TULSA, Okla., Oct. 8 /PRNewswire/ -- According to papers filed in federal
district court here Friday on behalf of plaintiffs William I. 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 show that Koch profited handsomely from these
"overages," at the expense 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 plaintiffs 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 $130,00,000, 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 millions 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:  8965 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 1980s, which resulted 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."  In more recent testimony, Charles
admitted that the company trained its gaugers to adjust measurements 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 discover 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.

Link to: California's Modern Indian War