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Bloomberg Whiffs, Part 3

In Bloomberg Whiffs, Parts one and two, I documented various errors in two of the main themes of Bloomberg Markets’ politically-motivated hit piece on Koch Industries. The subjects of those posts were Bloomberg’s false claims that Koch Industries illegally did business in Iran, and terminated an employee who was responsible for compliance because she discovered that employees of a French subsidiary had made improper payments in support of sales.

This post, Part 3, relates to the third major theme of Bloomberg’s article: environmental compliance. It is revealing that Bloomberg reaches back to 1996 for its melodrama of environmental good and evil. Bloomberg’s story has a heroine–Sally Barnes-Soliz, a former Koch employee whom Bloomberg casts as a whistle-blower–and a villain, the managers of Koch’s Corpus Christi, Texas, refinery, who, according to Bloomberg, poured benzene into the environment and lied to regulators to cover it up.

The reality, however, is very different. Like all too many “whistle-blowers,” Ms. Barnes-Soliz was a poor employee who, anticipating termination, asserted false claims against her employer in order to set up a lawsuit. The criminal prosecution that resulted was far from the triumphant vindication that Bloomberg portrays; on the contrary, the prosecutor overreached and his case collapsed when it was tested in court, to the extent that the federal government pleaded for a settlement in which the Koch employees it had persecuted agreed not to sue it for malicious prosecution.

Let’s take it from the top. Bloomberg’s narrative begins in April 1996, when “Koch environmental technician Sally Barnes-Soliz walked into the offices of Texas regulators in Corpus Christi and told them the company had lied about spewing benzene into the air.” But in fact, by April 1996, the story was almost over. It began in 1990, when the EPA promulgated a new and very complex regulation relating to benzene. The original effective date of March 1992 was extended to 1995 because of the complexity of the difficulties involved in compliance. In April 1995, Koch’s Corpus Christi refinery filed its first report on benzene emissions under the new regulation. That report was prepared by a Koch employee who was unable to deal with the regulation’s complexities, and therefore–unbeknownst to his superiors–essentially made up the numbers. Later in 1995, Koch discovered what had happened, and promptly fired that employee. He eventually became one of the government’s star witnesses in its criminal prosecution of Koch and the same employees who had fired him for firing a false report.

When Koch realized that it did not have a handle on its benzene emissions, it did several things. First, Koch went straight to the Texas Natural Resource Conservation Commission to self-report the problem with benzene emissions. This memo is from the files of the TNRCC; it confirms the meeting that was held on November 27, 1995, and demonstrates that Koch’s employees told the agency about the benzene problem. Note that the memo (recorded by a TNRCC employee) concludes with the words: “They [Koch] will investigate further and return with a follow-up in early February with the how far and how long they have been out of compliance.”

Beyond reporting to the relevant environmental agency, Koch’s first priority was to make whatever changes were necessary to bring the refinery into compliance with the benzene standards. Plant manager Dave Lamp demanded that plant employees do whatever was necessary to meet EPA’s benzene standard as soon as possible, as Ms. Barnes-Soliz admitted when she gave sworn testimony in her deposition in her lawsuit against Koch:

Q. Around the end of December [1995], beginning of January [1996], was there a sense of urgency about benzene NESHAPS at the –

A. Yes.

Q. Was there a movement afoot to get in compliance as soon as possible?

A. Yes.

Q. Was there something called a Swat Team formed?

A. Yes.

Q. And that was basically just to make sure that they’d try to keep benzene low and keep — get in compliance as soon as possible. Correct?

A. Yes.

In this same time frame, December 1995 and January 1996, Ms. Barnes-Soliz was herself conducting benzene sampling and trying to come up with emissions numbers. She submitted a report in December, but her boss pointed out that she had missed several sources of benzene, and her numbers were therefore too low. She consequently did more sampling and prepared a follow-up report in January, as she admitted under oath:

Q. Now, it’s true that Mr. Sipe, did he not, after you submitted…Exhibit 19, December 29th, 1995 memo–

A. Yes.

Q. –that you prepared, he, in fact, told you that the number in that memo on page two was too low. Right?

A. Yes, he did.

Q. So he told you to — basically then to increase it. Right?

A. He told me to include additional information in order to make it more accurate.

So, far from trying to generate fictitious data that would show low levels of benzene, Barnes-Soliz’s superiors at Koch wanted her to make her numbers as accurate as possible.

Unfortunately, Ms. Barnes-Soliz was not much more capable than her predecessor of accurately measuring benzene emissions according to the EPA’s protocol. Consistent with the usual practice, the EPA’s benzene standard was tied to a very specific sampling and testing protocol. The standard itself, how much benzene can be released by the plant, is meaningful only in the context of a procedure that sets out how the benzene is to be collected and measured. If those procedures are not followed, any resulting calculations will be meaningless for purposes of determining whether a facility is or is not in compliance with the regulation.

But when she took benzene samples in late 1995 and early 1996, Ms. Barnes-Soliz failed to follow the EPA’s procedures and protocols, as she admitted in her deposition:

Q. So the manner that you were taking them then wasn’t appropriate under the EPA standards. Correct?

A. That’s correct.
Q. So then the calculations you did then, is it fair to say, weren’t consistent with the TNRCC and EPA standards? Correct?

A. For Benzene NESHAPS-FF, they weren’t.

And again:

A. The sample data that the team — that I and others were collecting in this manner was never intended at this early time to ever be used to calculate a TAB. They were intended to be used for other purposes for which they would be entirely appropriate.

Q. Okay. Did your sample — sampling methodology ever change throughout the time you conducted samples?

A. No.

Q. So even throughout then, it wouldn’t have been the proper standard or proper methodology under the EPA and TNRCC standards. Correct?

A. It would not have been as accurate as what was required by the Benzene NESHAPS standards.

Koch brought in an outside consultant that knew how to take samples and measure benzene emissions consistent with the EPA protocols. By early February 1996, test data showed that the refinery had achieved compliance with the benzene regulations. On February 6, representatives of Koch met with TNRCC and said that they had fixed the problems they had disclosed on November 27, and the refinery was now meeting the EPA standard for benzene. Koch’s representatives proposed that “a Notice of Violation be issued and that the violation go through formal action with an Agreed Order with a penalty:”

So Koch fixed the benzene problem and volunteered to pay a fine.

All of this was months before Sally Barnes-Soliz went to TNRCC in April 1996 to report that the refinery had been out of compliance with respect to benzene and had filed a document that contained incorrect data. So if the problem had been disclosed in November and solved by February, what was going on in April?

Two things: first, Barnes-Soliz had gotten negative job reviews and was concerned that she was about to be fired:

Q. Were you afraid you were going to be fired?

A. I had concerns about my employment, yes.

So Barnes-Soliz wanted to carry out a preemptive strike against Koch. She had already hired a lawyer to sue Koch on her behalf before she went to TNRCC in April. A co-worker testified under oath that Barnes-Soliz told her that she made her report to TNRCC in order to “f*** Koch before Koch could f*** me:”

The second thing that had happened was that Koch needed to file, in April, an annual report that would summarize its emissions during 1995. The applicable regulation at that time appeared to say that the quantities should be reported based on current as opposed to historical emissions. The responsible Koch employees went to TNRCC’s Charles Spiekerman to review their interpretation of the regulation, and on February 12, 1996, he confirmed that the 1996 annual report should be based on the refinery’s “current configuration and operating conditions.” So, on April 8, the refinery filed an annual report that showed benzene emissions as they were at that time, post-correction.

This might have been wrong, but it certainly wasn’t criminal. The Texas agency was well aware–because Koch repeatedly told them–that the refinery had been out of compliance with respect to benzene in 1995. What happened next is that after Barnes-Soliz’s overture to TNRCC (with whom, by the way, she applied for a job a month or two later), an out of control prosecutor decided to use the April report as the basis for an attack on Koch’s Corpus Christi refinery. So he empaneled a grand jury and procured a 97-count indictment against Koch Industries, Koch Petroleum Group and four individual employees.

One might wonder how even the most compliant grand jury could be persuaded to indict based on the facts as recited above. In part, the indictment appears to have been based on a representation that, while Koch had self-reported an issue with benzene, it did not tell the Texas agency that its benzene emissions had been out of compliance with the EPA regulation. Thus, prosecutors presented the grand jury with an altered version of the November 27 TNRCC memo that is posted above. Here is the altered version that the grand jury saw:

Note that the version used by the prosecutors omitted the key words–key, given the basis on which they sought an indictment–”with the how far and how long they have been out of compliance.” Koch obtained the doctored document through discovery in the criminal case and the original version through a FOIA request, but never found out who altered the memo.

Bloomberg trumpets the government’s criminal complaint as though the sheer number of counts were evidence of Koch’s widespread wrongdoing: “A federal grand jury issued a 97-count indictment against Koch Petroleum Group, Mietlicki and three refinery managers on September 28, 2000.” In fact, that indictment was so poorly drawn and so repetitious–the same alleged facts were pleaded over and over in a cascade of counts–that the presiding federal judge dismissed it. The prosecutors had to go to a new grand jury and procure a second indictment, this one containing nine counts.

But as trial approached, it became evident that the government couldn’t begin to prove the grandiose conspiracy that it had alleged. In fact, it couldn’t even prove what the benzene emissions had been during 1995. The only numbers it had were the ones obtained by Barnes-Soliz, but since she hadn’t followed EPA procedures properly in gathering her data, they were worthless. Prosecutors tried to solve this problem by hiring an expert witness, but Koch moved to disqualify his testimony. When the expert was cross-examined in a hearing on that motion shortly before trial was to start, it became obvious that he had no basis for his testimony other than the Barnes-Soliz numbers which were known to be wrong. At the hearing’s conclusion the judge did not rule, but indicated that the expert’s testimony appeared to be nothing more than “an impermissible bolstering of somebody else’s [Barnes-Soliz's] testimony.” At that point, the government’s case was in tatters.

The prosecutors asked Koch to plead guilty to something–anything–to bring their failed prosecution to a merciful end. In response, Koch did not plead guilty to any of the counts in the original 97-count indictment or the 9-count superseding indictment, which centered on the filing in April 1996. Instead, Koch pled guilty to the original violation in April 1995 when its long-terminated employee essentially made up the numbers. This was the violation that Koch had brought to TNRCC’s attention in November 1995. Koch’s suggestion on February 6, 1996, that the state issue a Notice of Violation and that “the violation go through formal action with an Agreed Order with a penalty,” was the basis for the eventual resolution of the case, after years of fruitless criminal prosecution.

It is somewhat amusing that Bloomberg went to David Uhlmann, who led the failed prosecution, for comment on the case. This is akin to going to Napoleon for the inside story of the Battle of Waterloo. Not surprisingly, Uhlmann didn’t mention the use of doctored evidence; the dismissal of his 97-count indictment; his expert witness’s collapse on the stand; or the fact that by the end, he and his fellow prosecutors were so concerned that the individual defendants would sue the federal government for malicious prosecution that they insisted the individuals release their claims for malicious prosecution in the settlement agreement.

This is a story from which one can learn a great deal. First, don’t take news accounts of noble whistle-blowers and evil corporations at face value. The truth is usually much different from what is implied by liberal reporters. Second, reporters like those at Bloomberg who write on such topics are generally ill-suited to the task. Typically, they know little about business, let alone the complex legal and environmental compliance issues that were involved here. Worse, they generally don’t know how to research effectively, and–to be blunt–aren’t very diligent. So if someone hands them a story that fits their political preconceptions, they swallow it hook, line and sinker.

After each of my posts on Bloomberg’s Koch hit piece, I have addressed a series of questions to Jonathan Neumann, the editor at Bloomberg Markets who was responsible for the story. Here are a few more:

17) What did you do to check the story told to your reporters by Sally Barnes-Soliz?

18) Did you know that the 97-count indictment you referred to in your story was dismissed? If so, why did you not report that fact?

19) Did you know that the trial judge indicated to the parties that she was inclined to throw out the testimony of the government’s expert witness?

20) Did your reporters find it odd that the government was concerned about a malicious prosecution suit by the individual Koch employees? Did your reporters ask David Uhlmann why the government insisted on the individuals’ releasing their claims for malicious prosecution as part of the settlement agreement?

21) Did you know that Koch reported the 1995 benzene non-compliance to the TNRCC in November 1995? If you knew it, why didn’t you report it?

22) Did Sally Barnes-Soliz tell your reporters that the benzene samples she took were not done in compliance with EPA procedures and therefore could not yield accurate data? Did your reporters ask?

Mr. Neumann’s email address is jneumann2@bloomberg.net. I would encourage you, if you have a moment, to send him a politely-worded email asking him to answer my questions about Bloomberg’s ethics and journalistic practices.

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