What Goes Around Comes Around

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History may be repeating itself in the Koch vs. Cato battle, at least if you believe the late Murray Rothbard’s account of his 1981 “purge” as a Cato shareholder and director. A 1981 article in Rothbard’s Libertarian Forum essentially portrays Ed Crane in much the same light that Crane and his allies now portray Charles Koch. Only in Rothbard’s case, Crane and Koch worked together to oust him.

In the present dispute, Crane and his supporters allege the Kochs want control of Cato so they can use it to support the Republican Party. In the 1970s, Rothbard said it was Crane, with Koch, who tried to do the same thing, only to support the Libertarian Party.

The Libertarian Party ran its first national campaign in 1972, with John Hospers as its presidential nominee. Hospers actually received one electoral vote from a Virginia Republican who broke ranks. That rogue elector was Roger MacBride, one of the original five Cato shareholders. MacBride was the 1976 Libertarian presidential nominee, where he received about 180,000 votes.

In 1980, the Libertarian Party nominated Ed Clark for president. His running mate was David Koch, one of the current Cato shareholders and directors. Clark and Koch ran as “low-tax liberals,” which prompted a split between the more radical Rothbard and Ed Crane, a Clark/Koch supporter.

In his 1981 account, Rothbard charged Crane with engaging in the same level of inappropriate politicking as Crane now accuses Koch of:

When I first got to Cato, I was told by several top Cato officers that the Cato Institute had turned out to be primarily a “front” for the Libertarian Party, an organization designed to funnel material and personnel into LP campaigns. and to provide a resting place for Crane in between presidential races.

Compare this to what Crane supporter Jerry Taylor said yesterday:

[The Kochs] told [Cato chairman Bob Levy] that they intended to use their board majority to remove Ed Crane from Cato and transform our Institute into an intellectual ammo-shop for American for Prosperity and other allied (presumably, Koch-controlled) organizations. That statement of intent is certainly consistent with what we’ve been hearing from both Kevin Gentry and Nancy Pfotenauer. They’ve frequently complained during their short time on our board that Cato wasn’t doing enough to defeat President Obama in November and that we weren’t working closely enough with grass roots activists like those at AFP.

Rothbard, echoing the modern-day Crane, said that Cato was “legally bound” not to have anything to do with political parties and that the organization “was simply founded to spread libertarian ideas.”

After the 1980 election, where the Clark/Koch ticket got less than a million votes, Rothbard penned a lengthy criticism of the campaign. This apparently prompted Charles Koch and Crane to remove Rothbard from Cato entirely. They had already removed MacBride, the original fourth shareholder, so the two of them constituted a majority.

Rothbard said he received two letters from Crane on March 11, 1981, dated March 5, informing Rothbard of Crane and Koch’s decision to remove Rothbard pursuant to the 1977 Shareholders Agreement. Rothbard sent a response that same day, objecting to the other two acting without legally calling a shareholders’ meeting. Rothbard said he would appear at the next scheduled board meeting on March 27 in San Francisco to plea his case.

On March 19, Rothbard’s attorney sent a letter to Crane further attacking his position:

First, the Crane letters could scarcely be taken as written evidence of the “desire” of the majority shareholders. For (1) I was not given due notice of any shareholders meeting, which was therefore illegal if held, and (2) There was no written evidence of any expressed desires by the other shareholders. Was I supposed to take Crane’s word for their “desire”? And why? The point can now be strengthened, for in the Restated Bylaws of the Cato Institute, introduced by Crane himself at the [March 27] board meeting, Article III, Section IV specifically states that: “A written or printed notice of each shareholders’ meeting, stating the place, day, and hour of the meeting and … the purpose or purposes of the meeting shall be given … to each shareholder …. This notice shall be sent at least ten days before the date named for the meeting to each shareholder ….” But I had received no notice whatsoever of the shareholders’ “meeting”, let alone a notice of 10 days! Therefore, any such meeting, on Crane’s own terms, was illegal.

Rothbard goes on to say that his actual stock certificates, which were kept in Cato’s Kansas office, were simply seized by Crane and Koch without his endorsement. As Rothbard noted, the Cato bylaws required “strict compliance with the restrictions on transfers” imposed by the Shareholders Agreement. That meant he had to endorse the certificates, otherwise there was no legal transfer.

At the subsequent March 27 board meeting – Cato had seven directors then – Rothbard said Crane and Koch announced the two of them “had met the previous night and exercised their right to dissolve and reconstitute the board without [Rothbard] on it.” When Rothbard tried to point out Crane’s failure to comply with the bylaws and the Shareholders Agreement, “Crane brusquely dismissed my case as a ‘legal technicality.’” Now, 31 years later, it’s the Kochs that have filed suit accusing Crane of failing to strictly comply with the terms of the 1985 Shareholders Agreement and the Cato bylaws.

Read Rothbard’s "It Usually Ends With Ed Crane"

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