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Saturday, October 1, 2016

While it is well-known that deep pockets finance the big names in politics, much about the private world they inhabit and how their money is allocated remains hidden. The network of hard-right billionaires extends far beyond the infamous Koch brothers. Jane Mayer’s Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right opens the curtain on these shadowy figures, showing the aggressive maneuverings they employ to control and corrupt our politics.  What follows is an exclusive excerpt.

Only one full guest list of attendants at any of the Koch summits has surfaced publicly. It was for a session in June 2010. Like Mrs. Astor’s famous 400, which defined the top bracket of New York society in the late nineteenth century on the basis of those who could fit into the Astors’ ballroom, the Kochs’ donor list provides another portrait of a fortunate social subset. They were mostly businessmen; very few were women. Fewer still were nonwhite. And while some had made their own fortunes, many others were intent on preserving vast legacies they had inherited. While those attracted to the Kochs’ meetings were uniformly conservative, they were not the predictable cartoon villains of conspiracy theories but spanned a wide range of views and often disagreed among themselves about social and international issues. The glue that bound them together, however, was antipathy toward government regulation and taxation, particularly as it impinged on their own accumulation of wealth. Unsurprisingly, given the shift in the way great fortunes were made by the end of the twentieth century, instead of railroad magnates and steel barons who had ruled in the Astors’ day, the largest number of participants came from the finance sector.

Among the better-known financiers who participated or sent representatives to Koch donor summits during Obama’s first term were Steven A. Cohen, Paul Singer, and Stephen Schwarzman. All might have been principled philosophical conservatives, with no ulterior motives, but all also had personal reasons to fear a more assertive federal government, as was expected from Obama.

Cohen’s spectacularly successful hedge fund, SAC Capital Advisors, was at the time the focus of an intense criminal investigation into insider trading. Prosecutors described his firm, which was based in Stamford, Connecticut, as “a veritable magnet of market cheaters.” Forbes valued Cohen’s fortune at one point at $10.3 billion, making his checkbook a formidable political weapon.

Paul Singer, whose fortune Forbes estimated at $1.9 billion, ran the hugely lucrative hedge fund Elliott Management. Dubbed a vulture fund by critics, it was controversial for buying distressed debt in economically failing countries at a discount and then taking aggressive legal action to force the strapped nations, which had expected their loans to be forgiven, to instead pay him back at a profit. Although Singer insisted that he didn’t buy debt from the poorest of the poor nations, his methods, while highly lucrative, brought public scorn and government scrutiny. Even New York’s tabloid newspapers chimed in. After Singer supported the campaign of the former New York mayor Rudolph Giuliani, a July 2007 New York Post story was headlined “Rudy’s ‘Vulture’ $$ Man” with the subhead “Profits Off Poor.” Singer described himself as a Goldwater free-enterprise conservative, and he contributed generously to promoting free-market ideology, but at the same time his firm reportedly sought unusual government help in squeezing several desperately impoverished governments, a contradiction that applied to many participants in the Koch donor network.

Stephen Schwarzman, who was in general less of a political activist than Singer, might have first become involved in the Kochs’ political enterprise out of happenstance. In 2000, he paid $37 million for the palatial triplex that had previously belonged to John D. Rockefeller Jr. at 740 Park Avenue, the same Manhattan co-op building in which David Koch bought an apartment three years later. By the time Obama was elected, Schwarzman had become something of a poster boy for Wall Street excess. As Chrystia Freeland writes in her book Plutocrats, the June 21, 2007, initial public offering of stock in Blackstone, his phenomenally successful private equity company, “marked the date when America’s plutocracy had its coming-out party.” By the end of the day, Schwarzman had made $677 million from selling shares, and he retained additional shares then valued at $7.8 billion.

Schwarzman’s stunning payday made a huge and not entirely favorable impression in Washington. Soon after, Democrats began criticizing the carried-interest tax loophole and other accounting gimmicks that helped financiers amass so much wealth. In the wake of the 2008 market crash, as Obama and the Democrats began talking increasingly about Wall Street reforms, financiers like Schwarzman, Cohen, and Singer who flocked to the Koch seminars had much to lose.

The hedge fund run by another of the Kochs’ major investors, Robert Mercer, an eccentric computer scientist who made a fortune using sophisticated mathematical algorithms to trade stocks, also seemed a possible government target. Democrats in Congress were considering imposing a tax on stock trading, which the firm he co-chaired, Renaissance Technologies, did in massive quantities at computer-driven high frequency. Although those familiar with his thinking maintained that his political activism was separate from his pecuniary interests, Mercer had additional business reasons to be anti-government. The IRS was investigating whether his firm improperly avoided paying billions of dollars in taxes, a charge the firm denied. Employment laws, too, would prove an embarrassing headache to him; three domestic servants soon sued him for refusing to pay overtime and maintained that he had docked their wages unfairly for infractions such as failing to replace shampoo bottles from his bathrooms when they were less than one-third full. The tabloid news stories about the case invariably mentioned that Mercer had previously brought a suit of his own, suing a toy-train manufacturer for overbilling him by $2 million for an elaborate electric train set he had installed in his Long Island, New York, mansion. With a pay package of $125 million in 2011, Mercer was ranked by Forbes as the sixteenth-highest-paid hedge fund manager that year.

Other financiers active in the Koch group had additional legal problems. Ken Langone, the billionaire co-founder of Home Depot, was enmeshed in a prolonged legal fight over his decision as chairman of the compensation committee of the New York Stock Exchange to pay his friend Dick Grasso, the head of the exchange, $139.5 million. The sum was so scandalously large that it forced Grasso to resign. Angry at his critics, Langone reportedly felt that “if it wasn’t for us fat cats and the endowments we fund, every university in the country would be fucked.”

Another Koch seminar goer from the financial sector, Richard Strong, founder of the mutual fund Strong Capital Management, was banned from the financial industry for life in a settlement following an investigation by the former New York attorney general Eliot Spitzer into his improperly timing trades to benefit his friends and family. Strong paid a $60 million fine and publicly apologized. His company paid an additional $115 million in related penalties. But after Strong sold his company’s assets to Wells Fargo, the Associated Press reported that he would be “an even wealthier man.”

Many participants in the Koch summits were brilliant leaders not only in business but also in tax avoidance. For instance, the Colorado oil and entertainment billionaire Philip Anschutz, a founder of Qwest Communications, whom Fortune magazine dubbed America’s “greediest executive” in 2002, was fighting an uphill battle on a tax matter that practically required an accounting degree to explain. Anschutz, a conservative Christian who bankrolled movies with biblical themes, had attempted to avoid paying capital gains taxes in a 2000–2001 transaction by using what are called prepaid variable forward contracts. These contracts allow wealthy shareholders such as Anschutz, whose fortune Forbes estimated at $11.8 billion as of 2015, to promise to give shares to investment firms at a later date, in exchange for cash up front. Because the stock does not immediately change hands, capital gains taxes are not paid. According to The New York Times, Anschutz raised $375 million in 2000–2001 by promising shares in his oil and natural gas companies through the firm Donaldson, Lufkin & Jenrette.

Eventually, the court sided against Anschutz on something of a technicality. The former Times reporter David Cay Johnston wrote that in essence the court had ruled that “prepaids done slightly differently than the Anschutz transactions will survive. But why should they?” he asked. “Why should anyone get to enjoy cash from gains now without paying taxes?” Johnston concluded, “The awful truth is that America has two income tax systems, separate and unequal. One system is for the superrich, like Anschutz and his wife, Nancy, who are allowed to delay and avoid taxes on investment gains, among other tax tricks. The other system is for the less than fabulously wealthy.”

Some donor families had clearly committed tax crimes. Richard DeVos, co-founder of Amway, the Michigan-based worldwide multi-level marketing empire, had pleaded guilty to a criminal scheme in which he had defrauded the Canadian government of $22 million in customs duties in 1982. DeVos later claimed it had been a misunderstanding, but the record showed the company had engaged in an elaborate, deliberate hoax in an effort to hoodwink Canadian authorities. He and his co-founder, Jay Van Andel, were forced to pay a $20 million fine. The fine didn’t make much of a dent in DeVos’s fortune, which Forbes estimated at $5.7 billion. By 2009, DeVos’s son Dick and daughter-in-law Betsy were major donors on the Koch list and facing a record $5.2 million civil fine of their own for violating Ohio’s campaign-finance laws.

Energy magnates were also heavily represented in the Koch network. Many of this group too had significant government regulatory and environmental issues. The “extractive” industries, oil, gas, and mining, tend to be run by some of the most outspoken opponents of government regulation in the country, yet all rely considerably on government permits, regulations, and tax laws to aid their profits and frequently to give them access to public lands. Executives from at least twelve oil and gas companies, in addition to the Kochs, were participants in the group. Collectively, they had a huge interest in staving off any government action on climate change and weakening environmental safeguards. One prominent member of this group was Corbin Robertson Jr., whose family had built a billion-dollar oil company, Quintana Resources Capital. Robertson had bet big on coal—so big he reportedly owned what Forbes called the “largest private hoard in the nation—21 billion tons of reserves.” Investigative reports linked Robertson to several political front groups fighting efforts by the Environmental Protection Agency (EPA) to control pollution emitted by coal-burning utilities. Almost comically, one such front group was called Plants Need CO2.

Another coal magnate active in the Kochs’ donor network was Richard Gilliam, head of the Virginia mining concern Cumberland Resources. The dire stakes surrounding the sinking coal industry’s regulatory fights were evident in the 2010 sale of Cumberland for nearly $1 billion to Massey Energy, just weeks before a tragic explosion in Massey’s Upper Big Branch mine killed twenty-nine miners, becoming the worst coal mine disaster in forty years. A government investigation into Massey found it negligent on multiple safety fronts, and a federal grand jury indicted its CEO, Don Blankenship, for conspiring to violate and impede federal mine safety standards, making him the first coal baron to face criminal charges. Later, Massey was bought for $7.1 billion by Alpha Natural Resources, whose CEO, Kevin Crutchfeld, was yet another member of the Koch network.

Several spectacularly successful leaders of hydraulic fracturing, who had their own set of government grievances, were also on the Kochs’ list. The revolutionary method of extracting gas from shale revived the American energy business but alarmed environmentalists. Among the “frackers” in the group were J. Larry Nichols, cofounder of the huge Oklahoma-based concern Devon Energy, and Harold Hamm, whose company, Continental Resources, was the biggest operator in North Dakota’s booming Bakken Shale. As Hamm, a sharecropper’s son, took his place as the thirty-seventh-richest person in America with a fortune that Forbes estimated at $8.2 billion as of 2015, and campaigned to preserve tax loopholes for oil producers, his company gained notoriety for a growing record of environmental and workplace safety violations.

One shared characteristic of many of the donors in the Kochs’ network was private ownership of their businesses, placing them in a low-profile category that Fortune once dubbed “the invisible rich.” Private ownership gave these magnates far more managerial latitude and limited public disclosures, shielding them from stockholder scrutiny. Many of the donors had nonetheless attracted unwanted legal scrutiny by the government.

It was, in fact, striking how many members of the Koch network had serious past or ongoing legal problems. Sheldon Adelson, founding chairman and chief executive of the Las Vegas Sands Corporation, the world’s largest gambling company, whose fortune Forbes estimated at $31.4 billion, was facing a bribery investigation by the Justice Department into whether his company had violated the Foreign Corrupt Practices Act in securing licenses to operate casinos in Macao.

The Kochs had looming worries about the Foreign Corrupt Practices Act, too. As Bloomberg News later revealed, the company’s record of illicit payments in Algeria, Egypt, India, Morocco, Nigeria, and Saudi Arabia was spilling out in a French court. Further, in the summer of 2008, just a few months before Obama was elected, federal officials had questioned the company about sales to Iran, in violation of the U.S. trade ban against the state for sponsoring terrorism.

Meanwhile, another donor, Oliver Grace Jr., a relation of the family that founded the William R. Grace Company, was at the center of a stock-backdating scandal that resulted in his being ousted from the board of Take-Two, the company behind the ultraviolent Grand Theft Auto video games.

The legal problems of Richard Farmer, the chairman of the Cincinnati-based Cintas Corporation, the nation’s largest uniform supply company, included an employee’s gruesome death. Just before the new and presumably less business-friendly Obama administration took office, Cintas reached a record $2.76 million settlement with the Occupational Safety and Health Administration (OSHA) in six safety citations including one involving a worker who had burned to death in an industrial dryer. The employee, a Hispanic immigrant, had become caught on a conveyor belt leading into the heat source. Prior to the fatal accident, OSHA had cited Cintas for over 170 safety violations since 2003, including 70 that regulators warned could cause “death or serious physical harm.” As Obama took office, the company was still fighting against paying a damage claim to the employee’s widow and arguing that his death had been his own fault. Farmer, too, ranked among the Koch group’s billionaire donors, with a fortune that Forbes estimated at $2 billion.

Given the participants’ unanimous espousal of anti-government, free-market self-reliance, the network also included a surprising number of major government contractors, such as Stephen Bechtel Jr., whose personal fortune Forbes estimated at $2.8 billion. Bechtel was a director and retired chairman of the huge and internationally powerful engineering firm Bechtel Corporation, founded by his grandfather, run by his father, and, after he retired, by his son and grandson. Paternalistic and family-owned, Bechtel was the sixth-largest private company in the country, and it owed almost its entire existence to government patronage. It had built the Hoover Dam, among other spectacular public projects, and had storied access to the innermost national security circles. Between 2000 and 2009 alone, it had received $39.2 billion in U.S. government contracts. This included $680 million to rebuild Iraq following the U.S. invasion.

Like so many of the other companies owned by the Koch donors, Bechtel had government legal problems. In 2007, a report by the special inspector general for Iraq reconstruction accused Bechtel of shoddy work. And in 2008, the company paid a $352 million fine to settle unrelated charges of substandard work in Boston’s notorious “Big Dig” tunnel project. The company was facing congressional reproach too for cost overruns in the multi-billion-dollar cleanup of the Hanford nuclear facility in Washington State.

Antagonism toward the government ran so high within the Koch network that one donor angrily objected to federal interference not just in his business but on behalf of his own safety as well. Thomas Stewart, who built his father’s Seattle-based food business into the behemoth Services Group of America, reportedly loved flying in his helicopter and corporate jet. But when a former company pilot refused to take his aeronautic advice because it violated Federal Aviation Administration regulations, according to an interview with the pilot in the Seattle Post-Intelligencer, Stewart “rose out of his chair, and screamed, ‘I can do any fucking thing I want!’”

Footnote: In 2010, Stewart, his wife, daughter, and two others were killed in a helicopter crash that investigators reportedly believed was caused when his five year old daughter, who was sitting in the cockpit, kicked the controls.

Excerpted from DARK MONEY: The Hidden History of the Billionaires Behind the Rise of the Radical Right by Jane Mayer Copyright © 2016 by Jane Mayer. Excerpted by permission of Doubleday, a division of Penguin Random House, Inc. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.

  • charleo1

    So in order to, “save the union from Socialism,” these crooks, and megalomaniacs are praised as Creators? Protectors of Free Market Capitalism, and saviors of the American Dream for posterity sake. Or so says the Conservatives Punditry about half the nation is agreeing with, and fixing to vote for at this point. We’re circling the drain, the Founding Fathers are probably spinning in their collective crypts. As Sarah Palin, and Donald Trump are what the Right is counting on to raise the level of discourse in the public square. Some days I wonder if we deserve this democracy most of us have had handed to us on a silver platter. And just maybe that’s a big part of our problem. Some days, I think not. Then my thoughts quickly turn to my children. My sanity.

    • Ravcolt

      The only folks who can save America from socialism (we are almost there) are the voters and Congress. Chances are slim, unless Carson and true conservatives are elected.

  • Jan Jones

    I would just like to say that the big money people in this country are on both sides of the aisle, and money is power and does corrupt without a very strong spiritual emphasis in one’s life. So let’s not say all the George Soroses on the left are great guys. Another thing to consider is that the farther we go down the path of radical liberalism, the worse all social and fiscal problems in this country (and beyond) are getting, and that is easy to prove with statistics and by just looking around you. As to the “radical right”, keep in mind that the democrat John F Kennedy would today be villified as a radical conservative because he believed things that were totally accepted by all decent and intelligent people back then. It is the labels that have changed, and the problem-solving, values-driven America we knew is gone. As things continue from bad to worse, please keep that in mind. Reasonable, middle class Americans who happen to be conservative are so because they are educated enough and aware enough to understand that we are about to lose all and become the very nation-state that our founders built and signed our constitution to avoid!
    They did say that when the people of this country stopped seeking guidance from God, that this system would not work. A woman asked John Adams what kind of government they had given us, and he replied “A constitutional republic- if you can keep it”, meaning it takes a strongly moral people to keep freedom. At this point perhaps dictatorship is the only thing that will bring some order, but at the cost of liberty that multitudes have given their lives for. It is a very sad commentary on the state of the union.
    Instead of writing and reading books like this, which have no bearing on politics but instead on morality, we would all do better to TRY to actually solve the problems that are killing us.

    • susannunes

      Let’s rewrite history, shall we? Soros is about the only billionaire who finances the so-called “left,” of which there is no such thing. The billionaires are almost always right-wing whackos with too much money and too much time on their hands. The Kochs, for example, are dangerous s.o.b.s because they OWN the politicians.

      • oldfed

        And Soros who never created a single job fully embraced SS and outed his fellow Jews in WW2

        • And military draft evader dan ketter who never worked a single job fully embraced SS and outed his fellow Jews in WW2

        • I support the VA torp74 but I couldn’t serve in the military due to academic draft
          deferment commitment during the Vietnam era, but I am a military impostor

        • oldfed is Dan Ketter

        • Fat Dan Ketter and gorgon hag Linda Rae are Williamsburg VA definitive white trash couple

        • Linda Rae Ketter of Williamsburg is a bimbo old hag who gives oral pleasures to moooslems

      • Michael Lewinski

        The Kochs are only dangerous to the radical Progressives who are destroying the economy, the social order, and our system of governance.

      • Otto Greif

        “We cross-checked the Open Secrets list of the top 100 individuals donating to outside spending groups in the current election against the Forbes list of the world’s billionaires and found that, as of June 19, there were 22 individuals on the Open Secrets list who were billionaires. Of those 22 billionaires, 13 — or more than half — gave predominantly to liberal groups or groups affiliated with the Democratic Party. The other nine gave predominantly to conservative groups…the Democrats do have significant billionaire backing. The top donor from either party so far this cycle is pro-Democratic — California billionaire Tom Steyer, who has given more than $11 million and has pledged to spend at last $50 million. His group, NextGen Climate, plans to attack Republican candidates in several competitive races on climate change. Some have called Steyer’s initiative a liberal answer to the Koch brothers.”

        http://www.politifact.com/truth-o-meter/article/2014/jun/23/do-many-billionaires-support-democratic-party/

  • Child of God

    So after reading this article, it seems the author, Jane Mayer, found NO redeeming qualities in the hearts of the rich. How sad for her. Because although she did a lot of research to produce this article, I am positive that she discarded lots of info that she came across. But that’s not why I’m writing.

    Let’s assume she’s right and that the rich cannot be trusted. Then is she endorsing Ben Carson and Bernie Sanders who both say they are NOT taking donations from Big Money sources? There’s no mention of either of their names, and there’s no mention in this “Hit Piece” against Conservatives, about the very rich Democrat donors. I read the donors are 50/50 for the GOP and DEMs this year. The last time I checked in 2002 at the Open Secrets site, among the donors who donated $200 or less, 64% went to GOP and 35% went to DEMs. Among the donors who donated $1 million or more, 92% went to DEMs and 9% went to GOP. Maybe that’s changed, but regardless, this snapshot in time tells me that the author of this article is ignoring history and has an axe to grind against what she perceives as “THE 1%.” She’s wrong to a large degree, but to some degree she is right. That’s partly why I’m voting for Dr Ben Carson, a man who won’t lie to us.