Dark Money Read online

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  By 2009, the Kochs had indeed succeeded in expanding their political conference from a wonky free-market swap fest to the point where it was beginning to attract an impressive array of influential figures. Wealthy businessmen thronged to rub shoulders with famous and powerful speakers, like the Supreme Court justices Antonin Scalia and Clarence Thomas. Congressmen, senators, governors, and media celebrities came too. “Getting an invitation means you’ve arrived,” one operative who still works for the Kochs explained. “People want to be in the room.”

  The amount of money raised at the summits was also increasingly eye-catching. Earlier businessmen had certainly spent outsized sums in hopes of manipulating American politics, but the numbers at the Koch seminars far outstripped those in the past. As The Washington Post’s Dan Balz observed, “When W. Clement Stone, an insurance magnate and philanthropist, gave $2 million to Richard M. Nixon’s 1972 campaign, it caused public outrage and contributed to a movement that produced the post-Watergate reforms in campaign financing.” Accounting for inflation, Balz estimated that Stone’s $2 million might be worth about $11 million in today’s dollars. In contrast, for the 2016 election, the political war chest accumulated by the Kochs and their small circle of friends was projected to be $889 million, completely dwarfing the scale of money that was considered deeply corrupt during the Watergate days.

  The clout of the participants at the retreats served to burnish the Kochs’ reputations, conferring a new aura of respectability on their extreme libertarian political views, which many had dismissed in the past as far outside the mainstream. “We’re not a bunch of radicals running around and saying strange things,” David Koch proudly told Continetti. “Many of these people are very successful, and occupy very important, respected positions in their communities!”

  Exactly who attended the January 2009 summit, the first of the Obama era, and what transpired inside the resort can only be partly pieced together because the guest list, like many other aspects of the Kochs’ political and business affairs, was shrouded in secrecy. As one Republican campaign consultant who has worked for the Kochs in the past said of the family’s political activities, “To call them under the radar is an understatement. They are underground!”

  Participants at the summits, for instance, were routinely admonished to destroy all copies of any paperwork. “Be mindful of the security and confidentiality of your meeting notes and materials,” the invitation to one such gathering warned. Guests were told to say nothing to the news media and to post nothing about the meetings online. Elaborate security steps were taken to keep both the names of the participants and the meetings’ agendas from public scrutiny. When signing up to attend the conferences, participants were warned to make all arrangements through the Kochs’ staff, rather than trusting the employees at the resort, whose backgrounds were nonetheless investigated by the Kochs’ security detail. In an effort to detect intruders and impostors, name tags were required at all functions, and smartphones, iPads, cameras, and other recording gear were confiscated prior to sessions. In order to foil eavesdroppers during one such gathering, audio technicians planted white-noise-emitting loudspeakers around the perimeters, aimed outward toward any uninvited press and public. It went without saying that breaches of this secrecy would result in excommunication from future meetings. When a breach did occur, the Kochs launched an intense weeklong internal investigation to identify and plug the leak. The donations raised at the summits were not publicly disclosed, nor were the names of the donors, although the planners’ hope was that the money would have a decisive impact on the nation’s affairs. “There is anonymity that we can protect,” Kevin Gentry, vice president for special projects at Koch Industries and vice president of the Charles G. Koch Charitable Foundation, reassured the donors at one summit while soliciting their cash, according to a recording that later leaked out.

  In case anyone misunderstood the seriousness of the enterprise, Charles Koch emphasized in one invitation that “fun in the sun” was not “our ultimate goal.” Golf games and gondola rides were fine for after hours, but breakfast discussions would start bright and early. He reminded the invitees, “This is a gathering of doers.”

  No fewer than eighteen billionaires would be among the “doers” joining the Kochs’ clandestine opposition movement during the first term of Obama’s presidency. Ignoring the mere millionaires in attendance, many of whose fortunes were estimated to be worth hundreds of millions of dollars, the combined fortunes of the eighteen known billionaire participants alone as of 2015 topped $214 billion. In fact more billionaires participated anonymously in the Koch planning sessions during the first term of the Obama presidency than existed in 1982, when Forbes began listing the four hundred richest Americans.

  The participants at the Koch seminars reflected the broader growth in economic inequality in the country, which had reached the level of the Gilded Age in the 1890s. The gap between the top 1 percent of earners in America and everyone else had grown so wide by 2007 that the top 1 percent of the population owned 35 percent of the nation’s private assets and was pocketing almost a quarter of all earnings, up from just 9 percent twenty-five years earlier. Liberal critics, like the New York Times columnist Paul Krugman, a Nobel Prize–winning economist, worried that the country was in danger of being transformed from a democracy into a plutocracy, or worse, an oligarchy like Russia, where a handful of extraordinarily powerful businessmen bent the government into catering to them at the expense of everyone else. “We are on the road not just to a highly unequal society, but to a society of an oligarchy. A society of inherited wealth,” Krugman warned. “When you have a few people who are so wealthy that they can effectively buy the political system, the political system is going to tend to serve their interests.”

  The term “oligarchy” was provocative and might have seemed an exaggeration to those accustomed to thinking of oligarchs as despotic rulers who were incompatible with democracies like the United States. But Jeffrey Winters, a professor at Northwestern University specializing in the comparative study of oligarchies, was one of a growing number of voices who were beginning to argue that America was a “civil oligarchy” in which a tiny and extremely wealthy slice of the population was able to use its vastly superior economic position to promote a brand of politics that served first and foremost itself. The oligarchs in America didn’t rule directly, he argued, but instead used their fortunes to produce political results that favored their interests. As the left-leaning Columbia University professor Joseph Stiglitz, a Nobel Prize–winning economist, put it, “Wealth begets power, which begets more wealth.”

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  For years, American economists had tended to downplay the importance of economic inequality in the country, arguing that its growth was simply the inevitable result of huge and unavoidable shifts in the global economy. Over time, they suggested, extreme inequality would naturally stabilize, and a rising tide would lift all boats. What mattered most, free-market advocates argued, was not equality of results but rather equality of opportunity. As the conservative Nobel Prize–winning economist Milton Friedman wrote, “A society that puts equality—in the sense of equality of outcome—ahead of freedom will end up with neither equality nor freedom…On the other hand, a society that puts freedom first will, as a happy by-product, end up with both greater freedom and greater equality.”

  In the new millennium, however, this consensus was beginning to fray. A growing number of academics studying the nexus of politics and wealth regarded the accelerating inequality in America as a threat not only to the economy but to democracy. Thomas Piketty, an economist at the Paris School of Economics, warned in his zeitgeist-shifting book, Capital in the Twenty-First Century, that without aggressive government intervention economic inequality in the United States and elsewhere was likely to rise inexorably, to the point where the small portion of the population that currently held a growing slice of the world’s wealth would in the foreseeable future own not just a quart
er, or a third, but perhaps half of the globe’s wealth, or more. He predicted that the fortunes of those with great wealth, and their inheritors, would increase at a faster rate of return than the rate at which wages would grow, creating what he called “patrimonial capitalism.” This dynamic, he predicted, would widen the growing chasm between the haves and the have-nots to levels mimicking the aristocracies of old Europe and banana republics.

  Some argued that an elite minority was also driving extreme political partisanship as its interests and agenda lost touch with the economic realities faced by the rest of the population. Mike Lofgren, a Republican who spent thirty years observing how wealthy interests gamed the policy-making apparatus in Washington, where he was a staff member on the Senate Budget Committee, decried what he called the “secession” of the rich in which they “disconnect themselves from the civic life of the nation and from any concern about its well-being except as a place to extract loot.” America, as Jacob Hacker and Paul Pierson described it, had become a “winner-take-all” country in which economic inequality perpetuated itself by pressing its political advantage. If so, the Koch seminars provided a group portrait of the winners’ circle.

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  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 antigovernment. 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 multilevel 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.