Monday, October 11, 2010

Columbia University's Kravis/KKR/TASC Connection--Part 4

(To help fund the construction of a new Columbia Business School on Columbia University's 21st-century landgrabbing, private university real estate development/campus expansion project in West Harlem, the co-founder, co-chairman and co-CEO of Kohlberg Kravis Roberts [KKR]--Henry Kravis--recently gave a $100 million "gift" to the Columbia Business School. Coincidentally, Kravis is also the co-chair of the Board of Overseers of Columbia Business School. And since 2009, Kravis's KKR investment firm has been a co-owner of the TASC firm which obtains 40 percent of its annual revenues from Pentagon military contracts.

The following article about Henry Kravis and KKR's pre-1992 hidden history first appeared in the July 22, 1992 issue of the now-defunct Lower East Side alternative newspaper weekly, Downtown, during the period when Kravis's KKR firm still owned New York magazine--prior to its sale to Bruce Wasserstein in 2003 for $55 million).

To persuade U.S. public officials to serve KKR’s special, private interests by letting KKR use public pension funds to help finance KKR’s lucrative 1980s leveraged-buyout program, Henry Kravis’s firm used a variety of techniques.

In Oregon, for example, KKR hired a member of the Oregon Investment Council named Roger Meier in 1983 to be a director of Norris Industries, a company that KKR had acquired in 1981 with the help of the Oregon Investment Council. Meier then received an annual director’s fee of $15,000 from the KKR subsidiary, and, in 1985, Meier was named by KKR to an $18,000/year position on its Fred Meyers subsidiary’s corporate board. The Money Machine by Sarah Bartlett noted that:
“…When his [Meier’s] dual role was revealed in the local newspapers many Oregonians were outraged.

“It was, and still is, a violation in Oregon for anyone to use his or her public position for private gain.”

After the outrage over his accepting board slots on newly-acquired KKR subsidiary companies—following the approval of the utilization of Oregon public pension funds to finance KKR’s acquisition of these same companies—forced him to resign his Oregon Investment Council membership post, “Meier became an investor in certain companies in KKR’s portfolio” and “was also offered stock in one KKR company at a price that led one to wonder whether it was a sweetheart deal,” according to The Money Machine. He was sold 3,000 shares of U.S. Natural Resources [USNR] by KKR in the Fall of 1986 at $100 a share and by the early 1990s a share in USNR was worth $400, giving Meier a profit on paper of around $900,000 on his 1986 stock purchase from KKR.

When Oregon State Treasurer Bill Rutherford replaced KKR subsidiary director Meier on the Oregon Investment Council, KKR continued to treat kindly an Oregon public official with the power to let KKR use Oregon public funds to serve KKR’s special interests. It invited Rutherford to a KKR sponsored conference in New York City and paid over $800 of the Oregon public official’s conference expenses. Three weeks after this conference, the Oregon Investment Council voted to commit $600 million more of Oregon’s state funds to finance more KKR acquisitions.

To insure that Oregon’s public pension funds continued to be used in support of KKR’s special private interests, KKR intervened in Oregon politics in other ways during the 1980s. It contributed $6,000 to Rutherford’s 1984 campaign for Oregon State Treasurer when he ran against a candidate who opposed investing state funds in KKR’s deal-making operation. Another $20,000 was contributed to Oregon State Treasurer Rutherford’s 1984 campaign by three KKR subsidiaries: Daw Forest Products, U.S. Natural Resources [USNR] and PacTrust, making Kravis’s KKR firm “the largest contributor to Rutherford’s campaign by far,” according to The Money Machine. Not surprisingly, the KKR-sponsored Rutherford then won the 1984 election for Oregon State Treasurer.

Henry Kravis’s KKR—and his cousin and KKR partner, George Roberts—also used their financial power to help influence the outcome of the 1986 election for Oregon’s governor, who was the public official responsible for appointing members of the Oregon Investment Council. KKR gave the Democratic candidate for Oregon governor, Neil Goldschmidt, $6,000 for his primary campaign and $10,000 for his general election campaign. KKR also gave his Republican opponent in the general election, Norma Paulus, $35,000 in campaign contributions through individual donations from George Roberts or KKR subsidiary company donations.

Kravis’s firm also attempted to use its financial clout to influence the 1986 election in New York State for state comptroller, where then-State Comptroller Edward Regan had the sole authority to invest New York’s public pension funds. KKR contributed $50,000 to New York State Comptroller Regan’s re-election campaign chest in 1985 and 1986, making KKR the second-largest contributor to Regan’s campaign. KKR also gave then-New York State Comptroller a $15,000 post-election campaign contribution. Coincidentally, in 1986 then-New York State Comptroller Regan provided KKR with $55 million in public pension fund money for its acquisition program and in 1987 Regan gave KKR another $370 million in public funds for more KKR deal-making activity.

After some economists began to argue that KKR’s way of doing business was harmful to the U.S. economy, some political pressure to limit the use of KKR’s leveraged-buy-out [LBO] method of taking-over U.S. corporations began to develop in the U.S. Congress. To counter this political pressure, KKR hired five different lobbying firms in Washington to prevent passage of legislation that might reduce merger or LBO activity and limit the tax benefits of such activity.

In addition, KKR partners Roberts and Kravis began to pump more of their surplus profits into funding other nationally-known politicians, in addition to George Bush I. After 1987, KKR partner George Roberts made campaign contributions to then-members of the Senate Finance Committee such as Lloyd Bentsen, John Danforth, Robert Dole and Bill Bradley; and he also gave $100,000 in 1988 to Team 100, which was the Republican National Committee’s group of largest contributors. The Senate Finance Committee has jurisdiction over tax issues affecting KKR and 9 of the 20 senators on the committee received campaign contributions from either Henry Kravis, George Kravis or Henry Kravis’s second wife during the late 1980s. The Money Machine reported that Henry Kravis “gave over $80,000 to an assortment of senators, congressmen, Regular PACs and the GOP’s national committee” in 1987; and he gave another $100,000 to the Republican National Committee’s Team 100 in 1988, like his cousin and KKR partner George Roberts had done.

(end of part 4)

(Downtown 7/22/92)