Koch Defrauded U.S., Jury Rules

Koch Industries, the mammoth Wichita, Kan.-based oil and gas conglomerate, defrauded the U.S. government by mismeasuring oil purchases on federal and American Indian lands, a federal jury decided Thursday.

Koch, one of the largest private companies in the United States, was ordered to pay actual damages to the government of $553,504 for making 24,587 false claims that allowed Koch to pay less than it should have for oil, the jury said.

Punitive damages, which are to be assessed at $2,000 to $10,000 for each of the false claims, will be decided by the federal judge who oversaw the case, leaving the company facing more than $200 million possible in damages.

The lawsuit against Koch Industries was brought by Bill Koch, brother to company chairman Charles Koch. Bill Koch filed the suit on behalf of the federal government as a whistle-blower’s action that claimed Koch Industries schemed to get more oil than it paid for by mismeasuring oil on federal and American Indian lands.

Bill Koch, who has maintained a long-running family feud with his brother since a falling-out nearly 20 years ago, claimed the company made approximately 31,000 false claims due to mismeasurement of oil on federal leases and received more than $170 million in profit by overcharging for oil in the 1980s.

Attorneys for Koch Industries declined to comment as they left the courtroom. But the company immediately issued a statement promising to challenge the jury’s decision.

“There is insufficient evidence to support the adverse ruling rendered here today,” the company said. “This is another unfortunate manifestation of Billy’s obsessive 19-year campaign against the company and his brothers.”

Roy Bell, an attorney for Bill Koch, said the jury acted properly. Bill Koch “felt hurt and insulted . . . when he discovered his father’s company was being used by the richest people in America to steal from the poorest people in America,” Bell said.

Bill Koch could collect 20% to 25% of any award in exchange for pursuing the case on behalf of the government.

Bill Koch was a former officer of Koch Industries, which was founded by his father, Fred Koch. But he sold his 22% stake and left the company in 1983 after challenging his brother in a bitter shareholder dispute over the division of company profits.

In the court case, company executives acknowledged that adjustments were made to oil measurements but said they were done to account for adverse field conditions such as sediment buildup in tanks and trapped gases that made the actual amount of oil the company received less than what measurements recorded.