Sons of Wichita: How the Koch Brothers Became America's Most Powerful and Private Dynasty (39 page)

Charles hated to lose at anything. He even golfed like he was competing in the Masters. (“You think that Michael Jordan is competitive—well, Charles is competitive,” said one of his close friends.) And the political game had much higher stakes.

“We obviously miscalculated,” the bitterly disappointed CEO confided to friends after the election. “We’ll just have to work harder.” According to his friend Nestor Weigand, Charles didn’t point fingers. “He wasn’t blaming Rich Fink. He wasn’t blaming people. It’s just that they perceived that there would be more people that would want a freer society and less governmental
intervention and less people dependent upon the federal government. He thought… that people would see it, and they didn’t.” Charlie Chandler, another Wichita friend of Charles’s and a member of the donor network, said the brothers were self-critical about the loss. “I never heard one word [of], ‘so and so should have done this.’ It was always, ‘We failed. We didn’t get where we wanted to be. End of story.’ ”

In the wake of Obama’s reelection, though, there were still the donors to answer to—many who viewed politics through the businessman’s lens of ROI (return on investment). The Kochs had pressed their wealthy friends and acquaintances to pony up a staggering amount of money, and they had delivered, pouring hundreds of millions of dollars into the Koch-led political effort. In the lead-up to the election, the level of confidence within the Kochs’ political operation had bordered on euphoric. “They were pretty exuberant,” said a conservative strategist. “They thought they had it.” The Kochs and their overconfident political advisors, another political operative said, made big promises to their donors. “They… basically promised these donors that, ‘if you continue to fund what we’re doing, we will win this election through our efforts, through AFP and others.’ There was quite a bit of overpromising.”

After the election, some longtime contributors to the Koch network were understandably disappointed. Some blamed the electoral defeat on the quality of the Republican presidential candidate (“When you try and sell crap, you lose, right?” said Minnesota billionaire Stan Hubbard), but others wondered if the Koch brothers’ vaunted political operation had lived up to its reputation, according to fund-raisers and strategists who know the conservative donor world well. “I’ve heard there are people who have pulled back and there are people asking, ‘Where did my money go?’ ” said the conservative strategist. A Republican fund-raiser identified Wyoming investor Foster Friess—a major backer of the
Kochs’ 2012 efforts—as one of the donors who’d grown deeply disillusioned with the brothers’ political network. (Friess declined to comment.)

Charles had pledged to donors that his team would invest their contributions wisely to produce the maximum political dividends, but there was some question about whether their money had been well spent. Americans for Prosperity, a major recipient of donor funds, delivered an underwhelming performance. Its get-out-the-vote efforts fell flat and its political ads were poorly targeted. “In terms of the buying strategy, they were not particularly sophisticated,” recalled Larry Grisolano, the Obama campaign’s ad guru. The Obama team noticed early on that their real competition was Karl Rove’s Crossroads groups, whose well-produced ads closely tracked their own buys. AFP’s Tim Phillips, unveiling a $6.2 million ad campaign two months before the election, made a comment that seemed revealing in retrospect. “It’s difficult to assess the kind of bang for buck, candidly,” he told a reporter. “We just wanted to take a stand.” This was the opposite of the hypertargeted, data-centric strategy employed by the Obama campaign (and Crossroads), which did not use its precious resources for symbolic purposes.

Themis, the voter microtargeting operation that the Kochs and their network funded to the tune of $18 million between 2010 and 2012, was also a disappointment. Activists who used Themis data said they found it rudimentary and ineffective. “I’m trying to figure out what the point is,” said the leader of one conservative group. “Themis is nothing more than a massive database where they can find more donors and continue to build their empire.”

Charles ruthlessly assessed performance within his company, measuring the contribution of each employee and jettisoning unprofitable business units without a second thought. Yet the scale of the post-2012 reckoning within the Kochs’ political operation seemed muted, though a few heads did roll.

Most notably the brothers’ main outside political strategist, Sean Noble, was “pushed aside,” according to someone who knows him. “He’s the fall guy for ’12.”

The instinct to keep Noble at arm’s length was understandable. His political machinations had sparked a money-laundering investigation by California’s political watchdog, the Fair Political Practices Commission, and the state’s attorney general. The probe veered dangerously close to the Koch brothers.

In the run-up to the election, the commission had started looking into the mysterious source of an $11 million contribution to a local political action committee; this PAC, the Small Business Action Committee, had in turn poured the funds into two ballot measures. It backed one initiative curtailing the ability of unions to collect money for use in political campaigns and worked to defeat another raising the state’s sales and income taxes. (The PAC failed on both counts.)

California authorities tracked the labyrinthine path, through three nonprofits, that the cash took before winding up in the Small Business Action Committee’s bank account. Noble’s Center to Protect Patient Rights, a conduit for the disbursement of Koch network money, formed one key link in the chain. Because of the seriousness of the allegations, Noble retained Malcolm Segal, one of California’s top white-collar crime defense lawyers.

The California investigation slowly peeled back the layers of an elaborate financial shell game Noble and other political operatives had engaged in to obscure the source of contributions.

The main fund-raiser behind the California effort was a Sacramento-based strategist named Tony Russo. In 2011, inspired by Wisconsin Governor Scott Walker’s triumph over his state’s powerful public unions, Russo and his allies began crafting a plan of their own to take on organized labor in California. Russo believed the Kochs and their extensive political network might help in this fight, and he sat down with Noble in October 2011 to gauge
his interest. “We had met with some other people from Koch, through some donors who are part of Koch,” Russo recalled in a deposition. “… They have a network of c4’s do issue advocacy. And so I ended up meeting with Sean because he’s their outside consultant. And they had said that’s who I should be meeting with.”

Russo explained, “Conceptually, we talked about, would you guys be interested in engaging in this type of a fight in California?… It followed on the steps of Wisconsin.” Noble signed on, and not long thereafter he footed the bill to hire Republican pollster Frank Luntz to conduct focus groups around the issues Russo and his allies were targeting; Noble also paid for the development and testing of ads. Russo initially envisioned conducting part of his campaign through a group called Americans for Job Security, but thanks to a quirk in California’s campaign finance law, which strengthens disclosure requirements during the two months before an election, he had to abandon the plan. Fearing that donors who’d been promised anonymity could be outed, Russo turned to Noble.

“I have a big hiccup here in California,” he told the Kochs’ strategist during a phone call in early September 2012. “We have money raised… but I don’t think we can spend it in California. Can we support some of your national efforts and, in turn, do you have groups that can help us in California?” Russo proposed donating the money he’d raised to the Kochs’ political network, on the understanding that Noble would find a way to route it back into California through the web of national advocacy groups that received Koch donor funds. Noble agreed and told Russo to send his cash to the Center to Protect Patient Rights. In mid-October, as the election neared, Russo sent a text message to Noble requesting him to direct $11 million to the Small Business Action Committee. Barely had the check arrived—from an Arizona-based group Russo had never heard of called Americans for Responsible Leadership—when California’s Fair Political Practices Commission
began asking questions. They followed the money, and it led to Sean Noble.

The case resulted in a record $1 million fine for Noble’s Center to Protect Patient Rights and Americans for Responsible Leadership. When a settlement was eventually announced, the commission’s then-chair Ann Ravel said the case highlighted “the nationwide scourge of dark money nonprofit networks hiding the identities of their contributors.” Ravel’s commission directly implicated the “Koch brothers’ dark money network,” but Koch Industries responded in much the same way it had when Charles and David’s names first surfaced as Tea Party financiers.
Who us?
“We were not involved in any of the activities at issue in California,” said the company’s spokeswoman Melissa Cohlmia.

On December 6, 2012, a month to the day after the election, an onward-and-upward e-mail from Charles arrived in the in-boxes of his fellow donors. “Despite November’s disappointing election results, I am convinced that America’s long-term decline is far from a foregone conclusion,” he wrote. “Our goal of advancing a free and prosperous America is even more difficult than we envisioned, but it is essential that we continue, rather than abandon, this struggle.”

Charles was writing to inform members of the donor network that he had decided to postpone the upcoming seminar, scheduled as usual for late January. “We are working hard to understand the election results and, based on that analysis, to re-examine our vision and the strategies and capabilities required for success.”

When Charles and David finally convened their next donor retreat in late April 2013, the topics under discussion hinted at the strategic recalibration under way within the Kochtopus: “reaching the right people with the right message,” “Hispanic, women and youth engagement,” and “candidate recruitment and training.” Koch fund-raiser Kevin Gentry told participants ahead of the conference
that “a plan will be shared to help recruit more principled and effective advocates of free enterprise to run for office.”

The caliber of the lawmakers who flocked to the event suggested that the Koch brothers’ standing as conservative kingmakers hadn’t declined. Attendees included South Carolina Gov. Nikki Haley, Ohio Gov. John Kasich, and Sens. Rand Paul of Kentucky and Ted Cruz of Texas, all of whom are considered possible presidential or vice presidential contenders in 2016.

The month after the conference, there were already signs that the Kochs were testing out new strategies. For decades, Charles and David had focused almost exclusively on free-market issues, but in May, as the immigration debate heated up on Capitol Hill, the Charles Koch Institute partnered with the website
BuzzFeed
to hold a “BuzzFeed Brews” forum on the topic, featuring a number of pro-reform panelists. It reflected an effort by the Kochs’ political operation at youth engagement and an attempt to play a greater role in guiding the direction of the Republican Party away from some of the extreme positions that have turned off voters.

In June, a little more than a month after the Kochs unveiled their candidate recruitment plan to donors, Jeff Crank, the former chief operating officer of Americans for Prosperity, formed a political consultancy called Aegis Strategic to identify “electable advocates of the freedom and opportunity agenda.” The firm, whose staff includes operatives with deep ties to the Kochs’ political network, noted in its online marketing materials that it “takes on a limited number of candidates each election cycle and markets them to Aegis’ exclusive fundraising network.”

Charles and David, far from backing away from politics, are digging in for the electoral fights of the 2014 midterms and beyond, their friends say. “If you’re going to play in this arena, you don’t play only when it’s lukewarm, you play when it gets hot, too, and it’s gotten hot. They’re still playing,” said Charles’s longtime friend Nestor Weigand.

And the brothers, observed a former Koch executive who knows them well, won’t likely repeat the errors of 2012. “They were key in developing a strategy that at the end of the day didn’t get them much,” he said. “Did that make them less powerful? It may make them more powerful. They are smart people. They learn from their mistakes. They’ll develop a better, more effective strategy next time. They’re not the kind of people who will bury their heads in the sand and lick their wounds.”

They had lost the battle, but the Mother of All Wars was far from done.

Frederick Koch’s Upper East Side town house sits on a quiet street off Fifth Avenue, near the Metropolitan Museum of Art. It is January 2013, and in a few weeks’ time Frederick’s hard-hat-wearing younger brother will dip a ceremonial shovel into a mound of dirt in front of the museum, officially breaking ground on the David H. Koch Plaza. Frederick has devoted his life to the arts, but it’s David’s name that’s plastered on some of New York’s most prestigious cultural real estate, including the former New York State Theater at Lincoln Center.

The world of the Upper East Side elite is a small one, and Frederick and David occasionally bump into each other at galas or charity functions. These short, awkward exchanges (“Oh, hi, Freddie”) are pretty much the extent of their contact. Unlike David, who enjoys the status that comes with his high-profile philanthropy, Frederick conducts his life as if almost striving for obscurity. Thanks to Charles and David’s recent political infamy, he is now thought of as one of the “other” Koch brothers.

Frederick is so private about his affairs that during the 1980s, after underwriting the $2.7 million construction of England’s Swan Theatre in Stratford-upon-Avon (in the shell of a fire-ravaged Victorian playhouse), he kept quiet about his gift for several years as the British press tried to dig up the name of the angel donor. When Frederick’s role was finally revealed, he told the BBC in a
rare interview, “Never ask from where I came, nor what is my rank or name.” He was quoting Lohengrin’s warning to Elsa when the knight comes to her aid in Wagner’s romantic opera. When Elsa later poses the forbidden question, her savior disappears in a boat pulled by a swan.

Built of white marble, Frederick’s six-story neoclassical town house is one of a trio commissioned in the early 1900s by dime-store magnate Frank Winfield Woolworth, and designed by Charles Pierrepont Henry Gilbert, one of several architects favored by New York’s industrialists during the Gilded Age. Woolworth gave the town houses to each of his three daughters as wedding gifts. Six East 80th Street, the property Frederick now owns, belonged to the tycoon’s youngest daughter, Jessie. Woolworth was said to have wept on the day he gave Jessie away to James Donahue, the Irish-American scion of a less prominent family who made its money in the fat-rendering business. Donahue was a man of vices—gambling, booze, and young men in particular—and Woolworth’s doubts about the pairing proved well placed. In 1931, during a luncheon at the couple’s home, Donahue excused himself from the table and locked himself in the bathroom. He staggered out a few minutes later exclaiming, “I’ve done it.” Despondent over his finances and recently spurned by a young sailor, Donahue had gulped down seven mercury bichloride pills. He died within hours.

Frederick acquired the property for $5 million in 1986, three years after cashing in his Koch Industries stock and in the throes of a frenetic buying spree of historic homes and artwork. Frederick’s longtime architect Charles T. Young spent the next decade restoring the town house to its former splendor, and in many cases surpassing it. Frederick spared no expense. He continued a marble balustrade that ended after the first floor up the staircase and through the remaining five floors of the house. He replaced the crumbling plaster walls with carved limestone from the quarries
of Caen in northwestern France, the kind that would be found in a Parisian town house of the French Régence period. In one case, Frederick made structural alterations just to create enough wall space to hang one of the masterpieces of his art collection, widening a pair of stone columns to fit William-Adolphe Bouguereau’s
The Abduction of Psyche
.

“Sotheby’s for years has been trying to take this away from me,” Frederick tells a visitor. “And I keep telling them, ‘I can’t move it. It’s part of the architecture of this room.’ ”

Frederick’s office is located in what was James Donahue’s bedroom. Ornate paneling that once adorned the Palace of Versailles lines the walls. A bookcase, as in some murder-mystery thriller, conceals a hidden passageway designed, Frederick explains, “so that the six servants in this house would not be aware of Mr. Donahue’s comings and goings.” It leads, past a row of stained-glass windows inlaid with the initials of the Donahue clan, to what was Jessie Donahue’s bedroom and is now Frederick’s.

Not that he actually sleeps there.

Frederick spent millions getting every hand-wrought, filigreed detail just right, but he doesn’t actually live in the town house. When he’s in New York—and he moves frequently between his collection of homes—he resides at 825 Fifth Avenue. He just entertains the occasional guest at the Woolworth mansion, his private museum.

Dressed in a navy blazer, striped shirt, and thin cobalt tie, Frederick moves through the rooms of his home like a curator, his arms folded behind him. “If you pull the carpet back you’ll see a Versailles parquet,” he says, touring the dining room. He pauses to point out paintings by Jean-Honoré Fragonard, Edward Burne-Jones, and Gilbert Stuart; Aubusson carpets; a set of ten mahogany dining room chairs that once belonged to financier J. P. Morgan.

In one bedroom, he shows off a canopied bed that he calls “the
most important piece of furniture in the house.” It belonged to Marie Antoinette, a wedding gift from the mayor of Paris when she married Louis XVI. “I’m amazed even to this day that I was able to get it out of France. I bought it in Monte Carlo, which may have been the reason.”

He is at ease talking at length about every object in the house, and the intricacies of procuring or rehabilitating each of them. But when the topic turns briefly to his brothers, and whether they share his artistic sensibilities, Frederick tenses. “William does—David’s twin brother,” he replies. “He has a wonderful collection of all kinds of things.” Then he changes the subject.

Frederick displays one of his most treasured pieces on the top floor, in a sun-drenched, glass-enclosed conservatory that was once Jessie Donahue’s studio. On a pedestal beneath a circular skylight ringed with the signs of the zodiac sits a marble head wearing the headdress of an Egyptian pharaoh. The sculpture dates back to AD 130. “That is Antinous,” Frederick explains, “who was the lover of Emperor Hadrian.… Antinous accompanied Hadrian on a voyage down the Nile and at some point they stopped. Antinous went swimming and drowned in the Nile. The emperor was so grief stricken that he decided to immortalize Antinous and name him god of the Nile—and required people to worship him.”

Very few depictions of Hadrian’s lover exist. When the Roman Empire fell and Christians rose to power, they destroyed almost all the images of Antinous. “They very much resented having been ordered to worship the boyfriend of the emperor,” Frederick says. The marble head of Antinous, severed from a larger statue, was discovered in the eighteenth century in a swamp on the grounds of what was Hadrian’s estate in Tivoli.

What attracts Frederick to the objects he collects is not always their aesthetic value, but the hidden tales they tell, which he enjoys recounting with the flair of a raconteur. “Do you know the story of
Stanford White?” he inquires, gazing at a painting of the original Madison Square Garden, when it was located on Madison Avenue and 26th Street. White, the arena’s architect, was gunned down in its rooftop restaurant in 1906 by Harry Thaw, the son of a Pittsburgh railroad magnate. Thaw was consumed with jealousy over White’s past liaisons with Evelyn Nesbit, a former showgirl who had been the architect’s mistress before marrying Thaw. “He was obsessed with Stanford White’s previous relationship with Evelyn Nesbit,” Frederick says. “After they married he tormented her by asking her to reveal all the sexual positions that she had enjoyed with Stanford White. All that did was fuel his rage.”

Frederick thinks of himself as a writer, and though he never plied this trade professionally, his collection provides an outlet for his natural gift as a storyteller. There was a time, however, when Frederick had his own ambitions of literary and theatrical acclaim. After moving to New York City’s West Village in his late twenties, Frederick had once approached John Mason Brown, an esteemed New York theater critic and author (as well as a fellow Harvard alum) for career advice. Frederick told Brown in a letter that he “hoped to be a playwright before too long—and a drama critic much sooner.” But ultimately he never pursued these goals with much vigor, to the intense frustration of his industrious father.

But Frederick’s mother took pride of her son’s quiet, prolific arts patronage, especially his funding of the Swan Theatre, a name Frederick says he chose “in tribute to Shakespeare, who was sometimes called the Swan of Avon.” In 1986, Mary Koch traveled to England to watch her son appear side by side with the Queen of England at the theater’s opening.

During the 1980s, to house his growing collection of Victorian art, which was said to overrun warehouses on both sides of the Atlantic, Frederick envisioned creating a museum in London akin to New York’s Frick Collection. “Frederick Koch had the eye of a true connoisseur,” said London art dealer Julian Hartnoll, one of
the agents Frederick enlisted to do his buying. “He did not follow the flash or the ostentatious preferring the academic, the intellectual, and the byways of art history, literature, and music.”

Frederick proposed siting his gallery in historic St. John’s Lodge, a neoclassical villa located in London’s Regent’s Park. But his plans to overhaul the interior led to a protracted standoff with British cultural authorities, during which Frederick threatened to return to America with his collection of nineteenth-century art, a move one local architectural historian dubbed “crude bluff and blackmail.”

The fact that the Brits did not grasp his vision perplexed him. “The lodge is deteriorating rapidly now,” Frederick fumed in the late 1980s. “If I don’t take it on, it will probably go to some millionaire Arab.” He wasn’t far off the mark. St. John’s Lodge now belongs to the Sultan of Brunei.

Fed up with bureaucratic wrangling and unwanted press attention, Frederick ultimately settled on a secondary location. Sutton Place was situated on more than 700 picturesque acres about a half-hour’s drive from central London. A courtier to Henry VIII built the 50,000-square-foot Tudor mansion in the early sixteenth century, and it once belonged to the reclusive American oil billionaire John Paul Getty. Through a charitable foundation, Frederick purchased Sutton Place for £8 million from another reclusive American owner: Stanley Seeger, whose fortune, like Frederick’s, derived from an industrial empire. Frederick embarked on an extensive £12 million restoration project. But even before completing it, he baffled the British art world when he began selling off the Victorian masterpieces he’d spent the previous decade amassing.

“It certainly smelled of a person who was over extended,” said someone who knew him during the 1990s, adding, “It certainly appeared to me that it was going to pay the gardener.” But which one? He owned three other estates that required exorbitant upkeep.

Finally, in 1999, Frederick put the newly restored home on the market for £25 million. Maintaining the large estate which had a staff of twenty cost a small fortune, and according to Frederick, he wanted to move on to other projects. “I found that you don’t own the houses, the houses own you,” he says. “They make so many demands on you.” Sutton Place sat on the market until 2005, when a mysterious buyer purchased it through a middleman. Frederick later discovered the new owner was Russian oligarch Alisher Usmanov, number 34 on
Forbes
’s billionaire’s list.

“I got my investment back,” Frederick says with a trace of bitterness. Though he relinquished Sutton Place and, with it, his ambition of a museum dedicated to his art collection, his cultural legacy lives on in other venues. A trove of musical scores, manuscripts, historical documents, and artistic ephemera snatched up anonymously from the auction market during the 1980s reappeared in the Frederick R. Koch Collection, now housed in Yale’s Beinecke Library.

The collection includes everything from the handwritten scores of Mozart, Schubert, and Stravinsky, to the letters of W. H. Auden, Charles Baudelaire, and Marcel Proust, and from the poems of Jean Cocteau and Victor Hugo to the manuscript drafts of Henry Miller and Oscar Wilde. “What struck me most was how he knew his collection in the most intricate detail,” said Vincent Giroud, the Beinecke’s former curator of modern books and manuscripts, who worked closely with Frederick to document the collection. “I’ve met many collectors who could be wonderful people and very generous, but are not very knowledgeable about what they have. That’s not at all his case.” He added, “He has the mind of a scholar himself in many ways.”

Frederick lowers himself into an armchair in a second-floor sitting room. He has not spoken to the press in more than twenty-five years, since the British media descended on him like a pack
of wolves. Even before that, he refused all interviews and stayed conspicuously quiet as his younger brothers savaged one another on the pages of national newspapers and magazines.

“Shall we delve into Koch world?” he asks.

But first a formality. He unclasps a clear plastic envelope and withdraws a crisp document. “If you would sign this, please.” It’s a contract requiring that “all writing pertaining to Frederick R. Koch, including personal subject matter revealed in research and interviews,” be submitted “for his approval.”

No journalist could agree to these terms, and when his visitor explains this, Frederick’s genial demeanor ices over. “My brothers and I,” he warns, “are practiced combatants in the field of public relations.”

He shows his visitor out into the January chill. Nearby, excavators are gnawing through concrete, as preliminary construction for the Met’s new David H. Koch Plaza gets under way.

As the Koch brothers reach their sunset years, each has left his mark in a vastly different way. If Frederick’s imprint is the most understated, Bill’s is as flamboyant as the Pucci silk that lines his suit jackets. Bill has lived on his own terms, played by his own rules—a maverick quality that led to some of his biggest triumphs, such as when he flipped the bird to the naysayers and claimed the America’s Cup. But it also mired him in bizarre tabloid controversies and bruising lawsuits, such as the ongoing legal imbroglio over charges that he kidnapped and falsely imprisoned an employee.