Sons of Wichita: How the Koch Brothers Became America's Most Powerful and Private Dynasty (36 page)

Around Cato’s Massachusetts Avenue offices, in a modernistic cube of a building with a glass façade, staffers expressed anger but also befuddlement. Many scholars owed their careers, at least in part, to Charles and David’s philanthropy. They had done internships or fellowships sponsored by Charles’s foundation, participated in seminars or summer programs held by the Koch-funded Institute for Humane Studies, worked their way up through any
number of nonprofits that received backing from the brothers, or all of the above.

“You’re talking about people at Cato who are big fans of Charles and David Koch,” Levy said, “so it’s inexplicable to them that the Kochs would do what they’re doing.”

The Kochs might as well have taken a bat to this hive of libertarian thought. Within days of the lawsuit, Catoites set up a “Save Cato” Facebook page and took to an assortment of blogs and news outlets to decry the alleged coup. “I don’t think they expected the Institution itself would reject their move,” said a Cato scholar. “When you take over an oil company, people might be scared they’re going to be fired, but you’re not going to have principled opposition. It’s not a question of whether you have a business when you’re done.”

If the Kochs gained control, Cato scholars and executives privately discussed resorting to the “Taiwan option”—forming a new think tank with the backing of Cato donors who remained loyal to Crane.

The Kochs and Crane, meanwhile, traded barbs in the press and via terse public statements. Crane accused the Kochs of an effort to “turn the Cato Institute into some sort of auxiliary for the GOP.” And he doubled down on his comments about Market-Based Management, calling Charles’s
Science of Success
, in an interview with
Slate
, “one of the worst books ever written.” David, resurrecting a charge once lobbed at Bill Koch during the brothers’ legal entanglements, blasted Crane for pursuing a “rule or ruin” strategy.

The Kochs’ reputation in libertarian and conservative circles for attempting to foist control over organizations they funded left them with scarce allies.
Breitbart
, the right-wing website founded by the late conservative firebrand Andrew Breitbart, emerged as one of their few defenders. It ran a series of unbylined articles
that portrayed Ed Crane as a petulant, power-mad tyrant willing to burn the think tank to the ground if he could not run it. The eponymous website also floated thinly sourced allegations of sexual harassment by Crane, rumors amplified by websites associated with members of a libertarian faction loyal to the late Murray Rothbard.

Meanwhile, libertarian scholars and other allies on the Right closed ranks around their Cato comrades, pleading with the brothers publicly to back down, lest they do “irreparable harm to the credibility of Cato” and “undermine our community’s intellectual defenses” at the worst possible time, as the leadership of FreedomWorks said in a statement. Liberals, usually only too glad to pillory Cato, joined in the anti-Koch pile-on. The enemy of their enemy was their friend.

The Kochs expected the wrath of the Left. Little did they imagine that as the 2012 presidential election loomed, they would take heavy fire from within the movement they had helped to create.

The Cato conflagration distracted from the main battle the Kochs were fighting against the Obama administration. When the president’s reelection campaign unleashed its first ad of the general election in mid-January 2012, the spot didn’t trifle with Mitt Romney, Newt Gingrich, or any of the other Republican contenders; they were doing a good enough job of eviscerating one another without outside help. Team Obama, rather, directed its fire at the Koch brothers, whom David Axelrod, the president’s chief political strategist, had dubbed “contract killers in super-PAC land.”

“Secretive oil billionaires attacking President Obama with ads fact checkers say are ‘not tethered to the facts,’ ” the ad’s narrator intoned. A still frame of an Americans for Prosperity issue ad, targeting Obama for his support of the bankrupt solar company Solyndra, flashed on the screen.

The president’s political advisors devised the “secretive oil billionaires”
ad as part of a carefully calibrated strategy to defang the Kochs and neutralize the impact of their attack ads. “Given the experience of 2010, at the outset of 2011 we were scared to death that between the Koch brothers and [Karl Rove’s American] Crossroads that the campaign would be outspent by hundreds of millions of dollars,” recalled Ben LaBolt, the Obama campaign’s press secretary.

The fear of being outspent by the Kochs and their allies drove the Obama campaign, already known as pioneers in the use of microtargeting and voter analytics, to become that much more data-focused. “You can count the concern about the Koch brothers and the outside groups” in the dozens of staffers the campaign allocated to its analytics department, said Larry Grisolano, who oversaw the Obama campaign’s advertising. Heading into the election, there remained only a small sliver of the electorate—perhaps 15 percent—who could be swayed left or right. Plans by the Kochs to dump hundreds of millions of dollars into the election motivated the Obama campaign to strive for ruthless efficiency in its own expenditures. The campaign developed a system called “the Optimizer,” which mingled voter and TV viewer data and guided its hypertargeted ad strategy. The campaign couldn’t play “the traditional advertising game of casting a really broad net and hoping that you get the fish,” Grisolano said. “We wanted to basically have a very laser-like focus on where those targets were and have as little spillage into inefficient targets as possible. It was all because of our pre-occupation with spending by the Koch brothers and other outside groups.”

The “secretive oil billionaires” ad was born of the Obama team’s realization that it could not refute Americans for Prosperity ad for ad. When the campaign focus-grouped possible responses to Americans for Prosperity’s attack ads, it found that viewers often disregarded the group’s message once they became aware of AFP’s connection to the billionaire Koch brothers. “If you just outlined
who the Koch brothers were in that response ad,” said LaBolt, “then people tended to discredit the argument. You could educate people about what AFP was, so that they would remember when they saw subsequent advertisements who was behind it.”

The Obama campaign’s debut ad reminded voters—as it would do over and over again throughout the election—that a pair of petrochemical billionaires lurked behind many of the political ads attacking the president. According to Grisolano, the campaign found that the name “Americans for Prosperity” itself made some voters suspicious. It sounded like a front group. “They kind of helped us in this idea of the secretive oil billionaires by the ambiguity of the name and what their aims were.”

The Obama campaign’s opening salvo touched a nerve. Former George W. Bush administration solicitor general Ted Olson, who represented Koch Industries, fired back in a
Wall Street Journal
op-ed that accused President Obama and his reelection team of engaging in Nixonian tactics against the Koch brothers in a “multiyear, carefully orchestrated campaign of vituperation.”

The Obama campaign had no plans of retreating. In February, Obama’s campaign manager Jim Messina invoked the brothers in a fund-raising appeal, noting that Mitt Romney, who was scheduled to appear at an Americans for Prosperity event, was courting men “whose business model is to make millions by jacking up prices at the pump” and “who bankrolled Tea Party extremism.”

By March, as the Cato feud went public, the Obama team and Koch Industries were dueling in deliciously passive-aggressive open letters. “It is an abuse of the President’s position and does a disservice to our nation for the President and his campaign to criticize private citizens simply for the act of engaging in their constitutional right of free speech about important matters of public policy,” chided Philip Ellender, the president of Koch Industries’ government and public affairs division.

Messina, who carefully tracked Americans for Prosperity’s
spending on a whiteboard in his Chicago office, only too gladly replied: “It is a cynical stretch to describe the political activities of your employers as furthering democracy when they are courting huge checks from special interest donors to pay for negative ads, with no public disclosure of the identity of those donors.” He challenged the Kochs to disclose Americans for Prosperity’s contributors, who, the brothers’ representatives insisted, disingenuously, were largely average citizens from “across the country and from all walks of life.”

By May, the tit-for-tat graduated to web videos, each side responding acidly to the latest provocation.

“You may have heard of the Koch brothers,” Obama’s deputy campaign manager Stephanie Cutter said, speaking directly into the camera and betraying more than a tinge of annoyance. “… These guys are going to say whatever it takes to tear down the president. They will literally say anything.… So we’re going to call their BS when we see it.”

Koch Industries’ PR shop retorted with its own slickly produced video: “Yet again, low-minded invective aimed at job creators. The president and his campaign offer no solutions and no principled discussion.”

While the bitter Republican primary campaign slogged on, it was as if President Obama were running against the Koch brothers.

While Charles and David fought for the political soul of the country and did battle over Cato, their brother Bill was busy waging wars of his own—against such evildoers as shady wine dealers and Oxbow employees he suspected of fraud. These fights, as usual, involved high-priced lawyers, shadowy investigators, and made-for-TV-movie-style intrigue.

By 2012, Bill was seven years into his latest legal crusade, one that had begun in 2005 when Boston’s Museum of Fine Arts
was preparing an exhibition of his eclectic collections of art and memorabilia called “Things I Love.” He counted four bottles of eighteenth-century French wine, two Brane Mouton and two Lafite, engraved with the initials “Th.J,” among the jewels of his collection. Bill had purchased the wine, said to have belonged to Thomas Jefferson, for $500,000 in 1988. But as his aides attempted to trace the provenance of the Jefferson bottles in preparation for the show, the story behind them grew murkier and murkier. It began to look like they were fakes.

If there was one thing that got Bill’s blood boiling and drew out his most obsessive impulses, it was being cheated. “I’ve bought so much art, so many guns, so many other things, that if somebody’s out to cheat me I want the son of a bitch to pay for it,” he has said. Bill wanted the SOB who’d peddled the bogus Jefferson bottles to be locked up, and he turned to retired FBI agent Jim Elroy to spearhead the investigation. Elroy, whose cell phone ring tone was the theme for
The Good, the Bad, and the Ugly
, had a long history with Bill. They’d known each other since the late 1980s, when the veteran agent had worked on the Senate investigation that implicated Koch Industries in widespread oil theft from Native American lands. Since retiring from the FBI, Elroy had frequently performed investigative work for Bill, and he put together an international team of detectives that included a former Scotland Yard Inspector and an ex-MI6 agent to pursue the case.

The investigation led from Monticello, Thomas Jefferson’s historic estate in Charlottesville, Virginia, to the Alps of southeastern France, where Elroy, toting two bulletproof suitcases that held the Jefferson bottles and two other suspected counterfeits, traveled to have them isotope-tested by a scientist who’d pioneered a novel method for dating wine. Though these tests proved inconclusive, Elroy also had the engravings on the Jefferson bottles analyzed. He discovered that only a power tool—perhaps a dental drill—could have made the markings.

The deeper Elroy looked, the deeper the fraud seemed to go. The problem went beyond a few phony bottles. Forgeries, shady dealers, and shadowy middlemen plagued the industry. Collectors who realized they’d been duped, meanwhile, often placed their counterfeit bottles back up for auction, offloading them on the next rube. Soon Bill’s investigation expanded beyond the Jefferson bottles. He wanted to purge the industry of fake wine, one cheat at a time.

Bill and his inner circle thought about this quest—which at first had focused on a mysterious German wine aficionado named Hardy Rodenstock, the man who claimed to have discovered the Jefferson bottles—in cinematic terms. “This is
National Treasure
,” his spokesman Brad Goldstein told Benjamin Wallace, author of
The Billionaire’s Vinegar
, which recounts the gripping tale of the bogus Jefferson bottles. When it came to casting, Bill’s aides joked that Michael Caine should play their boss in the movie version.

Before long, Bill presided over at least six civil lawsuits. He took on the wine auction house Zachys (eventually settling with the company) and sued Christie’s (the case was ultimately thrown out). And he pursued alleged counterfeiters Hardy Rodenstock (who denied peddling phony wine and managed to elude Bill’s legal dragnet, despite a default judgment entered against him) and Rudy Kurniawan (an Indonesian wine dealer who was arrested by the FBI in March 2012 and subsequently convicted of fraud).

One of Bill’s recent targets was Silicon Valley entrepreneur Eric Greenberg, who Bill alleged had knowingly sold him two-dozen bottles of counterfeit Bordeaux—their vintages ranging from 1864 to 1950—for $355,000. Greenberg and his lawyer said that, upon learning the bottles were fakes, the tech tycoon repeatedly offered to reimburse Bill, but the billionaire rebuffed these entreaties. He wanted to make an example out of Greenberg—and eventually he did. In April 2013, Bill stood triumphantly outside a
federal district courthouse in lower Manhattan clutching a bottle of bogus 1921 Château Pétrus, having won a jury award of nearly $380,000. (He was later awarded $12 million in punitive damages.) “I absolutely can’t stand to be cheated,” Bill told reporters. “Now we got one faker so we’re marching down our hit list of fakers. This is just a start.” Then he decamped to a pricey French restaurant on Manhattan’s Upper East Side to savor his victory over a glass of fine wine.