“Occupy Wall Street” protesters are angry over the lack of employment prospects and government actions that are “not relevant to their lives,” House Minority Leader Nancy Pelosi said.
“I think they are angry that they don’t have jobs,” Pelosi told ABC News’ “This Week” program, scheduled for broadcast today. “There’s nothing that makes you angrier than not being able to provide for your family or understand what your prospects are for the future.”
Americans’ pessimism about the economy helped send President Barack Obama’s approval rating to 38 percent last week, the lowest of his presidency. The nation’s jobless rate, which has been at 9 percent or higher since April, remained at 9.1 percent last month.
The stagnant labor market has limited consumer spending, which grew at 0.7 percent last month, the smallest increase since the last three months of 2009. The European debt crisis threatens to trigger another recession.
The protesters’ message to the “establishment,” including Wall Street and politicians, is that “change has to happen,” Pelosi said on ABC. The U.S. government’s bailout of banks hasn’t made capital available to average citizens as expected, the California Democrat said.
Obama, a Democrat, has expressed empathy with the demonstrators while stopping short of endorsing their movement.
“Occupy Wall Street” began three weeks ago in Lower Manhattan and has spread to cities such as Washington and San Francisco.
Social Justice: Current Affairs, Business, Politics, and all the reasons in the world to Thrive on Creative Discontent!
Saturday, October 8, 2011
Friday, October 7, 2011
Stop the Machine!!!
The "Stop the Machine" rally organised by a group called "October 2011" echoed the demands of the "Occupy Wall Street" movement in New York that drew more than 5,000 people, including labour-union support, on Thursday.
"The poor are no longer patient," said one of the speakers, Ben Manski, a Green Party activist from Wisconsin, from a stage near the White House, decorated with the "We the People" preamble of the US constitution.
"It took us long enough, but we are no longer patient," Manski told the crowd, a mix of young people and veterans of protest movements of past decades who descended on the square with placards, drums and sleeping bags.
"This is a sacred struggle, on a par with the abolition of slavery, voting rights for women and civil rights," Manski said, "and just like those movements, we are going to win."
The protest - which has a four-day permit - got under way just as Barack Obama, the US president, called the Wall Street protests an expression of the frustration that Americans are feeling.
"I think people are frustrated, and the protesters are giving voice to a more broad-based frustration about how our financial system works," he told reporters at the White House.
Obama also used the opportunity to push forward his $447bn jobs bill, the American Jobs Act, saying it would ensure tougher oversight of the financial industry.
"The poor are no longer patient," said one of the speakers, Ben Manski, a Green Party activist from Wisconsin, from a stage near the White House, decorated with the "We the People" preamble of the US constitution.
"It took us long enough, but we are no longer patient," Manski told the crowd, a mix of young people and veterans of protest movements of past decades who descended on the square with placards, drums and sleeping bags.
"This is a sacred struggle, on a par with the abolition of slavery, voting rights for women and civil rights," Manski said, "and just like those movements, we are going to win."
The protest - which has a four-day permit - got under way just as Barack Obama, the US president, called the Wall Street protests an expression of the frustration that Americans are feeling.
"I think people are frustrated, and the protesters are giving voice to a more broad-based frustration about how our financial system works," he told reporters at the White House.
Obama also used the opportunity to push forward his $447bn jobs bill, the American Jobs Act, saying it would ensure tougher oversight of the financial industry.
The poor get poorer, while the......
Refinancing of Fannie Mae and Freddie Mac mortgages with the lowest interest rates soared as prepayments on loans with the highest rates declined, underscoring how only some homeowners can take advantage of the best borrowing costs on record.
The so-called constant prepayment rate, or CPR, for 30-year Fannie Mae securities with 4 percent coupons, backed by loans with rates of about 4.5 percent, jumped 140 percent last month to 17.7, according to data released late yesterday. Speeds for similar bonds with underlying loan rates averaging about 7 percent fell almost 10 percent to 19.2.
Treasury Secretary Timothy F. Geithner told lawmakers yesterday the U.S. would “move forward with a plan in the next couple of weeks” to allow more refinancing of government-backed loans for borrowers who owe more than their home’s values. Prepayment speeds last month on the lowest-rate debt show lenders may be concentrating on the safer homeowners who got loans since the housing slump slowed in 2009.
“This report underscores the trend that lenders have learned to cope with capacity constraints by prioritizing borrowers” who are the easiest to underwrite, JPMorgan Chase & Co. (JPM) analysts led by Brian Ye in New York said in a report, referring to originators struggling to deal with a surge of business after a Mortgage Bankers Association index of refinancing applications more than doubled from this year’s low.
The so-called constant prepayment rate, or CPR, for 30-year Fannie Mae securities with 4 percent coupons, backed by loans with rates of about 4.5 percent, jumped 140 percent last month to 17.7, according to data released late yesterday. Speeds for similar bonds with underlying loan rates averaging about 7 percent fell almost 10 percent to 19.2.
Treasury Secretary Timothy F. Geithner told lawmakers yesterday the U.S. would “move forward with a plan in the next couple of weeks” to allow more refinancing of government-backed loans for borrowers who owe more than their home’s values. Prepayment speeds last month on the lowest-rate debt show lenders may be concentrating on the safer homeowners who got loans since the housing slump slowed in 2009.
“This report underscores the trend that lenders have learned to cope with capacity constraints by prioritizing borrowers” who are the easiest to underwrite, JPMorgan Chase & Co. (JPM) analysts led by Brian Ye in New York said in a report, referring to originators struggling to deal with a surge of business after a Mortgage Bankers Association index of refinancing applications more than doubled from this year’s low.
Thursday, October 6, 2011
American Jobs Act!!!
US President Barack Obama has said that the "Occupy Wall Street" protests in New York and other US cities reflect "broad-based frustration" among Americans with how the US financial system works.
Obama spoke on Thursday at the White House, adding that the protests were indicative of public anger that those who helped cause the financial crisis are fighting efforts to curb abuses.
"I think it expresses the frustrations the American people feel, that we had the biggest financial crisis since the Great Depression, huge collateral damage all throughout the country ... and yet you're still seeing some of the same folks who acted irresponsibly trying to fight efforts to crack down on the abusive practices that got us into this in the first place," he said at a news conference.
Obama also used the opportunity to push forward his $447bn jobs bill, the American Jobs Act, saying that it was designed to ensure tougher oversight of the financial industry.
"Any senator out there who's thinking about voting against this jobs bill when it comes up for a vote needs to explain exactly why they would oppose something we know would improve our economic situation at such an urgent time," Obama said.
Obama spoke on Thursday at the White House, adding that the protests were indicative of public anger that those who helped cause the financial crisis are fighting efforts to curb abuses.
"I think it expresses the frustrations the American people feel, that we had the biggest financial crisis since the Great Depression, huge collateral damage all throughout the country ... and yet you're still seeing some of the same folks who acted irresponsibly trying to fight efforts to crack down on the abusive practices that got us into this in the first place," he said at a news conference.
Obama also used the opportunity to push forward his $447bn jobs bill, the American Jobs Act, saying that it was designed to ensure tougher oversight of the financial industry.
"Any senator out there who's thinking about voting against this jobs bill when it comes up for a vote needs to explain exactly why they would oppose something we know would improve our economic situation at such an urgent time," Obama said.
Wednesday, October 5, 2011
Battle for New York!!!
New York City police using pepper spray and batons violently confronted a crowd of demonstrators and journalists who had converged near barricades at the entrance to Wall Street on Wednesday night, as part of ongoing protests in the United States' financial capital over wealth inequality and a host of other grievances.
The Resistance!!!
CHICAGO—The offshoot here of the anti-Wall Street protests in New York ran up against police resistance Wednesday and protesters dismantled their base outside this city's Federal Reserve Bank, but they vowed to maintain their presence on the corner indefinitely.
Occupy Chicago has been one of the largest spinoffs of the 19-day-old "Occupy Wall Street" movement, which stands against "greed and corruption" by the wealthiest 1% of the population.
Around the clock for nearly two weeks, dozens and sometimes hundreds of protesters have occupied a bustling corner here outside the U.S. Federal Reserve Bank and the Chicago Board of Trade, building.
"We're here for justice — our sign says it all, and our sign says, 'Stop government crimes,'" said Chris Fogarty, as he stood with his wife, Mary O'Sullivan, on LaSalle Street. "And the other side says, 'Restore our laws.'"
Occupy Chicago has been one of the largest spinoffs of the 19-day-old "Occupy Wall Street" movement, which stands against "greed and corruption" by the wealthiest 1% of the population.
Around the clock for nearly two weeks, dozens and sometimes hundreds of protesters have occupied a bustling corner here outside the U.S. Federal Reserve Bank and the Chicago Board of Trade, building.
"We're here for justice — our sign says it all, and our sign says, 'Stop government crimes,'" said Chris Fogarty, as he stood with his wife, Mary O'Sullivan, on LaSalle Street. "And the other side says, 'Restore our laws.'"
About OCCUPY TOGETHER
September 23rd, 2011
OCCUPY TOGETHER, an unofficial hub for all of the events springing up across the country (383 US Cities as of today) in solidarity with Occupy Wall St. As we have followed the news on facebook, twitter, and the various live feeds across the internet, we felt compelled to build a site that would help spread the word as more protests organize across the country. We hope to provide people with information about events that are organizing, ongoing, and building across the U.S. as we, the 99%, take action against the greed and corruption of the 1%.
The pivotal moment of the Occupy Wall Street protest continues to be a video of a high-ranking police officer brutally "macing" innocent women = Welcome to America Land of the Free???
We will try our best to provide you with the most accurate information possible. However, we are just a few volunteers and errors are bound to occur. Please be patient as we get this site off the ground and populated and please contact us if you have any info on new events, corrections, or suggestions for this site. You can contact us at info[at]occupytogether[dot]org.
We will only grow stronger in our solidarity and we will be heard, not just in New York, but in echoes across this nation.
OCCUPY TOGETHER, an unofficial hub for all of the events springing up across the country (383 US Cities as of today) in solidarity with Occupy Wall St. As we have followed the news on facebook, twitter, and the various live feeds across the internet, we felt compelled to build a site that would help spread the word as more protests organize across the country. We hope to provide people with information about events that are organizing, ongoing, and building across the U.S. as we, the 99%, take action against the greed and corruption of the 1%.
The pivotal moment of the Occupy Wall Street protest continues to be a video of a high-ranking police officer brutally "macing" innocent women = Welcome to America Land of the Free???
We will try our best to provide you with the most accurate information possible. However, we are just a few volunteers and errors are bound to occur. Please be patient as we get this site off the ground and populated and please contact us if you have any info on new events, corrections, or suggestions for this site. You can contact us at info[at]occupytogether[dot]org.
We will only grow stronger in our solidarity and we will be heard, not just in New York, but in echoes across this nation.
Tuesday, October 4, 2011
What do the Euro and the Titanic have in Common? (Answer: Large, Lumbering and Blind to Danger)
European countries with debt ratings below the top Aaa level may see reductions in their rankings, Moody’s Investors Service said.
“All but the strongest euro-area sovereigns are likely to face sustained negative pressure on their ratings,” Moody’s said in a statement. “Consequently, Moody’s expects fewer countries below Aaa to retain high ratings.” It added that “there are no immediate pressures that could cause downgrades for Aaa-rated countries.”
The statement came after the company yesterday cut Italy’s rating for the first time since 1993 on concern the government will struggle to reduce the region’s second-largest debt amid chronically weak growth. Italy was cut three levels to A2 from Aa2. Standard & Poor’s downgraded Italy on Sept. 20 for the first time in five years.
European stocks dropped for a third day, the longest losing streak in four weeks, as policy makers signaled they may renegotiate terms of Greece’s bailout, deepening concern about the impact of the debt crisis. The benchmark Stoxx Europe 600 Index fell 2.8 percent to 217.46 at the 4:30 p.m. close in London, the lowest level in a week.
European finance chiefs meeting this week considered “technical revisions” to the second Greek bailout, Luxembourg Prime Minister Jean-Claude Juncker said yesterday, fueling concern bondholders may have to take bigger losses on the nation’s debt.
“All but the strongest euro-area sovereigns are likely to face sustained negative pressure on their ratings,” Moody’s said in a statement. “Consequently, Moody’s expects fewer countries below Aaa to retain high ratings.” It added that “there are no immediate pressures that could cause downgrades for Aaa-rated countries.”
The statement came after the company yesterday cut Italy’s rating for the first time since 1993 on concern the government will struggle to reduce the region’s second-largest debt amid chronically weak growth. Italy was cut three levels to A2 from Aa2. Standard & Poor’s downgraded Italy on Sept. 20 for the first time in five years.
European stocks dropped for a third day, the longest losing streak in four weeks, as policy makers signaled they may renegotiate terms of Greece’s bailout, deepening concern about the impact of the debt crisis. The benchmark Stoxx Europe 600 Index fell 2.8 percent to 217.46 at the 4:30 p.m. close in London, the lowest level in a week.
European finance chiefs meeting this week considered “technical revisions” to the second Greek bailout, Luxembourg Prime Minister Jean-Claude Juncker said yesterday, fueling concern bondholders may have to take bigger losses on the nation’s debt.
US Car Sales up 10%
All three of the Detroit automakers reported gains, led by a 27.2 percent year-over-year increase for Chrysler, which outsold Toyota for the fourth time this year.
Toyota and Honda again trailed the rest of the industry, even though September was the first month since the March earthquake and tsunami in Japan that all of their plants were running at full capacity. Toyota’s sales dropped 17.5 percent, and Honda’s were down 8 percent. In contrast, Nissan sales increased 25.3 percent.
The industry’s seasonally adjusted, annualized selling rate rose to 13.1 million, the first time since April that they had exceeded 13 million. General Motors and Ford Motor each said they still expected total sales for 2011 to top 13 million, which would require demand to jump further in the fourth quarter.
Auto executives and analysts said shoppers had not been dissuaded by a declining stock market, bleak consumer confidence surveys, a sluggish housing market or high unemployment. Bigger discounts offered by some brands have helped, as have new offerings like the Chevrolet Sonic, a subcompact car, and a bevy of redesigned models from Chrysler.
“I don’t know of any other month where we had positive gains in auto sales with all of those negative factors,” Jesse Toprak, vice president for industry trends and insight at TrueCar.com, which tracks sales and pricing. “The automakers might be convincing some consumers who may not be so eager to spend their money to buy a car because the product is so compelling.”
Mr. Toprak said more consumers also were showing up at dealerships because their current vehicle had outlived its useful life and they had no choice but to buy a replacement. High used-car prices are prompting some in that situation to buy a new one instead.
“As long as things remain relatively stable, even in the face of persistently high unemployment, we’re going to consistently see slow growth,” Don Johnson, G.M.’s vice president for United States sales operations, said in a conference call. “Right now, the pent-up demand due to age of vehicles is what’s keeping this nice, steady, slow growth going.” G.M. sales increased 19.7 percent in September over a year ago.
Falling gas prices helped persuade more shoppers to buy pickup trucks and other larger vehicles. Sales of light trucks, including sport utility vehicles and minivans, rose 16.1 percent, while passenger cars were up 3.4 percent.
Sales of full-size pickups, which typically fare best when the construction industry prospers, surged 46 percent at Chrysler and 33 percent at G.M. Ford, whose sales were up 9 percent over all, sold 18 percent more light trucks but 8.7 percent fewer cars.
At Chrysler, September was the 18th consecutive month of year-over-year sales growth. It reported a 24.3 percent gain for its Jeep brand of S.U.V.’s.
“Irrespective of the economy, strong products equal strong sales,” Reid Bigland, Chrysler’s head of United States sales, said in a statement. “There is no double-dip downturn going on around here.”
Another carmaker with considerable momentum is Nissan, which experienced relatively minor disruptions from the Japan disaster. Nissan sold 68 percent more of its subcompact car, the Versa, and its midsize sedan, the Altima, has outsold the Honda Accord so far this year.
In addition, the Nissan Leaf, an electric car, added to its sales lead over the Chevrolet Volt, G.M.’s plug-in hybrid. Nissan sold 1,031 Leafs to G.M.’s 723 Volts, but G.M. officials said they were still ramping up production while expanding sales to dealers nationwide.
For Toyota and Honda, even though plants are running at full speed, inventories are expected to remain below prequake levels until early next year. But dealerships said they were finally able to meet most shoppers’ needs again, rather than just taking an order or hoping the customer came back later.
“It’s beginning to feel like normal, almost,” said Adam Skolnick, the general manager at Toyota of Watertown, near Boston. “We have plenty of cars on the lot, and I’m anticipating many, many more coming in the next 45 days or so.”
Mr. Skolnick said the arrival of the redesigned Toyota Camry sedan a week ago was helping the dealership make a quick recovery. For September, Camry sales fell 19.2 percent, but it was the industry’s top-selling car.
“It’s been like a bakery here, with people taking numbers to see the car,” Mr. Skolnick said. “It makes it feel fun again.”
Toyota and Honda again trailed the rest of the industry, even though September was the first month since the March earthquake and tsunami in Japan that all of their plants were running at full capacity. Toyota’s sales dropped 17.5 percent, and Honda’s were down 8 percent. In contrast, Nissan sales increased 25.3 percent.
The industry’s seasonally adjusted, annualized selling rate rose to 13.1 million, the first time since April that they had exceeded 13 million. General Motors and Ford Motor each said they still expected total sales for 2011 to top 13 million, which would require demand to jump further in the fourth quarter.
Auto executives and analysts said shoppers had not been dissuaded by a declining stock market, bleak consumer confidence surveys, a sluggish housing market or high unemployment. Bigger discounts offered by some brands have helped, as have new offerings like the Chevrolet Sonic, a subcompact car, and a bevy of redesigned models from Chrysler.
“I don’t know of any other month where we had positive gains in auto sales with all of those negative factors,” Jesse Toprak, vice president for industry trends and insight at TrueCar.com, which tracks sales and pricing. “The automakers might be convincing some consumers who may not be so eager to spend their money to buy a car because the product is so compelling.”
Mr. Toprak said more consumers also were showing up at dealerships because their current vehicle had outlived its useful life and they had no choice but to buy a replacement. High used-car prices are prompting some in that situation to buy a new one instead.
“As long as things remain relatively stable, even in the face of persistently high unemployment, we’re going to consistently see slow growth,” Don Johnson, G.M.’s vice president for United States sales operations, said in a conference call. “Right now, the pent-up demand due to age of vehicles is what’s keeping this nice, steady, slow growth going.” G.M. sales increased 19.7 percent in September over a year ago.
Falling gas prices helped persuade more shoppers to buy pickup trucks and other larger vehicles. Sales of light trucks, including sport utility vehicles and minivans, rose 16.1 percent, while passenger cars were up 3.4 percent.
Sales of full-size pickups, which typically fare best when the construction industry prospers, surged 46 percent at Chrysler and 33 percent at G.M. Ford, whose sales were up 9 percent over all, sold 18 percent more light trucks but 8.7 percent fewer cars.
At Chrysler, September was the 18th consecutive month of year-over-year sales growth. It reported a 24.3 percent gain for its Jeep brand of S.U.V.’s.
“Irrespective of the economy, strong products equal strong sales,” Reid Bigland, Chrysler’s head of United States sales, said in a statement. “There is no double-dip downturn going on around here.”
Another carmaker with considerable momentum is Nissan, which experienced relatively minor disruptions from the Japan disaster. Nissan sold 68 percent more of its subcompact car, the Versa, and its midsize sedan, the Altima, has outsold the Honda Accord so far this year.
In addition, the Nissan Leaf, an electric car, added to its sales lead over the Chevrolet Volt, G.M.’s plug-in hybrid. Nissan sold 1,031 Leafs to G.M.’s 723 Volts, but G.M. officials said they were still ramping up production while expanding sales to dealers nationwide.
For Toyota and Honda, even though plants are running at full speed, inventories are expected to remain below prequake levels until early next year. But dealerships said they were finally able to meet most shoppers’ needs again, rather than just taking an order or hoping the customer came back later.
“It’s beginning to feel like normal, almost,” said Adam Skolnick, the general manager at Toyota of Watertown, near Boston. “We have plenty of cars on the lot, and I’m anticipating many, many more coming in the next 45 days or so.”
Mr. Skolnick said the arrival of the redesigned Toyota Camry sedan a week ago was helping the dealership make a quick recovery. For September, Camry sales fell 19.2 percent, but it was the industry’s top-selling car.
“It’s been like a bakery here, with people taking numbers to see the car,” Mr. Skolnick said. “It makes it feel fun again.”
Monday, October 3, 2011
What a ride!!!
Global stocks fell to a 15-month low on Tuesday, pinning Asian stocks near a 16-month low, as investors shed riskier assets on growing doubts over Greece's ability to avoid default, fuelling fears of global financial turmoil and recession.
Fears over the banking sector's exposure to euro zone sovereign debt and plummeting value of assets across the board further led to a sharp widening of credit default swaps.
Weakening outlook for industrial demand weighed on copper and oil while flight-to-safety strengthened gold, yen and the dollar.
"Investors are cutting their exposure to risk as the most extreme risks -- such as Greek default -- are looming closer than they expected," said Jung Sang-jin, a senior fund manager at Dongbu Asset Management.
MSCI's broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS fell 1.58 percent, hovering near a 16-month low hit in late September. It fell about 3.6 percent on Monday.
The MSCI All-Country World index .MIWD00000PUS fell 0.52 percent to its lowest level since July 2010, adding to declines on Monday when bank shares were battered, with Franco-Belgian financial group Dexia (DEXI.BR) calling an emergency board meeting after concerns about its exposure to Greece.
Japan's Nikkei markets/index?symbol=jp%21n225">.N225 fell to a 6- month low as a sell-off in commodities pushed trading houses lower and the Greek woes pressured the financial sector.
"We could be in for a shakeout even larger than the Lehman shock," said Hideki Amikura, forex manager at Nomura Trust Bank.
The massive selling pressures prompted some authorities to step in to help restore some order.
The Korea Exchange temporarily suspended programme sales on the main Korea Composite Stock Price Index finance/markets/index?symbol=kr%21kspi">.KS11 in early trade on Tuesday due to drastic falls in futures as the broader market tumbled more than 5 percent.
Taiwan state funds were seen stepping in local market to prop up heavyweights such as Taiwan Semiconductor Manufacturing Co (2330.TW), the world's top contract chipmaker, helping the market erase earlier losses to trade flat.
Fears over the banking sector's exposure to euro zone sovereign debt and plummeting value of assets across the board further led to a sharp widening of credit default swaps.
Weakening outlook for industrial demand weighed on copper and oil while flight-to-safety strengthened gold, yen and the dollar.
"Investors are cutting their exposure to risk as the most extreme risks -- such as Greek default -- are looming closer than they expected," said Jung Sang-jin, a senior fund manager at Dongbu Asset Management.
MSCI's broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS fell 1.58 percent, hovering near a 16-month low hit in late September. It fell about 3.6 percent on Monday.
The MSCI All-Country World index .MIWD00000PUS fell 0.52 percent to its lowest level since July 2010, adding to declines on Monday when bank shares were battered, with Franco-Belgian financial group Dexia (DEXI.BR) calling an emergency board meeting after concerns about its exposure to Greece.
Japan's Nikkei markets/index?symbol=jp%21n225">.N225 fell to a 6- month low as a sell-off in commodities pushed trading houses lower and the Greek woes pressured the financial sector.
"We could be in for a shakeout even larger than the Lehman shock," said Hideki Amikura, forex manager at Nomura Trust Bank.
The massive selling pressures prompted some authorities to step in to help restore some order.
The Korea Exchange temporarily suspended programme sales on the main Korea Composite Stock Price Index finance/markets/index?symbol=kr%21kspi">.KS11 in early trade on Tuesday due to drastic falls in futures as the broader market tumbled more than 5 percent.
Taiwan state funds were seen stepping in local market to prop up heavyweights such as Taiwan Semiconductor Manufacturing Co (2330.TW), the world's top contract chipmaker, helping the market erase earlier losses to trade flat.
Sunday, October 2, 2011
The Enemy within: Koch Brothers Flout Law With Secret Iran Sales
In May 2008, a unit of Koch Industries Inc., one of the world’s largest privately held companies, sent Ludmila Egorova-Farines, its newly hired compliance officer and ethics manager, to investigate the management of a subsidiary in Arles in southern France. In less than a week, she discovered that the company had paid bribes to win contracts.
She immediately notified her supervisors in the U.S. A week later, Wichita, Kansas-based Koch Industries dispatched an investigative team to look into her findings, Bloomberg Markets magazine reports in its November issue.
By September of that year, the researchers had found evidence of improper payments to secure contracts in six countries dating back to 2002, authorized by the business director of the company’s Koch-Glitsch affiliate in France.
“Those activities constitute violations of criminal law,” Koch Industries wrote in a Dec. 8, 2008, letter giving details of its findings. The letter was made public in a civil court ruling in France in September 2010; the document has never before been reported by the media.
Egorova-Farines wasn’t rewarded for bringing the illicit payments to the company’s attention. Her superiors removed her from the inquiry in August 2008 and fired her in June 2009, calling her incompetent, even after Koch’s investigators substantiated her findings. She sued Koch-Glitsch in France for wrongful termination.
Abolishing Social Security
Fred was an early adviser to the founder of the anti- communist John Birch Society, which fought against the civil rights movement and the United Nations. Charles and David have supported the Tea Party, a loosely organized group that aims to shrink the size of government and cut federal spending.
These are long-standing tenets for the Kochs. In 1980, David Koch ran for vice president on the Libertarian ticket, pledging to abolish Social Security, the Federal Reserve System, welfare, minimum wage laws and federal agencies -- including the Department of Energy, the Federal Bureau of Investigation and the Central Intelligence Agency.
What many people don’t know is how the Kochs’ anti- regulation political ideology has influenced the way they conduct business.
A Bloomberg Markets investigation has found that Koch Industries -- in addition to being involved in improper payments to win business in Africa, India and the Middle East -- has sold millions of dollars of petrochemical equipment to Iran, a country the U.S. identifies as a sponsor of global terrorism.
The ‘Koch Method’
Internal company documents show that the company made those sales through foreign subsidiaries, thwarting a U.S. trade ban. Koch Industries units have also rigged prices with competitors, lied to regulators and repeatedly run afoul of environmental regulations, resulting in five criminal convictions since 1999 in the U.S. and Canada.
From 1999 through 2003, Koch Industries was assessed more than $400 million in fines, penalties and judgments. In December 1999, a civil jury found that Koch Industries had taken oil it didn’t pay for from federal land by mismeasuring the amount of crude it was extracting. Koch paid a $25 million settlement to the U.S.
Phil Dubose, a Koch employee who testified against the company said he and his colleagues were shown by their managers how to steal and cheat -- using techniques they called the Koch Method.
Refused to Falsify
In 1999, a Texas jury imposed a $296 million verdict on a Koch pipeline unit -- the largest compensatory damages judgment in a wrongful death case against a corporation in U.S. history. The jury found that the company’s negligence had led to a butane pipeline rupture that fueled an explosion that killed two teenagers.
Former Koch employees in the U.S. and Europe have testified or told investigators that they’ve witnessed wrongdoing by the company or have been asked by Koch managers to take what they saw as improper actions.
Sally Barnes-Soliz, who’s now an investigator for the State Department of Labor and Industries in Washington, says that when she worked for Koch, her bosses and a company lawyer at the Koch refinery in Corpus Christi, Texas, asked her to falsify data for a report to the state on uncontrolled emissions of benzene, a known cause of cancer. Barnes-Soliz, who testified to a federal grand jury, says she refused to alter the numbers.
“They didn’t know what to do with me,” she says. “They were really kind of baffled that I had ethics.”
Koch’s refinery unit pleaded guilty in 2001 to a federal felony charge of lying to regulators and paid $20 million in fines and penalties.
The illicit payments uncovered by Ludmila Egorova-Farines raised the specter of a new blow to the company’s effort to improve its reputation following criminal convictions and civil penalties.
‘Smoking Gun’
“It sounds like a smoking gun,” says Beale, who co- authored “Federal Criminal Law and Its Enforcement” (Thompson West, 2010). “It really should get the Justice Department’s attention. When you have a smoking gun, you launch an investigation.”
Such a probe would fall under the Foreign Corrupt Practices Act, a 1977 law that makes it illegal for companies and their subsidiaries to pay bribes to government officials and employees of state-owned companies.
Justice Department spokeswoman Laura Sweeney says the agency won’t confirm or deny the existence of any investigation.
While Koch-Glitsch was conducting its internal probe of illicit payments for contracts, the U.S. government was investigating Koch’s European unit on another front: sales to Iran.
On Aug. 14, 2008, investigators from the U.S. Department of Homeland Security met with George Bentu, who had worked as a sales engineer from 2001 to 2007 for Koch-Glitsch in Germany, Bentu says. In a four-hour interview at the U.S. consulate in Frankfurt, the officials asked about documents showing details of the company’s trades with Iran, he says.
Legal Sidestep
Homeland Security spokeswoman Barbara Gonzalez declined to comment.
Internal company records show that Koch Industries used its foreign subsidiary to sidestep a U.S. trade ban barring American companies from selling materials to Iran. Koch-Glitsch offices in Germany and Italy continued selling to Iran until as recently as 2007, the records show.
The company’s products helped build a methanol plant for Zagros Petrochemical Co., a unit of Iran’s state-owned National Iranian Petrochemical Co., the documents show. The facility, in the coastal city of Bandar Assaluyeh, is now the largest methanol plant in the world, according to IHS Inc., an Englewood, Colorado-based provider of chemicals, energy and economic data.
Engineer Challenged Sales
“Every single chance they had to do business with Iran, or anyone else, they did,” Bentu, 46, says.
Bentu, a German engineer who earned his master’s degree in chemical engineering from Montana State University in Bozeman in 1990, joined Koch-Glitsch in 2001. His duties included drawing up bids for potential buyers of the company’s distillation equipment, which is used in making fuels, fertilizers, detergents and other products.
Bentu says he had been working at Koch-Glitsch in Viernheim, about 80 kilometers (50 miles) south of Frankfurt, for two months when he first saw an order destined for Iran. Concerned that the transaction might run afoul of U.S. law, Bentu asked his manager about it, he says. Bentu says his boss told him not to worry, that the company’s U.S. lawyers made sure the deals with Iran were legal.
U.S. companies have been banned from trading with Iran since 1995, when President Bill Clinton declared it a threat to national security. Iran supports Iraqi militants and Taliban fighters as well as terrorist groups, including Hamas and Hezbollah, according to the U.S. State Department.
Getting Around Ban
Koch Industries took elaborate steps to ensure that its U.S.-based employees weren’t involved in the sales to Iran, internal documents show.
Koch Industries may not have violated the law if no U.S. people or company divisions facilitated trades with Iran, says Avi Jorisch, a Treasury Department policy adviser from 2005 to 2008. That’s impossible to determine without a complete investigation, Jorisch says.
Internal Koch-Glitsch correspondence shows that the company coordinated with Koch Industries lawyers in the U.S. to make sure that American employees didn’t work on sales to Iran. Elena Rigon, now Koch-Glitsch compliance manager for Europe, based in Italy, in December 2000 addressed a memo outlining compliance guidelines to company managers in her region.
Cohlmia says of the agency’s ruling, “The decision did not find that Koch-Glitsch GmbH engaged in price fixing or any illegal behavior.”
Felony Conviction
This wasn’t Koch Industries’ first brush with complaints of improper competition. In October 2000, the FBI secretly recorded the telephone calls of Troy Stanley Sr., director of textile staples at KoSa, then a Luxembourg company with its main office in Charlotte, North Carolina.
Koch Industries and a Mexican company established KoSa as a joint venture in 1998 to buy the Hoechst AG unit that produced polyester staples, which are used in making textiles. KoSa pleaded guilty in October 2002 to a felony charge of conspiracy to restrain trade and paid a $28.5 million fine.
Stanley pleaded guilty to one count of conspiring to restrain trade in December 2004 and was sentenced to one year of probation and a $5,000 fine.
‘Anti-trust Conspiracy’
“Officers, directors, managers or employees participated in the conspiracy” between September 1999 and January 2001, KoSa admitted in the plea agreement.
The conspiracy began before KoSa bought the business and continued during its ownership, Stanley testified. Koch bought out its partner in 2001. The criminal activity occurred while Koch was a 50 percent owner.
During the next eight years, Koch Industries paid $76 million to settle antitrust claims brought by KoSa’s customers, and $59 million in legal fees, according to court records. KoSa is now part of Koch’s Invista unit.
A prosecution of KoSa by Canada’s attorney general for price fixing followed in August 2003. KoSa pleaded guilty and paid a C$1.5 million fine.
Cohlmia says a KoSa subsidiary “unknowingly bought into an ongoing antitrust conspiracy.” Once the company found out about the wrongdoing, it stopped the conspiracy and cooperated with the U.S. Justice Department, she says.
Benzene Emissions
The price-fixing convictions came after years of investigations, environmental lawsuits and fines that had plagued Koch’s oil pipeline and refining divisions.
In April 1996, Koch environmental technician Sally Barnes- Soliz walked into the offices of Texas regulators in Corpus Christi and told them the company had lied about spewing benzene into the air.
Koch Refining Co. had recruited Barnes-Soliz in 1991 to work in the safety department at the company’s Corpus Christi refinery. Barnes-Soliz, then 30, had earned a bachelor’s degree in science and environmental health and a Master of Science in industrial hygiene at Colorado State University in Fort Collins.
“I loved that job,” she says, describing how she helped protect plant workers and neighborhood residents from the many hazards at the refinery. “It’s important to me that people are safe and their job is not the reason they die.”
Federal rules in 1995 required the plant, one of two refineries Koch owns in Corpus Christi, to reduce benzene emissions to less than 6 metric tons a year. Benzene, a chemical compound refined from crude oil, was found to cause leukemia in 1928 by two Italian doctors who detected the cancer in a worker exposed to benzene for five years.
False Report
Four federal agencies -- the National Institutes of Health, the Food and Drug Administration, the Environmental Protection Agency and the Occupational Safety and Health Administration -- say that benzene is a cause of cancer.
On Jan. 6, 1995, Koch’s refining unit informed the Texas Natural Resource Conservation Commission, or TNRCC, that it had installed a new anti-pollution device called a Thermatrix that used flameless heat to burn off the benzene. The machine lacked sufficient capacity for the job, Barnes-Soliz says, and refinery workers disconnected it within days.
“The refinery was just hemorrhaging benzene into the atmosphere,” she says.
Three months after disconnecting the machine, Koch filed a quarterly report with Texas regulators, while concealing that it had violated the emission rules.
Falsified Document
“There were a lot of meetings to try and get me to change the number,” she says. “It was hard, but I held firm to my convictions.”
Barnes-Soliz’s bosses went around her. On April 8, 1996, Koch reported to Texas regulators that its Corpus Christi plant had uncontrolled emissions of 0.61 metric tons for 1995, or 1/149th the quantity she had found.
“When I saw they had actually falsified that document, I had no recourse but to notify the authorities,” Barnes-Soliz says.
On April 18, 1996, on her lunch break, she drove to the state’s TNRCC office and reported that Koch had lied about its benzene emissions. By the time Barnes-Soliz walked in, environmental regulators were already investigating Koch in Corpus Christi.
Oil Slick
The EPA had sued Koch Industries a year earlier for a series of pipeline leaks in several states, including one that left a 12-mile-long oil slick on Nueces and Corpus Christi bays in October 1994. Her statement triggered another probe by state regulators and the FBI.
During the next three years, investigators compiled evidence that included hundreds of internal memos about benzene emissions. In 1999, Koch’s lawyers tried to stop prosecutors from using the documents in court.
Koch argued that records of the company’s internal investigation regarding benzene rules were protected by attorney-client privilege. U.S. District Judge Janis Graham Jack in Corpus Christi rejected that claim, ruling that the privilege doesn’t apply when used to help commit a crime or fraud. She singled out Mietlicki.
‘Front Man’
“The government has submitted evidence which indicates that Koch was intentionally using Mietlicki and his investigation and expertise in reference not to prior wrongdoing, but to future wrongdoing,” the judge wrote. “The February memo strongly suggests that Koch was using Mietlicki (and his investigation and expertise) as a ‘front man’ to impede the TNRCC from ascertaining the extent of its noncompliance.”
The February memo was sealed by the court.
A federal grand jury issued a 97-count indictment against Koch Petroleum Group, Mietlicki and three refinery managers on Sept. 28, 2000. Koch Petroleum Group pleaded guilty to a felony charge of lying to the government about its benzene emissions in April 2001.
Judge Jack fined Koch Petroleum $10 million and ordered that it pay another $10 million to fund environmental projects in south Texas. Koch earned $176 million in profit from the Corpus Christi plant in 1995, prosecutors told the court. The company said in a hearing that it would have cost $7 million to comply with the benzene emission regulation.
Koch Petroleum changed its name to Flint Hills Resources in 2002.
In the agreement to plead guilty, prosecutors dropped the charges against the four individuals.
‘Ultimately Collapsed’
Koch spokeswoman Cohlmia says the company reported its compliance issues to the state before a whistle-blower did so. She says the federal case was flawed, citing testimony by a prosecution expert witness.
“The government’s case ultimately collapsed after the company finally had an opportunity to challenge the government’s key expert witness,” she says.
Uhlmann, the federal prosecutor who led the probe, says Koch’s after-the-fact response is a public relations whitewash.
“The Koch case was a classic case of environmental crime, significant violations of law occurring alongside widespread efforts to conceal those violations, which Koch has admitted,” Uhlmann says. He now teaches at the University of Michigan Law School in Ann Arbor.
Empty Office
Mietlicki, who is now assistant principal at John Paul II High School in Corpus Christi, says he can’t comment on details of the case.
“I know all of my actions as a lawyer, throughout all my years of practice, were nothing but honest and truthful,” he says.
After the company found out that Barnes-Soliz had tipped off state regulators, Koch stripped her of her responsibilities and moved her to an empty office with no tasks and no e-mail access, she says.
“They were pressuring me to quit,” she says.
She left the company in July 1996. Barnes-Soliz sued Koch in January 1997, saying the company harassed and mistreated her after she became a whistle-blower. Koch settled the lawsuit in July 1999 for an undisclosed amount.
The Corpus Christi case was one of a series of challenges Koch Industries faced in the 1990s over environmental issues. In 1997, a company now owned by ConocoPhillips sued Koch for toxic waste dumping at a refinery in Duncan, Oklahoma.
‘Replete With Evidence’
In March 1998, U.S. District Court Judge Vicki Miles- LaGrange in Oklahoma City ordered Koch to pay for 15 percent of the cleanup costs for dumping at the site between 1946 and 1953. That decision was upheld by the U.S. Court of Appeals for the 10th Circuit in May 2000.
“The record is replete with evidence Koch used unlined ditches, pits and ponds to dispose of hazardous waste at the site,” the appeals court ruled, finding that Koch had tainted groundwater. “The pollution of any Oklahoma waters, including groundwater, has been prohibited by state statute since the early 1900s -- well before Koch’s waste disposal activity at the refinery.”
By March 2007, Koch Industries had paid just $440,899 and still owed $2.97 million for its share of the cleanup, Conoco told the court.
“Koch simply refuses to pay its share as ordered by this court,” Conoco said.
Companies Settled
The two companies settled in February 2009. Terms weren’t disclosed.
Cohlmia says, “We understand that appropriate remediation is occurring and Koch has met all of its obligations with respect to this matter.”
A Koch unit in Rosemount, Minnesota, pleaded guilty in 1999 to two federal misdemeanors of violating the Clean Water Act and paid $8 million in fines and penalties. The company used fire hydrants to pump more than a million gallons of wastewater contaminated with ammonia onto the ground.
Koch also increased its dumping of wastewater on weekends when it didn’t monitor discharges, circumventing the reporting requirement of its permit, the EPA said. Koch also admitted that it negligently released between 200,000 gallons (757 kiloliters) and 600,000 gallons of aviation fuel into a nearby wetland.
Cohlmia says the company cooperated with state and federal regulators to resolve the Rosemount issues and has met all of its obligations.
“In March, 1999, Koch Petroleum Group took full responsibility for past underlying discharges,” she says.
Koch Industries also spent much of the 1990s defending itself against what a U.S. Senate subcommittee called a widespread scheme to steal oil on Indian land.
Twin Brother
The Senate held hearings in May 1989 after Bill Koch, David Koch’s twin brother, told a U.S. Senate special committee on investigations that Koch Industries was stealing oil on American Indian reservations, cheating the federal government of royalties.
Bill Koch had a long-standing feud with his brothers after his failed attempt to take over the company in the early 1980s. He sold his shares in June 1983 and later lost a lawsuit claiming he’d been shortchanged.
The Senate committee sent investigators to Oklahoma to secretly observe oil companies, including Koch, buying crude on Indian land. The federal agents hid in ditches, crouched behind scrub cedars and ducked behind cows to avoid detection by Koch Oil’s purchasers, FBI agent Richard Elroy testified to the committee in May 1989.
‘Theft is Widespread’
The investigators caught Koch Oil’s employees falsifying records so that the company would get more crude than it paid for, shortchanging Indian families, Elroy said. Koch’s records showed that the company took 1.95 million barrels of oil it didn’t pay for from 1986 to 1988, according to data compiled by the Senate.
“The theft is widespread and pervasive, and these people are being horribly victimized,” Elroy testified.
Elroy told the committee that Charles Koch gave a deposition that said that no one could make exact measurements.
“There was a lot of uncertainty and tremendous variations,” Elroy quoted Koch as saying. The full deposition is sealed, which is committee policy.
The committee concluded in a November 1989 report that Koch Oil had engaged in a widespread, sophisticated scheme to steal millions of barrels of oil. The Senate referred the case to the Justice Department, which convened a grand jury that never indicted the company.
The Civil Trial
Bill Koch brought a lawsuit on behalf of U.S. taxpayers, claiming that Koch Industries’ scheme defrauded the government of royalties. The case came to trial in 1999. Former company employees testified that Koch Industries trained them to steal.
Phil Dubose, who worked for Koch Industries from 1968 to 1994, told the jury how the scheme worked.
“The Koch Method is to cheat the producer out of crude oil,” he said.
He testified that he was able to steal 2,000 barrels a month from one customer.
“You used every available tool to mismeasure the crude oil in Koch’s favor,” says Dubose, who is now retired.
24,587 False Claims
Two days before Christmas 1999, the jury delivered the verdict: Koch Industries had made 24,587 false claims in buying oil, underpaying the U.S. government for royalties on Native American land from 1985 to 1989. Koch paid the U.S. $25 million to settle the case in 2001.
The Koch brothers, meanwhile, reached an agreement, with undisclosed terms, dropping all litigation against each other.
While the Koch brothers battled over oil, Koch Industries clashed with regulators over its failure to properly maintain its pipelines. In 1995, the EPA sued the company, saying poor maintenance resulted in corrosion that contributed to hundreds of spills.
The following year, before the EPA case was resolved, a leak in a Koch butane pipeline led to an explosion that killed two teenagers.
Burned Alive
On Aug. 24, 1996, Danielle Smalley and her high school friend and neighbor Jason Stone, both 17, smelled gas outside Smalley’s mobile home in rural Lively, Texas, 50 miles southeast of Dallas. The house had no telephone, so they decided to drive the Smalley family’s pickup truck to a neighbor’s home to call 911.
They never made it.
The truck stalled after the couple drove into a fog-like cloud, says Danielle’s father, Danny Smalley, who watched them drive away. It was butane vapor, leaking from a corroded steel pipeline. Seconds later, as Danielle restarted the truck, the gas ignited into a fireball, burning Danielle and Jason to death.
Smalley’s father sued Koch Industries in 1997 in the Kaufman County, Texas, district court for the wrongful death of his daughter.
‘Definitely Responsible’
“I will tell you Koch Industries is definitely responsible for the death of Danielle Smalley,” Bill Caffey, an executive vice president of the company, testified in a 1999 deposition during Smalley’s lawsuit.
Caffey oversaw pipeline safety at the company. He testified that he thought the pipeline was safe before the explosion. Koch Pipeline Co., the unit that managed the Texas pipeline, knew the line had corroded and didn’t fix it, an investigation by the National Transportation Safety Board concluded in November 1998.
The 570-mile-long pipeline carrying liquid butane from Medford, Oklahoma, to Mont Belvieu, Texas had corroded so badly that one expert, Edward Ziegler, likened it to Swiss cheese. The company didn’t give 40 of the 45 families near the explosion site -- including the Smalley and Stone families -- any information about what to do in case of an emergency, the NTSB wrote.
Danny Smalley hired Ziegler, a third-generation oilman and certified safety professional, as an expert witness. Ziegler had previously been retained by Koch Industries as an expert witness in an unrelated case. Ziegler told the jury that he’d never seen a company disregard safety to this extent in his more than 25- year career.
‘A Total Failure’
“This is an example of a total failure of a company to follow the regulations, keep their pipeline safe and operate it as the regulations require,” Ziegler, who now operates his own pipelines, testified.
A memo forwarded by Caffey to another Koch executive vice president justified putting a 70-mile section of the pipeline back into operation after being closed for three years because it could earn more than $7 million in operating income a year.
“We were to work on reducing wasteful spending,” Caffey said in his deposition.
Koch Industries didn’t penalize Caffey, the executive in charge of pipeline safety. The company doubled his annual bonus to $900,000 for 1996, the year the fatal blast occurred, according to court records. In his deposition, lawyers asked Caffey whether the disaster came up during his annual review.
The state jury awarded Danny Smalley $296 million in its Oct. 21, 1999, verdict. The jury found that Koch Industries acted with malice because it had been aware of the extreme risks of using the faulty pipeline.
Smalley later settled for an undisclosed amount. Stone’s family also settled. Danny Smalley used settlement money to start the Danielle Dawn Smalley Foundation for pipeline safety education. Large pipeline operators such as ExxonMobil Corp., BP Plc and Kinder Morgan Inc. -- and not Koch -- accept free services from the foundation, Smalley says.
‘Never Forget’
“You see two children burned to death in front of you, you never forget that,” he says. “I want to stop other parents from ever having to see that.”
Cohlmia says Koch Industries used the lessons learned from the explosion to help avoid similar accidents. The company immediately accepted responsibility for the explosion, which was the only one of its kind, she says.
Three months after the Smalley verdict, Koch settled the five-year-old EPA case for pipeline leaks, along with a second EPA case brought in 1997. The company paid $35 million to resolve those cases, which covered more than 300 oil spills in six states.
For six decades around the world, Koch Industries has blazed a path to riches -- in part, by making illicit payments to win contracts, trading with a terrorist state, fixing prices, neglecting safety and ignoring environmental regulations. At the same time, Charles and David Koch have promoted a form of government that interferes less with company actions.
She immediately notified her supervisors in the U.S. A week later, Wichita, Kansas-based Koch Industries dispatched an investigative team to look into her findings, Bloomberg Markets magazine reports in its November issue.
By September of that year, the researchers had found evidence of improper payments to secure contracts in six countries dating back to 2002, authorized by the business director of the company’s Koch-Glitsch affiliate in France.
“Those activities constitute violations of criminal law,” Koch Industries wrote in a Dec. 8, 2008, letter giving details of its findings. The letter was made public in a civil court ruling in France in September 2010; the document has never before been reported by the media.
Egorova-Farines wasn’t rewarded for bringing the illicit payments to the company’s attention. Her superiors removed her from the inquiry in August 2008 and fired her in June 2009, calling her incompetent, even after Koch’s investigators substantiated her findings. She sued Koch-Glitsch in France for wrongful termination.
Abolishing Social Security
Fred was an early adviser to the founder of the anti- communist John Birch Society, which fought against the civil rights movement and the United Nations. Charles and David have supported the Tea Party, a loosely organized group that aims to shrink the size of government and cut federal spending.
These are long-standing tenets for the Kochs. In 1980, David Koch ran for vice president on the Libertarian ticket, pledging to abolish Social Security, the Federal Reserve System, welfare, minimum wage laws and federal agencies -- including the Department of Energy, the Federal Bureau of Investigation and the Central Intelligence Agency.
What many people don’t know is how the Kochs’ anti- regulation political ideology has influenced the way they conduct business.
A Bloomberg Markets investigation has found that Koch Industries -- in addition to being involved in improper payments to win business in Africa, India and the Middle East -- has sold millions of dollars of petrochemical equipment to Iran, a country the U.S. identifies as a sponsor of global terrorism.
The ‘Koch Method’
Internal company documents show that the company made those sales through foreign subsidiaries, thwarting a U.S. trade ban. Koch Industries units have also rigged prices with competitors, lied to regulators and repeatedly run afoul of environmental regulations, resulting in five criminal convictions since 1999 in the U.S. and Canada.
From 1999 through 2003, Koch Industries was assessed more than $400 million in fines, penalties and judgments. In December 1999, a civil jury found that Koch Industries had taken oil it didn’t pay for from federal land by mismeasuring the amount of crude it was extracting. Koch paid a $25 million settlement to the U.S.
Phil Dubose, a Koch employee who testified against the company said he and his colleagues were shown by their managers how to steal and cheat -- using techniques they called the Koch Method.
Refused to Falsify
In 1999, a Texas jury imposed a $296 million verdict on a Koch pipeline unit -- the largest compensatory damages judgment in a wrongful death case against a corporation in U.S. history. The jury found that the company’s negligence had led to a butane pipeline rupture that fueled an explosion that killed two teenagers.
Former Koch employees in the U.S. and Europe have testified or told investigators that they’ve witnessed wrongdoing by the company or have been asked by Koch managers to take what they saw as improper actions.
Sally Barnes-Soliz, who’s now an investigator for the State Department of Labor and Industries in Washington, says that when she worked for Koch, her bosses and a company lawyer at the Koch refinery in Corpus Christi, Texas, asked her to falsify data for a report to the state on uncontrolled emissions of benzene, a known cause of cancer. Barnes-Soliz, who testified to a federal grand jury, says she refused to alter the numbers.
“They didn’t know what to do with me,” she says. “They were really kind of baffled that I had ethics.”
Koch’s refinery unit pleaded guilty in 2001 to a federal felony charge of lying to regulators and paid $20 million in fines and penalties.
The illicit payments uncovered by Ludmila Egorova-Farines raised the specter of a new blow to the company’s effort to improve its reputation following criminal convictions and civil penalties.
‘Smoking Gun’
“It sounds like a smoking gun,” says Beale, who co- authored “Federal Criminal Law and Its Enforcement” (Thompson West, 2010). “It really should get the Justice Department’s attention. When you have a smoking gun, you launch an investigation.”
Such a probe would fall under the Foreign Corrupt Practices Act, a 1977 law that makes it illegal for companies and their subsidiaries to pay bribes to government officials and employees of state-owned companies.
Justice Department spokeswoman Laura Sweeney says the agency won’t confirm or deny the existence of any investigation.
While Koch-Glitsch was conducting its internal probe of illicit payments for contracts, the U.S. government was investigating Koch’s European unit on another front: sales to Iran.
On Aug. 14, 2008, investigators from the U.S. Department of Homeland Security met with George Bentu, who had worked as a sales engineer from 2001 to 2007 for Koch-Glitsch in Germany, Bentu says. In a four-hour interview at the U.S. consulate in Frankfurt, the officials asked about documents showing details of the company’s trades with Iran, he says.
Legal Sidestep
Homeland Security spokeswoman Barbara Gonzalez declined to comment.
Internal company records show that Koch Industries used its foreign subsidiary to sidestep a U.S. trade ban barring American companies from selling materials to Iran. Koch-Glitsch offices in Germany and Italy continued selling to Iran until as recently as 2007, the records show.
The company’s products helped build a methanol plant for Zagros Petrochemical Co., a unit of Iran’s state-owned National Iranian Petrochemical Co., the documents show. The facility, in the coastal city of Bandar Assaluyeh, is now the largest methanol plant in the world, according to IHS Inc., an Englewood, Colorado-based provider of chemicals, energy and economic data.
Engineer Challenged Sales
“Every single chance they had to do business with Iran, or anyone else, they did,” Bentu, 46, says.
Bentu, a German engineer who earned his master’s degree in chemical engineering from Montana State University in Bozeman in 1990, joined Koch-Glitsch in 2001. His duties included drawing up bids for potential buyers of the company’s distillation equipment, which is used in making fuels, fertilizers, detergents and other products.
Bentu says he had been working at Koch-Glitsch in Viernheim, about 80 kilometers (50 miles) south of Frankfurt, for two months when he first saw an order destined for Iran. Concerned that the transaction might run afoul of U.S. law, Bentu asked his manager about it, he says. Bentu says his boss told him not to worry, that the company’s U.S. lawyers made sure the deals with Iran were legal.
U.S. companies have been banned from trading with Iran since 1995, when President Bill Clinton declared it a threat to national security. Iran supports Iraqi militants and Taliban fighters as well as terrorist groups, including Hamas and Hezbollah, according to the U.S. State Department.
Getting Around Ban
Koch Industries took elaborate steps to ensure that its U.S.-based employees weren’t involved in the sales to Iran, internal documents show.
Koch Industries may not have violated the law if no U.S. people or company divisions facilitated trades with Iran, says Avi Jorisch, a Treasury Department policy adviser from 2005 to 2008. That’s impossible to determine without a complete investigation, Jorisch says.
Internal Koch-Glitsch correspondence shows that the company coordinated with Koch Industries lawyers in the U.S. to make sure that American employees didn’t work on sales to Iran. Elena Rigon, now Koch-Glitsch compliance manager for Europe, based in Italy, in December 2000 addressed a memo outlining compliance guidelines to company managers in her region.
Cohlmia says of the agency’s ruling, “The decision did not find that Koch-Glitsch GmbH engaged in price fixing or any illegal behavior.”
Felony Conviction
This wasn’t Koch Industries’ first brush with complaints of improper competition. In October 2000, the FBI secretly recorded the telephone calls of Troy Stanley Sr., director of textile staples at KoSa, then a Luxembourg company with its main office in Charlotte, North Carolina.
Koch Industries and a Mexican company established KoSa as a joint venture in 1998 to buy the Hoechst AG unit that produced polyester staples, which are used in making textiles. KoSa pleaded guilty in October 2002 to a felony charge of conspiracy to restrain trade and paid a $28.5 million fine.
Stanley pleaded guilty to one count of conspiring to restrain trade in December 2004 and was sentenced to one year of probation and a $5,000 fine.
‘Anti-trust Conspiracy’
“Officers, directors, managers or employees participated in the conspiracy” between September 1999 and January 2001, KoSa admitted in the plea agreement.
The conspiracy began before KoSa bought the business and continued during its ownership, Stanley testified. Koch bought out its partner in 2001. The criminal activity occurred while Koch was a 50 percent owner.
During the next eight years, Koch Industries paid $76 million to settle antitrust claims brought by KoSa’s customers, and $59 million in legal fees, according to court records. KoSa is now part of Koch’s Invista unit.
A prosecution of KoSa by Canada’s attorney general for price fixing followed in August 2003. KoSa pleaded guilty and paid a C$1.5 million fine.
Cohlmia says a KoSa subsidiary “unknowingly bought into an ongoing antitrust conspiracy.” Once the company found out about the wrongdoing, it stopped the conspiracy and cooperated with the U.S. Justice Department, she says.
Benzene Emissions
The price-fixing convictions came after years of investigations, environmental lawsuits and fines that had plagued Koch’s oil pipeline and refining divisions.
In April 1996, Koch environmental technician Sally Barnes- Soliz walked into the offices of Texas regulators in Corpus Christi and told them the company had lied about spewing benzene into the air.
Koch Refining Co. had recruited Barnes-Soliz in 1991 to work in the safety department at the company’s Corpus Christi refinery. Barnes-Soliz, then 30, had earned a bachelor’s degree in science and environmental health and a Master of Science in industrial hygiene at Colorado State University in Fort Collins.
“I loved that job,” she says, describing how she helped protect plant workers and neighborhood residents from the many hazards at the refinery. “It’s important to me that people are safe and their job is not the reason they die.”
Federal rules in 1995 required the plant, one of two refineries Koch owns in Corpus Christi, to reduce benzene emissions to less than 6 metric tons a year. Benzene, a chemical compound refined from crude oil, was found to cause leukemia in 1928 by two Italian doctors who detected the cancer in a worker exposed to benzene for five years.
False Report
Four federal agencies -- the National Institutes of Health, the Food and Drug Administration, the Environmental Protection Agency and the Occupational Safety and Health Administration -- say that benzene is a cause of cancer.
On Jan. 6, 1995, Koch’s refining unit informed the Texas Natural Resource Conservation Commission, or TNRCC, that it had installed a new anti-pollution device called a Thermatrix that used flameless heat to burn off the benzene. The machine lacked sufficient capacity for the job, Barnes-Soliz says, and refinery workers disconnected it within days.
“The refinery was just hemorrhaging benzene into the atmosphere,” she says.
Three months after disconnecting the machine, Koch filed a quarterly report with Texas regulators, while concealing that it had violated the emission rules.
Falsified Document
“There were a lot of meetings to try and get me to change the number,” she says. “It was hard, but I held firm to my convictions.”
Barnes-Soliz’s bosses went around her. On April 8, 1996, Koch reported to Texas regulators that its Corpus Christi plant had uncontrolled emissions of 0.61 metric tons for 1995, or 1/149th the quantity she had found.
“When I saw they had actually falsified that document, I had no recourse but to notify the authorities,” Barnes-Soliz says.
On April 18, 1996, on her lunch break, she drove to the state’s TNRCC office and reported that Koch had lied about its benzene emissions. By the time Barnes-Soliz walked in, environmental regulators were already investigating Koch in Corpus Christi.
Oil Slick
The EPA had sued Koch Industries a year earlier for a series of pipeline leaks in several states, including one that left a 12-mile-long oil slick on Nueces and Corpus Christi bays in October 1994. Her statement triggered another probe by state regulators and the FBI.
During the next three years, investigators compiled evidence that included hundreds of internal memos about benzene emissions. In 1999, Koch’s lawyers tried to stop prosecutors from using the documents in court.
Koch argued that records of the company’s internal investigation regarding benzene rules were protected by attorney-client privilege. U.S. District Judge Janis Graham Jack in Corpus Christi rejected that claim, ruling that the privilege doesn’t apply when used to help commit a crime or fraud. She singled out Mietlicki.
‘Front Man’
“The government has submitted evidence which indicates that Koch was intentionally using Mietlicki and his investigation and expertise in reference not to prior wrongdoing, but to future wrongdoing,” the judge wrote. “The February memo strongly suggests that Koch was using Mietlicki (and his investigation and expertise) as a ‘front man’ to impede the TNRCC from ascertaining the extent of its noncompliance.”
The February memo was sealed by the court.
A federal grand jury issued a 97-count indictment against Koch Petroleum Group, Mietlicki and three refinery managers on Sept. 28, 2000. Koch Petroleum Group pleaded guilty to a felony charge of lying to the government about its benzene emissions in April 2001.
Judge Jack fined Koch Petroleum $10 million and ordered that it pay another $10 million to fund environmental projects in south Texas. Koch earned $176 million in profit from the Corpus Christi plant in 1995, prosecutors told the court. The company said in a hearing that it would have cost $7 million to comply with the benzene emission regulation.
Koch Petroleum changed its name to Flint Hills Resources in 2002.
In the agreement to plead guilty, prosecutors dropped the charges against the four individuals.
‘Ultimately Collapsed’
Koch spokeswoman Cohlmia says the company reported its compliance issues to the state before a whistle-blower did so. She says the federal case was flawed, citing testimony by a prosecution expert witness.
“The government’s case ultimately collapsed after the company finally had an opportunity to challenge the government’s key expert witness,” she says.
Uhlmann, the federal prosecutor who led the probe, says Koch’s after-the-fact response is a public relations whitewash.
“The Koch case was a classic case of environmental crime, significant violations of law occurring alongside widespread efforts to conceal those violations, which Koch has admitted,” Uhlmann says. He now teaches at the University of Michigan Law School in Ann Arbor.
Empty Office
Mietlicki, who is now assistant principal at John Paul II High School in Corpus Christi, says he can’t comment on details of the case.
“I know all of my actions as a lawyer, throughout all my years of practice, were nothing but honest and truthful,” he says.
After the company found out that Barnes-Soliz had tipped off state regulators, Koch stripped her of her responsibilities and moved her to an empty office with no tasks and no e-mail access, she says.
“They were pressuring me to quit,” she says.
She left the company in July 1996. Barnes-Soliz sued Koch in January 1997, saying the company harassed and mistreated her after she became a whistle-blower. Koch settled the lawsuit in July 1999 for an undisclosed amount.
The Corpus Christi case was one of a series of challenges Koch Industries faced in the 1990s over environmental issues. In 1997, a company now owned by ConocoPhillips sued Koch for toxic waste dumping at a refinery in Duncan, Oklahoma.
‘Replete With Evidence’
In March 1998, U.S. District Court Judge Vicki Miles- LaGrange in Oklahoma City ordered Koch to pay for 15 percent of the cleanup costs for dumping at the site between 1946 and 1953. That decision was upheld by the U.S. Court of Appeals for the 10th Circuit in May 2000.
“The record is replete with evidence Koch used unlined ditches, pits and ponds to dispose of hazardous waste at the site,” the appeals court ruled, finding that Koch had tainted groundwater. “The pollution of any Oklahoma waters, including groundwater, has been prohibited by state statute since the early 1900s -- well before Koch’s waste disposal activity at the refinery.”
By March 2007, Koch Industries had paid just $440,899 and still owed $2.97 million for its share of the cleanup, Conoco told the court.
“Koch simply refuses to pay its share as ordered by this court,” Conoco said.
Companies Settled
The two companies settled in February 2009. Terms weren’t disclosed.
Cohlmia says, “We understand that appropriate remediation is occurring and Koch has met all of its obligations with respect to this matter.”
A Koch unit in Rosemount, Minnesota, pleaded guilty in 1999 to two federal misdemeanors of violating the Clean Water Act and paid $8 million in fines and penalties. The company used fire hydrants to pump more than a million gallons of wastewater contaminated with ammonia onto the ground.
Koch also increased its dumping of wastewater on weekends when it didn’t monitor discharges, circumventing the reporting requirement of its permit, the EPA said. Koch also admitted that it negligently released between 200,000 gallons (757 kiloliters) and 600,000 gallons of aviation fuel into a nearby wetland.
Cohlmia says the company cooperated with state and federal regulators to resolve the Rosemount issues and has met all of its obligations.
“In March, 1999, Koch Petroleum Group took full responsibility for past underlying discharges,” she says.
Koch Industries also spent much of the 1990s defending itself against what a U.S. Senate subcommittee called a widespread scheme to steal oil on Indian land.
Twin Brother
The Senate held hearings in May 1989 after Bill Koch, David Koch’s twin brother, told a U.S. Senate special committee on investigations that Koch Industries was stealing oil on American Indian reservations, cheating the federal government of royalties.
Bill Koch had a long-standing feud with his brothers after his failed attempt to take over the company in the early 1980s. He sold his shares in June 1983 and later lost a lawsuit claiming he’d been shortchanged.
The Senate committee sent investigators to Oklahoma to secretly observe oil companies, including Koch, buying crude on Indian land. The federal agents hid in ditches, crouched behind scrub cedars and ducked behind cows to avoid detection by Koch Oil’s purchasers, FBI agent Richard Elroy testified to the committee in May 1989.
‘Theft is Widespread’
The investigators caught Koch Oil’s employees falsifying records so that the company would get more crude than it paid for, shortchanging Indian families, Elroy said. Koch’s records showed that the company took 1.95 million barrels of oil it didn’t pay for from 1986 to 1988, according to data compiled by the Senate.
“The theft is widespread and pervasive, and these people are being horribly victimized,” Elroy testified.
Elroy told the committee that Charles Koch gave a deposition that said that no one could make exact measurements.
“There was a lot of uncertainty and tremendous variations,” Elroy quoted Koch as saying. The full deposition is sealed, which is committee policy.
The committee concluded in a November 1989 report that Koch Oil had engaged in a widespread, sophisticated scheme to steal millions of barrels of oil. The Senate referred the case to the Justice Department, which convened a grand jury that never indicted the company.
The Civil Trial
Bill Koch brought a lawsuit on behalf of U.S. taxpayers, claiming that Koch Industries’ scheme defrauded the government of royalties. The case came to trial in 1999. Former company employees testified that Koch Industries trained them to steal.
Phil Dubose, who worked for Koch Industries from 1968 to 1994, told the jury how the scheme worked.
“The Koch Method is to cheat the producer out of crude oil,” he said.
He testified that he was able to steal 2,000 barrels a month from one customer.
“You used every available tool to mismeasure the crude oil in Koch’s favor,” says Dubose, who is now retired.
24,587 False Claims
Two days before Christmas 1999, the jury delivered the verdict: Koch Industries had made 24,587 false claims in buying oil, underpaying the U.S. government for royalties on Native American land from 1985 to 1989. Koch paid the U.S. $25 million to settle the case in 2001.
The Koch brothers, meanwhile, reached an agreement, with undisclosed terms, dropping all litigation against each other.
While the Koch brothers battled over oil, Koch Industries clashed with regulators over its failure to properly maintain its pipelines. In 1995, the EPA sued the company, saying poor maintenance resulted in corrosion that contributed to hundreds of spills.
The following year, before the EPA case was resolved, a leak in a Koch butane pipeline led to an explosion that killed two teenagers.
Burned Alive
On Aug. 24, 1996, Danielle Smalley and her high school friend and neighbor Jason Stone, both 17, smelled gas outside Smalley’s mobile home in rural Lively, Texas, 50 miles southeast of Dallas. The house had no telephone, so they decided to drive the Smalley family’s pickup truck to a neighbor’s home to call 911.
They never made it.
The truck stalled after the couple drove into a fog-like cloud, says Danielle’s father, Danny Smalley, who watched them drive away. It was butane vapor, leaking from a corroded steel pipeline. Seconds later, as Danielle restarted the truck, the gas ignited into a fireball, burning Danielle and Jason to death.
Smalley’s father sued Koch Industries in 1997 in the Kaufman County, Texas, district court for the wrongful death of his daughter.
‘Definitely Responsible’
“I will tell you Koch Industries is definitely responsible for the death of Danielle Smalley,” Bill Caffey, an executive vice president of the company, testified in a 1999 deposition during Smalley’s lawsuit.
Caffey oversaw pipeline safety at the company. He testified that he thought the pipeline was safe before the explosion. Koch Pipeline Co., the unit that managed the Texas pipeline, knew the line had corroded and didn’t fix it, an investigation by the National Transportation Safety Board concluded in November 1998.
The 570-mile-long pipeline carrying liquid butane from Medford, Oklahoma, to Mont Belvieu, Texas had corroded so badly that one expert, Edward Ziegler, likened it to Swiss cheese. The company didn’t give 40 of the 45 families near the explosion site -- including the Smalley and Stone families -- any information about what to do in case of an emergency, the NTSB wrote.
Danny Smalley hired Ziegler, a third-generation oilman and certified safety professional, as an expert witness. Ziegler had previously been retained by Koch Industries as an expert witness in an unrelated case. Ziegler told the jury that he’d never seen a company disregard safety to this extent in his more than 25- year career.
‘A Total Failure’
“This is an example of a total failure of a company to follow the regulations, keep their pipeline safe and operate it as the regulations require,” Ziegler, who now operates his own pipelines, testified.
A memo forwarded by Caffey to another Koch executive vice president justified putting a 70-mile section of the pipeline back into operation after being closed for three years because it could earn more than $7 million in operating income a year.
“We were to work on reducing wasteful spending,” Caffey said in his deposition.
Koch Industries didn’t penalize Caffey, the executive in charge of pipeline safety. The company doubled his annual bonus to $900,000 for 1996, the year the fatal blast occurred, according to court records. In his deposition, lawyers asked Caffey whether the disaster came up during his annual review.
The state jury awarded Danny Smalley $296 million in its Oct. 21, 1999, verdict. The jury found that Koch Industries acted with malice because it had been aware of the extreme risks of using the faulty pipeline.
Smalley later settled for an undisclosed amount. Stone’s family also settled. Danny Smalley used settlement money to start the Danielle Dawn Smalley Foundation for pipeline safety education. Large pipeline operators such as ExxonMobil Corp., BP Plc and Kinder Morgan Inc. -- and not Koch -- accept free services from the foundation, Smalley says.
‘Never Forget’
“You see two children burned to death in front of you, you never forget that,” he says. “I want to stop other parents from ever having to see that.”
Cohlmia says Koch Industries used the lessons learned from the explosion to help avoid similar accidents. The company immediately accepted responsibility for the explosion, which was the only one of its kind, she says.
Three months after the Smalley verdict, Koch settled the five-year-old EPA case for pipeline leaks, along with a second EPA case brought in 1997. The company paid $35 million to resolve those cases, which covered more than 300 oil spills in six states.
For six decades around the world, Koch Industries has blazed a path to riches -- in part, by making illicit payments to win contracts, trading with a terrorist state, fixing prices, neglecting safety and ignoring environmental regulations. At the same time, Charles and David Koch have promoted a form of government that interferes less with company actions.
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