FAME
SURVIVAL OF THE RICHEST
A domestic civil war is raging among the multibillionaire Koch family, pitting brother against brother in a struggle that is as combustible as their vast reserves of natural gas and oil.

LESLIE WAYNE lights a match on the once low-key Midwestern clan.
November 1989


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Fred Koch

David Koch is showing off pictures of his vacation last August on the French Riviera -Antibes, Monte Carlo, and St. Tropez, to be exact. The 49-year-old billionaire bachelor chartered an Onassis-sized 162-foot boat that once belonged to a Saudi prince, and invited a dozen friends to join him.

It was the lifestyle of the rich, but not the famous: The guests were Koch's school chums from Deerfield Academy, tennis buddies, and business partners. Gunther Sachs, the Opel auto heir and former husband of Brigitte Bardot, entertained the group at his St. Tropez home with a fireworks display. There were dinners at the fabled Moulin de Mougins near Cannes, and a stream of new and old friends dropped by -including one who jetted down from Paris for the day and flew back at 4 AM. "It's incredible how a boat can attract people," Koch says, laughing, while sitting in a club chair in his modest corner office overlooking the Chrysler building in New York. "People just poured on."

The Kochs-Mary, 82, and her four sons, Fred Jr., 55, Charles, 53, and fraternal twins David and William, 49- prefer anonymity. And true to form, David Koch, a lanky man with an "aw, shucks" grin and a hearty laugh to match, still describes himself as "just a Kansas boy living in New York." His brown plaid suit, drooping brown socks, and black shoes speak to an engineer's indifference to fashion.

Yet for all his down-home ways, David Koch (pronounced "coke") has been a party to one of the most bizarre family dramas ever played out. Oil has propelled the intensely private Kochs of Kansas into the financial ranks of the Fords, the Mellons, and the Gettys. New York-based David and his brother Charles, of Wichita, are believed to share in a fortune valued at between $2.2 billion and $4 billion, making them richer than such better-known billionaires as David Rockefeller, Sid Bass, and Donald Trump. But money hasn't saved the Kochs from becoming a bitterly divided family.

They are, quite literally, larger than life-Fred, the smallest of the bunch, is six feet. And true to their Midwestern roots; they display a penchant for candor. The Koch brothers do not shy from name-calling in court documents or, more recently, on the August 9, 1989, front page of the Wall Street journal, which began a story with the following: "To hear William Koch tell it, his brother Charles is a liar, a cheater and racketeer." The Charles in question is none other than the chief of the clan. After his father's death in 1967, he transformed the family business, Koch Industries, from a stodgy oil pipeline operation with 650 employees and revenues of $250 million to the nation's second largest privately held company, with a payroll of about 8,000 and diversified energy operations in the US and Europe. (Only Cargill, Inc., the giant grain merchant, is larger.)

The first time I met the Kochs was three years ago in a series of interviews in Wichita and New York. The tall and patrician Mary escorted me through the family's stone mansion across from the Wichita Country Club. There, amid fine antiques and scattered photos of the brothers in more carefree days, Mary recounted with sadness the last Christmas, in 1979, that she and her four sons spent together. William, the enfant terrible, couldn't refrain from making "unkind" remarks about Charles as the family gathered for dinner. "I got up and left the table crying," recalls Mary.

It seems the only time the Kochs see each other is in court. In the last decade, Charles and David, Charles's straight-arrow sidekick since childhood, have been sued four times in federal court by William, alone or with the reclusive Fred. Initially, the battle was over control of Koch Industries, an oil powerhouse whose $16-billion-a-year revenues put it in the same rank as Shell and Amoco. In 1983, after an attempted palace coup by William and Fred, David and Charles agreed to give them some $800 million to turn in their Koch Industries shares and, in effect, get lost. For a while, it appeared that peace had broken out among the contentious Kochs: Charles and David were left with eighty percent of Koch Industries (assorted cousins and employees owned the rest) and William and Fred had a king's ransom to do with as they pleased.

But William and Fred have continued hiring new teams of lawyers and finding fresh jurisdictions to press their claim that the $800 million wasn't enough. William is charming and eccentric, yet possessed by resentment. And Fred, according to Charles and David, is motivated by greed fueled by his collecting compulsion and his anger at the father who rejected him at an early age. This year, William and Fred even sued their own mother to block her from distributing $300,000 a year from a charitable foundation set up by her late husband -small change considering the family's enormous wealth.

Charles and David, also named in the suit, jumped to their mother's defense and, in the two-week trial in Wichita last May, the warring camps of brothers were seen talking to their lawyers during recess, but never to each other. Mary won the suit. Even so, Charles and David successfully sued William to force him to honor an agreement to swap his share in the family home for their father's gold coin collection.

William, who declined to comment for this story, has taken his fight to Congress. After hiring private investigators to spy on Koch Industries' operations, he turned over evidence to a US Senate committee claiming that the company had been stealing oil from wells owned by American Indians. William's "J'accuse" forced publicity-shy Koch Industries into an uncharacteristically public fifty-seven-page denial. The first page of the company's denial, in capital letters, refers to William I. Koch's "vendetta against Koch Industries."

Meanwhile, William lives in Boston and is the head of Oxbow Corporation, an oil-trading concern. He has a lavish home in Palm Beach and races a technologically advanced "maxi" sailboat, Matador. Married and a father, William has never even introduced his mother to his young son. And the last time anyone in the family saw Fred, who spends a reported $20 million a year on art-more than the National Gallery in London lays out-was in a Wichita courtroom this year. "Fred's gotten fatter," is David's observation on that last meeting. "He's living the good life -a little too heavily."

What's really going on here? "You've got to talk to a psychiatrist to analyze it," admits David, a Koch Industries executive vice president, who jokes about it even though he's been pained by the family dynamics.

To many, it is William who is the master of the family's undoing. From childhood, it seems that William always felt overshadowed by his athletic twin, David, and his popular older brother Charles. Even Mary has described her son William as someone consumed by a «terrible jealousy" of his twin and Charles, both of whom, in William's mind, were more favored. "He's not just mad at Charles and David," she adds. "He's mad at everyone." William recalls growing up feeling the "baby, the klutz, the family nerd." Wichita entrepreneur and Koch family friend George Ablah says that William "sees the world through bad-colored glasses."

But the dynamics, as in any family, are more complex -created by disappointments, rivalries, and hurts decades old. There is an errant, artistic older son, Fred, who, by his very nature, disappointed his father; an emotionally troubled brother, William, whose jealousies divide the family; and two athletic and handsome brothers, Charles and David, who like and admire each other and form an "in" team that angers the two others. And all the money in the world hasn't been enough to keep the family from falling apart.

It all began in 1932, when Mary Robinson and Fred Koch met at a polo match at the Kansas City Country Club. Tall and elegant, Mary, then 25, had grown up in a world of men; her father, the chief surgeon of a Kansas City hospital, had raised her and her two brothers following their mother's death at an early age. In 1928, she graduated from Wellesley
College; four years later she caught the eye of Fred, eight years her senior.

He was a self-made man. The son of a West Texas newspaper publisher, Fred Koch was so rebellious as a child that he once ran away from home to live with Indians. An inveterate tinker, he often fell asleep at his drafting table rather than leave what he was doing. He had studied chemical engineering at Rice University and the Massachusetts Institute of Technology and, with $200 in his pocket, he and a partner joined a company in Wichita to market their new invention: a thermal cracking process that squeezed more gasoline out of crude oil than the prevailing methods.

The attraction between Fred and Mary was instantaneous. They were married within a month.

Marriage did little to domesticate Fred Koch, who bent his family to his will. "He was a strong man who liked to hunt and fish," recalls Mary. "He was not a society man at all and he taught me to fish and hunt and all that. He liked weekends at the ranch, riding horses, and pitching hay. I hardly ever saw Fred enjoy a cocktail party. He couldn't stand chitchat and gossip. He was quite a rugged individualist."

In business he was a maverick. His success in selling his thermal process to independent oil producers earned him the wrath of the oil majors, who controlled refinery patents in those days. They promptly slapped Koch and his customers with lawsuits. Not one to be intimidated, Koch fought the oil majors in court until, two decades later, he finally received a settlement that made him a millionaire.

His first big profits came from Russia, where he went in the late 1920s and early 1930s after his customers fled under the barrage of lawsuits. There, he built fifteen refineries as part of Stalin's first five-year plan. But when purges in the late '30s liquidated some of Fred Koch's best Russian friends, he turned into a fervent anti-Communist and went on to become an early member of the ultraconservative John Birch Society.

To his sons, he was a John Wayne character. Gruff and not particularly demonstrative, he was often gone on business trips for months at a time. His approach to child-rearing was one of "tough love," according to one longtime Koch employee. To insure that the boys did not turn into country club bums, he put them to work every summer, from the age of 9 on, at the family's west Kansas ranch, driving tractors, digging post holes, and bailing hay.

But there was a sensitive side to Fred Koch, too. He loved the outdoors and he made up for his absences by taking his sons, jointly or individually, on trips any boy would love: hunting and riding at his ranches in Kansas and Montana, on big-game expeditions to Africa, and on trips to the Arctic Circle to look at polar bears.

"My sons respected and worshiped their father," recalls Mary. But Fred could not love and understand his sons in equal measures. In particular, young Fred, his namesake -who is still called Freddy by the family- never had a chance. Freddy shared more interests with his artistic and social mother than with his austere, hard-driving father. "Father wanted to make all his boys into men and Freddy couldn't relate to that regime," explains Charles. "Dad didn't understand and so he was hard on Freddy. He didn't understand that Freddy wasn't a lazy kid-he was just different."

As soon as he could, Freddy left home. He came to Tarrytown, New York, in 1947 to attend the Hackley School and studied English literature at Harvard and drama at Yale. "I think Fred Koch was happy with the separation and relieved he wasn't facing Freddy every day," says George Ablah. "He was happy to see Freddy-in New York."

By the time Fred Koch died in 1967, he had broken off all relations with Freddy and left nothing to him, for reasons that remain murky. Some speculate that Freddy, who through a trust owned fourteen percent of the family business, had been caught borrowing money from a family friend. Whatever the reason, Freddy has been too embarrassed by the exclusion from the will ever to talk about it, family members say. He remained estranged from his family-except for his mother, whom he escorted to concerts and took on trips-until he joined up with William in the proxy battle.

Charles, two years younger, stepped into the role his father had hoped to bestow on Freddy, and became the favorite. It was not surprising; when Fred senior looked at Charles he saw a reflection of himself. Charles was driven and competitive, fascinated by business, and hardworking. Although Fred was hard on Charles-"I thought I was being picked on," Charles says-it was a sign that his father was grooming his successor. Fred even saw Charles's rebellious streak-he was once expelled from Culver Military Academy in Indiana for drinking on a train-as a reminder of his own restless youth.

For companionship, Charles sought out David, four years his junior. "I was closer to David because he was better at everything [than the others]," recalls Charles. "He was more energetic and more interested in doing things, so we related more."

William felt the exclusion keenly. "Billy always felt that Charles and David were leaving him out," says Mary, her voice echoing frustration and despair over the situation even now. "Billy had no confidence or self-esteem." William focused his wrath on Charles. "It seemed like Billy's main thing has been to whump upon Charles," says a family friend.

Young Billy's emotional problems were so severe that he was unable to concentrate in school and Mary sent him to a therapist-hardly a common practice in the early 1950s. Fred gave Billy extra attention, taking him on two safaris, first to Africa and then to the Arctic Circle, while his brothers waited their turns. Finally, Mary sent Charles away to school at age eleven "for Billy's sake," she says.

Yet nothing seemed to work. In fact, when it came time for the twins to pick their prep schools, David chose Deerfield Academy and, to everyone's astonishment, William picked Charles's School, Culver. It was as if he had set up his own internal competition with Charles, whom he both hated and admired.

For a while, when the three were together at MIT in the late 1950s, the rivalry subsided. Yet the differences between William and his accomplished brothers never disappeared. While David, the captain of the varsity basketball team, was out starring on the floor, his twin would remain benched.

Even that tenuous peace was short-lived. With his father in failing health, Charles returned to Wichita in 1961, leaving his consulting job at Arthur D. Little, Inc. Upon Fred senior's death in 1967, Charles became Koch Industries' chief executive officer. Three years later, David left his job at a New York-based engineering design firm to join Koch in New York. William, with a doctorate in chemical engineering, also signed on as a Boston-based Koch consultant in 1970.

But from the start, his brothers were unimpressed. "Billy's not burning with ambition," says David. "The average student takes four years to get a PhD. Billy took eight. He never worked fulltime for a company unrelated to Koch. I got my jobs on my own and without relying on relations. Billy never wanted to take that route."

At first, Charles put him in charge of a Boston-based venture capital fund. That didn't work out, and after five years it folded. He then worked successfully, by all accounts, as a chemical trader. But his interest waned.

"Billy doesn't like to look into one window too long," recalled his former boss Sterling Varner, Koch's vice chairman. "He's a lot better at ideas than at getting the job done."

After that brief, fitful success, everything William touched failed. He took over Koch's carbon division. That flopped. William took over the company's membrane systems division. That also failed, and David came to the rescue. William pressed for more responsibility.

"Billy couldn't find his own thing, something he could excel at and be his own man," says Varner. Adds David: "Billy wanted the big job and the big title faster than he deserved."

In 1979, William became vice president for corporate development and began to flood the company with ventures to fund. "Consultants flattered him and told him he was the greatest," asserts Charles. "They helped mollify his internal struggle and fed his ego. He was a big man on campus with them." But his ideas-to buy Checker Cab and to fund a cholesterol-fighting drug called the "onion pill," among others-found little support.

If his brothers weren't happy with William, he wasn't happy with them. He believed that Charles had mismanaged the company-he claims Charles lost some $800 million (which he said was later negotiated down to $80 million) speculating on oil-tanker leases. (Koch Industries says these losses were nowhere near that amount.) He also objected to Çharles's donations to libertarian causes, saying it made the company and the family look "crazy." Most importantly, he objected to the company's miserly dividend payout of less than one percent of its annual earnings. "I had to borrow money to buy a house and here I'm one of the wealthiest men in America," complained William, who, like Charles and David, owned twenty-one percent of Koch.

Back in Wichita, William agitated to get shareholders more money. He and Fred, who held a fourteen-percent stake, banded together and pushed to take all or part of the company public -which Charles didn't want- or to sell some of the company to its employees.

"Freddy wanted no part of the family and did his own thing," explains William. "But when Father disinherited him, Fred was very unhappy. He felt he was unjustly treated."

Around Thanksgiving 1980 William, armed with his own shares, Fred's, and those of assorted small shareholders, walked into the First National Bank in Wichita and obtained a proxy for additional Koch shares that were held in a charitable trust. He told the bank he needed the proxy for a routine company matter. With fifty-two percent of Koch shares now in his pocket, William intended to stack the Koch board in his favor. But Koch officials caught wind of William's scheme and rushed to the bank, got the proxy revoked, and pressured one dissident to sell his shares back to Charles's supporters-at a $2.7 million premium. (William had convinced the dissident, the son of an early partner of Fred senior, to oust the dissident's own father from the Koch board and take his father's seat for himself.) The board then fired William, giving him a severance payment of $400,000 on top of his annual dividend payment of $2 million.

Koch Industries didn't topple. But Charles and David only got an uneasy truce. William's camp still owned slightly under fifty percent of the company-too much for comfort. Efforts to arrange a buyout of William's group brought in some of the best-paid talent on Wall Street and in the legal community. Then, a 1982 article in Fortune magazine entitled "Family Feud at a Corporate Colossus" brought discussions to a halt. Charles was angered, believing that William had leaked details of the battle to the press in violation of a nondisclosure pact. Lawsuits began to fly, and finally, in 1983, William and Fred agreed to hand over their Koch shares for about $800 million-some $470 million to William and $330 million to Fred.

Since then, four federal judges in recent years have dismissed, whole or in part, cases that William and Fred have brought alleging that Koch Industries hid assets when coming up with the $800 million settlement figure. "It is no secret that the courts have become the stage for the unraveling of a family," wrote district judge Sam A. Crow of Kansas in dismissing one of William's recent motions. "There are indications that harbored ill feelings have created and fueled expensive and time-consuming litigation in the courts, as well as much publicized proceedings within other branches of government."

A new level of vindictiveness was reached earlier this year when William and Fred sued their mother to force her to give up her role as local philanthropist in distributing $300,000 annually from the Fred C. Koch Foundation to local Wichita charities. William and Fred's lawyers even argued, with their clients looking on, that Mary, who had suffered a small stroke, should be hauled into court-even if it took a wheelchair and oxygen tanks to get her there. A local judge settled the suit in favor of Mary, although William and Fred have appealed.

Mary was in tears during the litigation. But apparently she doesn't hold a grudge. "I love all four boys, and I wouldn't cut any out of my will," she says.

For William, the suits are not a matter of family, but of principle. "I look at my father," he said in an interview three years ago. "He stood up for principle. If he thought he was right, he'd fight to the death." But even William recognizes that there's more to it than that. "The family instinct in me is so strong," he said. "That's why it's so painful to get the umbilical cord cut."

But ties have been severed, nonetheless. When Forbes magazine publishes its 400 richest fortunes, the two Koch factions are listed separately. This came after emissaries of Charles and David visited Forbes and asked that their listing be severed from Fred and William's. "Now that's sibling rivalry, "Forbes quipped when reporting the Koch request.

No matter how hard they try, David and Charles believe they will never be rid of William. "Billy is filled with bitterness at being ostracized from the family," says David. The lawsuits "are his way of getting our attention and continuing to play an important role in our lives."

"He has dedicated his life to showing that we are wrong or to try to cripple us in one way or another," Charles observes in an interview at the company's headquarters-four gleaming glass boxes on a barren windswept prairie. "I feel sorry for him. Here's a guy who has everything in the world-money, a big art collection, yachts. But he's miserable. And he creates misery in his wake. So I can't forgive him."

Fred, however, has used his $330 million settlement to buy a life as different as anything Wichita could offer or that Charles or David would ever want. A resident of Monte Carlo, Fred has estates in England and Germany and an apartment on Fifth Avenue. To escape US taxes, he resides at least six months a year abroad, according to David.

A connoisseur of art, drama, and the theater in the mold of J. P. Morgan, he favors the late nineteenth and early twentieth centuries-Victorian, Pre-Raphaelite, Vienna Secession, and Art Deco. His nineteenth-century art collection fills warehouses in the US and England and his pictures alone are said to number more than two thousand.

Known as the vacuum cleaner in some collecting circles, Fred Koch's appetite is so ravenous that he has been known to sweep up entire streets like Madison Avenue, regardless of quality. Several years ago, he spent about $180,000 in just two days at Sotheby's in London for illustrated books, including a rare manuscript of Edward Lear's A Book of Nonsense.

Fred donates heavily to the theater programs at Harvard and Yale and the film programs at the Museum of Modern Art and Lincoln Center in New York. At the Morgan Library in New York, where his name is carved in the foyer, he set up the Fred R. Koch Foundation and helped the library acquire the score of a Debussy opera, librettos of Wagner, and large collections of letters from Verdi, Ravel, Debussy, and Wagner.

Fred is often the talk of the town. Even Queen Elizabeth has thanked Fred-whom British newspapers term a "Kansas oil baron"-for his $3 million gift to build the Swan Theatre at Stratford-on-Avon. Yet the queen, too, respects Fred's penchant for privacy. In her opening speech at the Swan, Elizabeth thanked Fred without naming him: "As patron of the Royal Shakespeare Company, I offer the company's thanks to our generous benefactor."

Fred recently purchased Sutton Place, J. Paul Getty's magnificent Tudor country house near Guildford, for about $13 million, and plans to turn it into a showcase for his Victorian collection, valued at about $163 million.

His family is less enthusiastic than the beneficiaries of Fred's spending. "Freddy never composed anything himself," says Mary, "and his father was upset that he never earned a living. Fred felt Freddy just indulged his pleasures in art, music, and literature when he could have created something."

Charles, on the other hand, hasn't strayed far from home. He lives with his wife, the former Elizabeth Buzzi, and two teenaged children in a starkly modern glass-and-stone home on the family's 150-acre compound in Wichita. Cautious about marriage, he dated Elizabeth for five years before he proposed-over the telephone. Since then they have lived a family-centered life, more typical of Midwestern suburbia than the Forbes 400, spending time skiing and playing tennis. Nearby lives Mary in the mini-château that might have been plucked up from France.

Charles has his philanthropies too, but to him they are serious compared to Fred's "self-indulgent" pursuits. He is a leading donor to the libertarian movement-a hybrid political philosophy that opposes government intervention in the economy and personal lives. Think tanks from the Cato Institute in Washington to the Institute for Humane Studies at George Mason University in Fairfax, Virginia, have been recipients of his largess. He even convinced David to run for vice president on the Libertarian ticket in 1980 to take advantage of the so-called "Rockefeller rule" that allows candidates to donate more than ordinary supporters.

Charles's interests are, well, pedestrian. Instead of supporting the Royal Shakespeare Theatre, Charles favors the Wichita Association for Repertory Arts. Instead of the Munich opera, which Fred helps sponsor, Charles donates to the Wichita Symphony Society's Pops Concerts.

Even David, who doesn't have the burdens of running the business or raising a family, has a surprisingly modest lifestyle. "I like nice playthings and I drive a Ferrari," he says. "But I don't have fifteen." He loves to take "world-class" trips to exotic locales and to indulge his passion for the outdoors by sponsoring archaeological digs in Africa and elsewhere.

Although Eastern pretensions displease him, he enjoyed seeing a picture in a recent issue of Fortune of him and fellow Libertarians meeting with President Bush and likes being mentioned in the New York Times when a dig he's funded has made a significant discovery. Perhaps he doesn't fit into the New York scene; perhaps he doesn't want to. His main social indulgence is a twice-yearly cocktail party that he describes as a "blowout" and his "Koch University" dinner parties, where he invites noted scientists to lecture at his UN Plaza duplex.

But the family dynamics have shaped David's life as much as the lives of his discontented brothers. He says he's had some "close calls" with marriage, and while he finds the idea of marriage more appealing as he gets older, he's reluctant to give up a "swinging bachelor lifestyle." Besides, the family lawsuits have made him "gun-shy," he says, about human relationships that could dissolve into litigation.

It seems that David, like his brothers, is still trying to understand what tore his family apart. He invited the head of the University of Minnesota psychology department to talk at one of his dinner parties about personality difference in sets of identical twins separated at birth. Studies show that when reunited, these twins have remarkable personality similarities, regardless of how different their actual upbringings were. It is a strong argument for nature over nurture and, as David explains, shows how much of an individual's personality is set at birth, or before. It also explains why a stable environment doesn't necessarily produce equally happy siblings.

To David, it explains a lot about his family. "We had a fabulous education and fabulous experiences," he says. "Our parents were decent, honorable people. They sent us to the finest universities. They made us work hard as children. We all had the same. So why did we come out so different?"

It's an interesting question, but one that no court will ever answer no matter how many suits the Koch brothers bring.

END