IN THE NEWS / Koch Industries Charged With Plotting To Steal Oil
From Federal And Indian Lands
Date: 10/8/98 5:36:02 PM
Dateline: TULSA, OKLAHOMA
Stock Symbol:
According to papers filed in federal district court here on Friday
(Oct. 2) on behalf of plaintiffs William J. Koch and William
Presley, Koch Industries Inc. engaged in a systematic,
management-directed scheme to steal crude oil from producers on
federal and Indian lands throughout the United States.
Koch, the Wichita-based petrochemical giant, is alleged to have
cheated oil producers and royalty owners out of hundreds of
millions of dollars by deliberately falsifying measurements on
lease tanks, in a whistle blower lawsuit filed by the plaintiff's
lawyer Roy Bell, of Miller, Boyko and Bell.
William, who won sailing's America's Cup for the U.S. in 1992, is
a former Koch Industries executive and brother of Charles Koch, the
company's chief executive officer. Koch is ranked by Fortune as the
second-largest privately held company in the country, with
estimated annual revenues of over $35 billion. At one time, Koch
was the largest purchaser of Indian oil in the United States.
Deposition testimony of dozens of former employees and internal
documents obtained from the company show "that Koch field personnel
routinely altered observed measurements, and always did so in
Koch's favor," in order to ensure that Koch ended up with more oil
than it paid for, Bell alleged in court documents.
Documents prepared by Bell showed that Koch profited handsomely
from these "overages," at the expenses of U.S. taxpayers, small
producers and Indian tribes. In one year alone, the company's
internal accounting records show that nearly 40 percent of Koch
Oil's pre-tax profits came from crude oil the company took without
paying, Bell alleged.
The plaintiff's lawyers obtained documents that show Koch's
management planned and budgeted for overages every year prior to
1989. The plaintiffs claim that such consistent overages would have
been impossible to get without a deliberate measurement bias in
Koch's favor. In fact, the former president of Koch Oil admitted in
a deposition that it was "improper" for the company to have planned
for an overage, according to the motion filed by Bell. Every
overage barrel, he said, was "pure profit" for Koch.
Koch's overages from its different divisions between 1981 and 1989
totaled over $130,000,000, plaintiffs Koch and Presley allege.
Internal company documents on file in federal court provide a
detailed breakdown of the wide scale theft, according to the
plaintiffs. Court documents show the following:
Oklahoma: 3,358 producers lost 1.4 million barrels, totaling
$35.8 million.
Kansas: 1,359 producers lost 907,658 barrels, totaling
$21.3 million.
North Dakota: 286 producers lost 492,742 barrels, totaling $11
million.
Texas: 2,855 producers lost 1,911,785 barrels, totaling
$49.9 million.
Louisiana: 471 producers lost 334,145 barrels, totaling $9.5
million.
Colorado: 283 producers lost 165,609 barrels, totaling $3.6
million.
Utah: 48 producers lost 56,121 barrels, totaling $1.4
million.
California: 305 producers lost 18,137 barrels, totaling
$576,000.
Total overages: 8,965 producers were cheated out of 5,373,076
barrels of oil, totaling $133,337,000 ($206
million in 1998 dollars) by Koch Industries,
plaintiffs allege.
Koch trained its measurement employees, known as gaugers, to alter
measurements of oil purchased by the company whenever they could,
according to Bell's motion. The Plaintiffs cited a memo by a former
Koch supervisor in Oklahoma to his boss stating, "we found it takes
four to six months for a new gauger to get the area on a consistent
overage." In another memo filed by the plaintiffs, a Koch division
manager admonished gaugers that if they could not follow his
instructions to alter gravity and temperature readings on tank
measurements to favor Koch, they would be replaced with "new
gaugers."
Koch's own records show that it consistently experienced overages
of as much as 900,000 barrels in the 1980's, which result in
average annual profits of $20 million, until its measurement
activities came under the scrutiny of a United States Senate
committee, the plaintiffs allege. The committee found that Koch had
engaged in "sophisticated oil theft," and called Koch "the most
dramatic example of an oil company stealing by deliberate
mismeasurement and fraudulent reporting."
In a deposition given to Senate lawyers, Charles Koch dismissed the
allegations, claiming that Koch's overages were relatively small
and that its gaugers were "not rocket scientists," the plaintiffs
allege. In more recent testimony, Charles admitted that the company
trained its gaugers to adjust measurement as a matter of "policy,"
and that in his view any risk of loss in oil measurement should be
borne by Koch's customers and royalty owners, Bell wrote in his
motion.
The plaintiffs' lawsuit was filed under the federal False Claims
Act, which allows private citizens to bring a claim on the
government's behalf when they discovered fraud. The current case
has been pending since 1989, but Koch was able to delay it for
several years through repeated technical maneuvers and appeals,
according to the plaintiffs. Recently, federal magistrate Sam A.
Joyner ruled, "Koch Industries negligence resulted in the
destruction of computer files containing information relevant to
the issues in this litigation at a time when koch Industries had a
duty to preserve those files," the plaintiffs allege. Joyner is
currently considering sanctions against the company for its
conduct. |
