by Jane Mayer
In comparison, Christie was the political equivalent of his idol, Bruce Springsteen. David Koch personally introduced him, showering him with praise as not just a “true political hero” who “tells it like it is” but also “my kind of guy.” Koch was especially effusive about the “courage and leadership” Christie showed in forging a bipartisan deal to cut future pension and benefit payments to New Jersey’s unionized public sector employees. In exchange for these concessions, the Democrats and their union allies had obtained a promise from Christie to increase payments into the ailing funds. This tough-minded seeming “fix” vaulted Christie to national prominence. Four years later, a judge would rule that it was more like a bait and switch. The workers’ benefits were cut, but the state, which was in an economic slump, reneged on its end of the bargain. In 2011, however, for the Kochs and their assembled allies, Christie was the cherished face of the future. “Who knows?” Koch teased, as the donors cheered, whistled, and hooted their approval during his introduction. “With his enormous success in reforming New Jersey, some day we might see him on a larger stage where, God knows, he is desperately needed!”
Christie soon brought the well-heeled crowd to its feet by casting low taxes on high-income earners as a populist cause. In a bravura performance, he described going to battle against what he called a “Millionaires Tax”—a 1 percent income tax increase on the state’s top earners. “Take this back where it came from, ’cuz I ain’t signin’ it,” he recounted telling the Democrats as the donors cheered. Christie had campaigned on making his state a superpower in wind energy, but his reversal and withdrawal from a regional program to reduce greenhouse gas emissions also drew cheers. When it came time for questions from the audience, the first speaker voiced the excitement in the room, saying, “You’re the first guy I’ve seen who I know could beat Barack Obama,” and then, amid laughter and applause, begged Christie to run.
But the dinner’s main course was the fund-raising session led by Charles Koch. In a folksy midwestern voice, he appealed for contributions as if America’s survival depended on it. After invoking Saddam Hussein’s famous battle cry from the first Gulf War, Koch struck a more alarmist note. The stakes in the coming presidential campaign, he warned, were nothing short of “the life or death of this country.” Not, he added with good humor, that he was trying to “put any pressure on anyone here, mind you. This is not pressure. But if this makes your heart feel glad and you want to be more forthcoming, so be it.” Then, in a move guaranteed to put the squeeze on everyone else, he publicly identified and commended the largest donors to date. “What I want to do is recognize not all our great partners, but those partners who have given more than a billion—a mill—no, billion,” at which point he caught and corrected himself. As the wealthy crowd knowingly guffawed at the easy confusion over a few extra zeros, Charles ad-libbed, “Well, I was thinking of Obama and his billion dollar campaign, so I thought we gotta do better than that.” He went on, “If you want to kick in a billion, believe me, we’ll have a special seminar just for you.”
Charles then ticked off the names of the thirty-two donors who had contributed a million dollars or more during the previous twelve months. Nine were billionaires whose fortunes had landed them on Forbes’s list of the four hundred wealthiest Americans. Some, like the finance stars Charles Schwab, Ken Griffin, and Paul Singer, as well as Amway’s Richard DeVos and the natural gas entrepreneur Harold Hamm, were fairly well-known. Many others, though, were members of the invisible rich—owners of enormously profitable private enterprises that rarely drew public attention. Two among the nine billionaires, for instance, John Menard Jr., whose fortune Forbes estimated at $6 billion, and Diane Hendricks, whose fortune the magazine valued at $2.9 billion, owned private building and home supply companies in Wisconsin and were not well-known outside the state, let alone in it. Many of the non-billionaires whom Charles recognized were familiar faces in the Kochs’ circle. There were the Popes from North Carolina, the Friess family from Wyoming, and the Robertsons of the Texas oil clan, as well as coal barons like Joe Craft and the Gilliams and members of the Marshall family, the only significant outside owners of Koch Industries’ stock.
Charles then added, “Ten more will remain anonymous, including David and me. So we’re very humble in that,” he joked. More seriously, though, he declared that “the plan is, the next seminar, I’m going to read the names of the ten million”—not mere one million—dollar donors.
As he read the names of the generous, he made clear what he expected their money to buy. He promised those he referred to as his “partners” that “we are absolutely going to do our utmost to invest this money wisely and get the best possible payoff for you in the future of the country.”
None of these thoughts were shared with the rest of the country. Far from the Supreme Court majority’s assumption in the Citizens United case that political spending would be transparent, the Kochs and their partners took great pains to hide what they were up to. Indeed this was a selling point. Kevin Gentry, vice president of Koch Industries for special projects, who had overseen fund-raising for the brothers for years and who played the role of master of ceremonies at the seminars, assured the donors that weekend, “There is anonymity we can protect.”
The Kochs had recently come up with a new and even cleverer way of masking the money. Rather than simply directing the funds through the maze of secretive nonprofit charities and social welfare groups that they had used during the 2010 campaign, they now established a more efficient method. They pooled much of the cash first in a form of nonprofit corporation that the tax code defined as a 501(c)(6), or a “business league.” The advantage of this umbrella organization, which they named the Association for American Innovation (AAI), was that donations to it could be classified as “membership dues” and to some extent get deducted as business expenses. As with contributions to a 501(c)(4), the law protected the donors’ anonymity. But as a business league, it fell outside the charitable trust purview of state attorneys general, further safeguarding the secrecy.
By the time the Beaver Creek seminar adjourned, the Kochs had collected some $70 million in new pledges. There is no public record showing specifically how these new funds were spent, but it appears that much of the money was directed into the new “business league,” the Association for American Innovation. During 2011 alone, tax records show, the AAI, which soon changed its name to Freedom Partners, accumulated over a quarter of a billion dollars.
The new business league, which was at first run by Wayne Gable, the head of lobbying for Koch Industries, was less than candid with the Internal Revenue Service about its intentions. According to its founding documents, it told the IRS it “does not currently plan to attempt to influence any election” and in the future might do so but only to “an insubstantial” extent. From the start, however, the organization financed many of the same political front groups that the Kochs had mobilized in the 2010 midterms. This time, though, their underground guerrilla war against Obama was waged by a “business league” and treated as a partially tax-deductible business expense. From November 2011 to October 2012, the Kochs’ new “business league” transferred $115 million to Sean Noble’s Center to Protect Patient Rights and $32.3 million to David Koch’s group, Americans for Prosperity.
In October 2011, Christie announced definitively that 2012 was not his year. The truism about the two parties was that when it came to choosing candidates, “Democrats fall in love, while Republicans fall in line.” But 2012 was shaping up to be the exception. With power shifting from the centralized party professionals to rogue billionaires, top-down consensus was giving way to warring factions. Even within the Koch camp, there were divergent opinions. After the infatuation with Ryan, David Koch liked Christie. Charles Koch admired Mike Pence, then a congressman and later governor of Indiana. When Pence declined to get in the race, the Kochs hired his former chief of staff, Marc Short, as yet another political adviser. The donors, meanwhile, were all over the Re
publican lot. Noble was trying hard to herd everyone in one direction but failing.
Unsure what else to do, in late 2011 the Koch operatives made one of the first attack ads of the general election season. Sponsored by Americans for Prosperity, it slammed Obama as corruptly showering his friends with “green giveaways” such as Solyndra. AFP spent $2.4 million running the ad thousands of times in the key states of Florida, Michigan, Nevada, and Virginia. Sean Noble had sold the idea as a clean shot. But it caused a little problem. One of the Koch donors turned out to have invested in Solyndra and was not happy.
A subsequent Koch-created ad, aired by the American Future Fund, also proved problematic. The mysterious Iowa-based front group was a favorite choice for messages from which the Koch camp preferred to distance itself. Shot as populist rage against the “1 percent” was coalescing in the Occupy movement and protesters were marching on David Koch’s apartment, the ad slyly attacked Obama for being too cozy with Wall Street. After quoting Obama calling Wall Street bankers “fat cats,” it asked, “Guess who voted for the Wall Street bailout? His White House is full of Wall Street executives,” it went on, as mug shots of Obama’s advisers flashed by. The Kochs’ political operatives tested the ad in fifteen separate focus groups. Once aired, it seemed to be a great success, getting over five million hits on YouTube. But some of the finance industry executives in the donor group were not amused by the political misdirection. “Why attack Wall Street?” they asked.
One donor, Peter Schiff, an attendee at the June Koch seminar, evidently didn’t receive the new, populist talking points. A Connecticut financial analyst and broker, he barged into the midst of the Occupy movement’s Manhattan encampment in October with a sign proclaiming, “I am the 1%. Let’s talk.” Subsequent video footage of him arguing in favor of eliminating the minimum wage and paying “mentally retarded” people $2 an hour made him a laughingstock on Jon Stewart’s Daily Show. The Kochs’ “Mother of All Wars” wasn’t starting out all that much better than Saddam Hussein’s.
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The picture was far brighter in the key presidential battleground state of Wisconsin. There, the first-term governor, Scott Walker, had vaulted to national stardom by enacting unexpectedly bold anti-union policies. Walker exemplified the new generation of Republicans who had coasted to victory in 2010 on a wave of dark money, ready to implement policies their backers had painstakingly incubated in conservative nonprofits for decades.
For the Koch network, Walker’s improbable rise was a triumph. Koch Industries PAC was the second-largest contributor to Walker’s campaign. More important, the Kochs were an important source of funds to the Republican Governors Association, which Republicans used in Wisconsin and elsewhere in 2010 to work around strict state contribution limits. The Kochs’ PAC had also contributed to sixteen state legislative candidates in Wisconsin, who all won their races, helping conservatives take control of both houses of the legislature and setting the stage for Wisconsin’s dramatic turn to the right.
Walker had also benefited enormously from the philanthropy of two other archconservative brothers, the late Lynde and Harry Bradley, whose foundation had grown into an ideological behemoth in Milwaukee. Walker’s campaign manager, Michael Grebe, was the Bradley Foundation’s president. Think tanks had long supplied policy ideas to those in power. Some, like the liberal Center for American Progress, were led by well-known partisans who moved in and out of government. It was rare, though, to wear both hats simultaneously. But Grebe’s dual role would have made his predecessor at the Bradley Foundation, Michael Joyce, proud. It was exactly the kind of hands-on political impact Joyce had sought when he set out to weaponize conservative philanthropy.
The Bradley Foundation’s close ties to Walker were evident on his social calendar. Among his first private engagements after the election was a celebratory dinner with the foundation’s board and senior staff at Bacchus, a stylish Milwaukee restaurant overlooking Lake Michigan. By then, Lynde and Harry Bradley’s foundation had assets of over $612 million and had provided the playbook for many of Walker’s policies.
Grebe denied his foundation had hatched the initiative that made Walker famous, his crackdown on the state employees’ unions. But he applauded the move and had personally sent out fund-raising letters asking supporters to help Walker fight “the big government union bosses.” The Bradley Foundation, meanwhile, in 2009, gave huge grants to two conservative Wisconsin think tanks developing plans to break the power of the state’s public employee unions. As the Milwaukee Journal Sentinel noted in 2011, the Bradley Foundation was “one of the most powerful philanthropic forces behind America’s conservative movement” and “the financial backer behind public policy experiments that started in the state and spread across the nation—including welfare reform, public vouchers for private schools and, this year, cutbacks in public employee benefits and collective bargaining.” As Grebe later acknowledged about Walker’s meteoric rise to The New York Times, “At the risk of being immodest, I probably lent some credibility to his campaign early on.”
As a college dropout with no exceptional charisma or charm, Walker might not ordinarily have been marked for high office, but Americans for Prosperity, which had a large chapter in Wisconsin, had provided him with a field operation and speaking platform at its Tea Party rallies when he was still just the Milwaukee county executive. The Kochs’ political organization had been fighting the state’s powerful public employee unions there since 2007. The fight was freighted with larger significance. In 1959, Wisconsin had become the first state to allow its public employees to form unions and engage in collective bargaining, which conservatives detested in part because the unions provided a big chunk of muscle to the Democratic Party. “We go back a long way on this in Wisconsin, and in other states,” Tim Phillips, the head of Americans for Prosperity, acknowledged to Politico. In the past, Phillips had spoken enviously of the unions as the Left’s “army on the ground.”
Walker’s anti-union, antitax, and small-government message harmonized perfectly with the Kochs’ philosophy and also served their business interests. Koch Industries had two Georgia-Pacific paper mills in the state, as well as interests in lumber mills, coal, and pipelines employing some three thousand workers.
Soon, a handful of Wisconsin’s wealthiest magnates, who were part of the Koch donor network, started writing checks, too. John Menard Jr., for instance, the richest man in Wisconsin, was both a million-dollar donor at the Kochs’ June 2011 summit and a million-and-a-half-dollar donor to the Wisconsin Club for Growth, an outside dark-money group boosting Walker. Like many of Menard’s investments, the political contributions more than paid off. Once in office, Walker chaired a state economic development corporation that bestowed $1.8 million in special tax credits on Menard’s business. Walker’s administration also eased up on enforcement actions against polluters.
Seventy years old at the time Walker was elected, Menard had made a fortune, estimated at about $6 billion in 2010, from a chain of home improvement stores bearing his name, but until Walker entered the statehouse, his relationship with the government had been contentious, to say the least. According to a 2007 profile in Milwaukee Magazine, his company had more clashes with the state’s Department of Natural Resources than any other firm in Wisconsin. Ultimately, his company and Menard personally paid $1.7 million in fines for illegally disposing of hazardous waste. In one memorable instance, his company reportedly labeled arsenic-tainted mulch as “ideal for playgrounds.”
Menard’s hostility to organized labor was pronounced. He imposed an absolute ban on hiring anyone who had ever belonged to a union. One employee described having to fire two promising management prospects because they had worked in high school as baggers for a unionized supermarket. Managers, meanwhile, were subject to 60 percent pay cuts if their stores became unionized. They also had to agree to pay fines of $100 per minute for infractions such as opening late and to submit any disputes to management-friendly arbitration rather than the c
ourts. Menard also forbade employees to build their own houses, for fear they would pilfer supplies. When one employee got special permission to build a ramp-equipped home in order to accommodate a wheelchair-bound daughter (in exchange for a demotion and a large salary cut), he was fired. His offense was that his contractor was using building materials from a competitor.
Menard had a disputatious record on compensation and taxes as well. The IRS ordered him to pay $6 million in back taxes after he allegedly mischaracterized $20 million as salary, not dividends, deducting it as a business expense. In a separate case, the Wisconsin Supreme Court forced Menard to pay $1.6 million to a former legal counsel, a woman who was the sister of his girlfriend at the time, to compensate for gender discrimination and gross underpayment. The woman’s lawyer described Menard as “a man without parameters, no limits, no respect for the law, and obviously no self-discipline.”
That case was followed by another in which the wife of a former business associate whom Menard fired in 2011 accused him of retaliating against her husband because of her refusal to engage in a sexual threesome with the billionaire and his wife. A spokesman for Menard denied the allegation. Meanwhile, a second woman, the wife of a former Indianapolis Colts quarterback, claimed Menard fired her for rebuffing his sexual advances. The company spokesman denied this as well. All in all, Menard seemed an unlikely patron for Walker, who emphasized his Christian conservatism as the son of a Baptist preacher, but on economic policies there was a meeting of the minds. Moreover, Menard was famously press shy, and little of his involvement with Walker surfaced until years later.