015–18.
Leonard’s decision raised suspicion: Zweig and Schroeder, “Bob Dole’s Oil Patch Pals”; Mayer, Dark Money, 133–34.
The FBI’s case file . . . not to file charges: FBI internal memorandum, Subject: “Koch Industries,” August 20, 1990. The memo states, in part: “During this sixty (60) day period the writer has received eighteen (18) FD-302’s from interviews of Oklahoma guager, relief gaugers and gauger/drivers. All of these interviews, with the exception of one, have been negative concerning alleged violations. The only positive information . . . attributes this practice to laziness on the part of the gauger.” FBI internal memorandum, 196B-OC-48271: “[L]eads assigned in June 1991 have been put on hold until further notice.”
it was assistant US Attorney H. Lee Schmidt: FBI internal memorandum, Subject: “Koch Industries, Inc., Wichita, Kansas’ Fraud by Wire,” February 12, 1992.
During an interview in his home: Leonard, Nickles, interviews by author, 2018.
case went to trial in Tulsa in late 1999: “Judge Finds Sufficient Evidence to Take Koch Lawsuit to Trial,” Associated Press, August 10, 1999.
During the trial, Koch officials admitted: Ruble, “Koch Brothers Head Back to Federal Court in Latest Squabble.” Story included the statement “Koch Industries officials concede the company made about $10 million in profit per year from the overages. But they say that was only a small amount of the company’s overall intake.”
Jack Crossen, a district gauger for Koch: Ruble, “Former Employees Testify at Federal Trial of Koch Industries,” Associated Press, October 5, 1999, and October 6, 1999.
Ricky Fisher said he rationalized stealing oil: Renee Ruble, “Former Measurement Supervisor Takes Stand,” Associated Press, October 12, 1999.
The fines for Koch could have been enormous: Danny M. Boyd, “Penalty Against Koch Approaches Settlement,” Associated Press, October 26, 2000; United States of America ex rel. William I. Koch and William A. Presley, Plaintiffs, v. Koch Industries, Inc., et al., Defendants, Verdict Form 1, Verdict Form 2, December 23, 1999.
The deep changes . . . Reagan presidency: Budget figures drawn from United States Budget, 1981–1988, Inside Government, Office of Management and Budget.
The trend continued under Bill Clinton: Gimore and Sugrue, These United States, 576–95.
the overall size and burden of the federal government continued to grow: Clyde Wayne Crews Jr., Ten Thousand Commandments: A Policymaker’s Snapshot of the Federal Regulatory State (Washington, DC: Competitive Enterprise Institute, 1996).
There was . . . between government and private enterprise: Hacker and Pierson, American Amnesia.
But a loophole . . . apply only to new oil refineries: Dianne M. Shawley, former senior counsel, Environment and Natural Resources Division, US Department of Justice, interviews by author, 2016. Shawley participated in a federal effort to enforce the new source review process of the Clean Air Act, resulting in settlements with Koch Industries and other oil refiners. Also Shi-Ling Hsu, “What’s Old Is New: The Problem with New Source Review,” Regulation, Spring 2006; Jonathan Remy Nash and Richard L. Reeves, “Grandfathering and Environmental Regulation: The Law and Economics of New Source Review,” Northwestern University Law Review 101, no. 4 (2007).
Oil companies expanded . . . gaming the New Source Review program: Shawley, interviews by author, 2016; Suzanne Gamboa, “Refiner Agrees to Pollution Controls,” Associated Press, December 22, 2000.
After the Watergate scandal of the early 1970s: Zephyr Teachout, interview by author, 2017; Zephyr Teachout, Corruption in America: From Benjamin Franklin’s Snuff Box to Citizens United (Cambridge, MA: Harvard University Press, 2014).
In 1996 . . . Economic Education Trust: Glenn R. Simpson, “New Data Shows That Koch Firm Funded GOP TV Ads in ’96 Races,” Wall Street Journal, June 1, 1998.
In October of 1996, the Economic Education Trust gave $1.79 million: “Investigation of Illegal or Improper Activities in Connection with 1996 Federal Election Campaigns,” US Senate Report 5, no. 167 (1998): 6309.
Triad was . . . had a strange business model: Ibid., 6289–313; US Senate Report 4, no. 167 (1998): 4603.
One of Triad’s consultants . . . designed specifically to shield the wealthy: US Senate Report 5, no. 167 (1998): 6311.
“Most disturbing, Triad is poised to become a model”: Ibid., 6290.
Koch Industries’ political operations . . . inside the company: Markel, Hall, interviews by author, 2013–14; Boulton, “Koch and His Empire”; Boulton, “Straight-shooting to the Top.”
Charles Koch’s office was located on the third floor: Notes and photos from reporting at Koch Industries headquarters and Charles Koch’s office, 2015.
Charles Koch liked to tell people that “true knowledge results in effective action”: Boulton, “Koch and His Empire.”
One of the first things Charles Koch did . . . get the rules written down: Wayne Gable and Jerry Ellig, Introduction to Market-Based Management (Fairfax, VA: Center for Market Progress, 1993).
The words of Market-Based Management were not simple slogans: Dozens of current and former Koch Industries executives and employees, Markel, Hall, Watson, interviews by author, 2013–18.
CHAPTER 8: THE SECRET BROTHERHOOD OF PROCESS OWNERS
Heather Faragher . . . winter of 1995: Heather Faragher, interviews by author, 2015; Heather Faragher, transcript of interview with Minnesota Pollution Control Agency (hereafter cited as MPCA) investigators, December 19, 1997.
The empty fields . . . sky was often slate gray: Notes from reporting at the Pine Bend refinery in March 2015.
Faragher joined the company: Faragher, interviews by author, 2015; Heather Faragher, transcript of interview by MPCA investigators, December 19, 1997.
It would be inaccurate to describe . . . corporate training: Faragher, and dozens of other current and former Koch Industries employees, interviews by author, 2013–18
.
She watched while her bosses and coworkers broke the law: Accounts in this chapter are based in part on transcripts of lengthy interviews that the primary actors gave to investigators with the MPCA in 1997. Citations of interview transcripts often include a page number corresponding to germane sections of the interview in question, but those pages are not the only source for information in this narrative—details of each episode are often reinforced by statements elsewhere in the interview and by interviews with other participants. It is the overlapping accounts of all the interviews, in full, that undergird the narrative in this chapter. The interview transcripts are supplemented by interviews with participants, newspaper accounts, and court filings.
Faragher’s experience . . . problems at Koch Industries during the 1990s: Loder and Evans, “The Secret Sins of Koch Industries.”
Heather Faragher . . . small town of Bayport, Minnesota: Faragher, Lawrence, interviews by author, 2015; US Census data on Bayport, Minnesota.
In 1992, Koch launched . . . make cleaner fuels: “Koch Begins Construction on Clean Fuels Project,” PR Newswire, March 24, 1992.
In 1995, Koch was considering a new $300 million project: “Koch Refining Eyes Building 250-MW Petroleum-Coke Fired Unit in Minn.,” Industrial Energy Bulletin, May 19, 1995.
The production capacity . . . during this time: “Annual Refining Capacity,” Oil & Gas Journal, March 18, 1985; ibid., March 18, 1986; ibid., March 18, 1995; ibid., March 18, 1996.
The rapid expansion created strains: Faragher, interviews by author, 2015; Faragher, Brian Roos, Steve David, Tim Rusch, Larry Barnett, Terry Stormoen, Joseph Butzer, Charlie Chadwell, Gary Ista, Todd Aalto, Karen Hall, Ruth Estes, Eric Askeland, Rick Legvold, transcripts of interviews by MPCA investigators, December 19, 1997; “Whistleblower Trial Against Koch Refinery Begins in Federal Court,” Associated Press, January 4, 2000.
Karen Hall oversaw the division: Karen Hall, transcript of interview by MPCA investigators, November 4, 1997.
Faragher’s glass-walled office was located next to Hall’s: Faragher, interviews by author, 2015.
The refinery pumped . . . every day: Roos, transcript of interview by MPCA investigators, November 17, 1997, 64; Faragher, interviews by author, 2015.
There was, in fact, a stark division of power: Faragher, interviews by author, 2015. Safety officials like Faragher are considered as working for “nonprofit” centers at Koch Industries, while managers who operate the facilities are considered “property owners.” Koch sought to contain expenses within its “nonprofit” functions. Gable and Ellig, Introduction to Market-Based Management, 41–46.
Karen Hall explained . . . the operations people: Karen Hall, transcript of interview by MPCA investigators, November 4, 1997, 14.
The operations team that Faragher reported to was run by . . . Brian Roos: Faragher, interviews by author, 2015; Roos, transcript of interview by MPCA investigators, November 17, 1997, 64.
The refinery at Pine Bend was divided into five groups: Faragher, interviews by author, 2015; Karen Hall, transcript of interview by MPCA investigators, November 4, 1997, 19–20; Roos, transcript of interview by MPCA investigators, November 17, 1997, 5–6.
Environmental engineers . . . nonprofit groups: Gable and Ellig, Introduction to Market-Based Management, 41–46.
Heather Faragher spent a lot of time walking: Faragher, interviews by author, 2015.
One of the operators . . . Todd Aalto: Todd Aalto, transcript of interview by MPCA investigators, November 6, 1997.
When inspecting . . . the concrete floor: Ibid., 50.
In this case, the decision would have gone up to Karen Hall’s boss: Steven David, transcript of interview by MPCA investigators, November 19, 1997.
Faragher proposed new investments and upgrades . . . those investments were delayed: Faragher, interviews by author, 2015; Faragher, transcript of interview by MPCA investigators, December 19, 1997.
“If the payback of the investment was going to be less”: Faragher, interviews by author, 2015.
At the Pine Bend refinery, Koch was allowed to expel: WWTP Spec Sheet, Pine Bend refinery, May 1995; Faragher, interviews by author, 2015.
One day, Steve David . . . Koch method of wastewater treatment: Notes and drawings of charts at meeting, made extemporaneously and provided later to author; Faragher, interviews by author, 2015.
Things started going wrong around June 1, 1996: Timothy Rusch, plant manager, transcript of interview by MPCA investigators, November 18, 1997, 22–23; Karen Hall, transcript of interview by MPCA investigators, November 4, 1997.
Doing so would require a partial outage: Roos, transcript of interview by MPCA investigators, November 17, 1997, 59.
The fine for doing so would have only been about $30,000: Rusch, transcript of interview by MPCA investigators, November 18, 1997, 30.
Brian Roos discussed this problem: Roos, transcript of interview by MPCA investigators, November 17, 1997, 44, 66–67, 74.
From the control room . . . water that was flushed: Aalto, transcript of interview by MPCA investigators, November 6, 1997.
In June of 1996, operators like Aalto . . . detention ponds: Roos, transcript of interview by MPCA investigators, November 17, 1997, 74; Rusch, transcript of interview by MPCA investigators, November 18, 1997, 22.
As water kept stacking up . . . a novel idea: Roos, transcript of interview by MPCA investigators, November 17, 1997, 44.
Roos downplayed the risk: Ibid.
Nobody told Heather Faragher: Faragher, transcript of interview by MPCA investigators, December 19, 1997, 23–25.
Every weekday morning at seven: Faragher, interviews by author, 2015; Faragher, transcript of interview by MPCA investigators, December 19, 1997, 23–25.
On October 24, 1996, Heather Faragher sent a memo: Faragher, transcript of interview by MPCA investigators, December 19, 1997, 40; Roos, transcript of interview by MPCA investigators, November 17, 1997, 62–63; Estes, transcript of interview by MPCA investigators, October 31, 1997, 41.
Todd Aalto . . . at the wastewater plant: Aalto, transcript of interview by MPCA investigators, November 6, 1997, 24–28; Roos, transcript of interview by MPCA investigators, November 17, 1997, 63–64; Rusch, transcript of interview by MPCA investigators, November 18, 1997, 24; David, transcript of interview by MPCA investigators, November 19, 1997, 95.
“I hope these moves prove sufficient”: Roos, transcript of interview by MPCA investigators, November 17, 1997, 64.
Estes was the shift supervisor on duty: Estes, transcript of interview by MPCA investigators, October 31, 1997, 44–45.
At seven o’clock . . . to the hydrants: Ista, transcript of interview by MPCA investigators, October 31, 1997, 31–36, 54; Russ Hawkinson, transcript of interview by MPCA investigators, December 19, 1997, 8, 17; Aalto, transcript of interview by MPCA investigators, November 6, 1997, 20.
On the morning of November 4 . . . detention ponds: Faragher, interviews by author, 2015; Faragher, transcript of interview by MPCA investigators, December 19, 1997, 24.
Estes later told state investigators: Estes, transcript of interview by MPCA investigators, October 31, 1997, 35–38.
They reached Jim Voyles . . . in Wichita: Faragher, interviews by author, 2015; Faragher, transcript of interview by MPCA investigators, December 19, 1997, 25–28.
Faragher reported directly to the Minnesota Pollution Control Agency: Faragher, interviews by author, 2015; Faragher, transcript of interview by MPCA investigators, December 19, 1997.
Ruth Estes was the shift supervisor on Saturday: Estes, transcript of interview by MPCA investigators, October 31, 1997, 32–61; Roos, transcript of interview by MPCA investigators, November 17, 1997, 42; Faragher, transcript of interview by MPCA investigators, December 19, 1997, 31–37; Karen Hall, transcript of interview by MPCA investigators, November 4, 1997, 49–52.
Aalto walked along a tree line that bordered an empty field: Aalto, transcript of interview by MPCA investigators, November 6, 1997,
20.
Heather Faragher returned . . . glass-walled office: Faragher, interviews by author, 2015; Faragher, transcript of interview by MPCA investigators, December 19, 1997.
On January 17, Faragher . . . dozens of employees: Heather Faragher to Pine Bend supervisors and employees, memo, January 17, 1997.
Before she sent the letter to the state: Faragher, draft letter, 1997.
Voyles deleted that entire paragraph: Faragher, interviews by author, 2015; edited version of Faragher draft letter, 1997.
Faragher spilled her story: Ibid.
On February 18, Brian Roos sent a memo: Roos, transcript of interview by MPCA investigators, November 17, 1997, 82–85.
Koch Industries opened the fire hydrants and spewed ammonia-laden water: Faragher, transcript of interview by MPCA investigators, December 19, 1997, 142–44; Roos, transcript of interview by MPCA investigators, November 17, 1997, 74–77; Ista, transcript of interview by MPCA investigators, October 31, 1997, 45–46; Chadwell, transcript of interview by MPCA investigators, November 20, 1997; Stormoen, transcript of interview by MPCA investigators, November 6, 1997.
This was just one . . . during the 1990s: Grotjohn, background sources, interviews by author, 2015.
Longtime employees like Charlie Chadwell wanted: Chadwell, transcript of interview by MPCA investigators, November 20, 1997; Dennis Lien, “Koch Casts Doubt on Whistle-Blower’s Motives; His Mental State and Conduct Are Scrutinized,” Pioneer Press, January 12, 2000; Dennis Lien, “Former Koch Employee Says She Was Subjected to Retaliation; Engineer’s Testimony Supports Whistleblower,” Pioneer Press, January 11, 2000; Charles S. Chadwell v. Koch Refining Company, United States Court of Appeals, Eighth Circuit ruling, May 17, 2001.
On April 8, 1997, Steve David: Faragher, interviews by author, 2015; Faragher, transcript of interview by MPCA investigators, December 19, 1997, 147–51.
David would later say that he hid the fact: David, transcript of interview by MPCA investigators, November 19, 1997, 73–79.