In Memory of John R.

Wilke
 THE WALL STREET JOURNAL, May 4, 2009
Journal’s Wilke Dies of Cancer at 54
WASHINGTON—John R. Wilke, a 20-year
veteran of The Wall Street Journal known
for incisive reporting on the intersection of
business and politics, died of cancer Friday
afternoon at his Bethesda, Md., home.
Mr. Wilke, 54 years old, was a member of
the Journal’s Washington bureau.
In recent years, he specialized in articles
about deals cut by members of Congress
to win special appropriations, known as
earmarks, for friends, supporters and busi-
ness associates back home.
One of his investigations helped lead to
last year’s indictment of then-Rep. Rick
Renzi (R., Ariz.), who is accused of receiving
favors from developers and copper-mining
executives in return for congressional
help. Another revealed the broad range of
earmarks a powerful Democrat, Rep. John
Murtha, used to bring federal contracts to his
Pennsylvania district.
After receiving a master’s degree from
the Columbia University Graduate School of
Journalism, Mr. Wilke worked for Business-
Week as a Washington correspondent in 1984
and became a staff writer for the Boston
Globe in 1986.
He joined the Journal’s Boston bureau in
1989, where he covered technology.
His reporting there disclosed an internal
revolt against Kenneth H. Olsen, president of
computer pioneer Digital Equipment Corp.,
who soon resigned.
After moving to Washington for the news-
paper in 1995, he covered the long Justice
Department antitrust case against Microsoft
Corp.
He also uncovered that Microsoft Chairman
Bill Gates wasn’t able to wrangle an invita-
tion to join the exclusive Augusta National
Golf Club, despite his considerable wealth
and fame. (Mr. Gates eventually did get in to
the club.)
!
Mr. Wilke reveled in the camaraderie
of the newsroom. Late on Fridays, he was
known to send emails to colleagues asking,
“Shall we gather a posse?” before leading
them to a local restaurant or watering hole.
Between drinks, he would duck out to make
calls on his cellphone before announcing the
need to head out to “assure domestic tran-
quility.”
He loved spicy food, such as that found
at Washington landmark Ben’s Chili Bowl;
baseball, specifically the Boston Red Sox;
and newspapers in general. He was often
seen leaving the newsroom at the end of a
day with four papers tucked under his arm,
along with an accordion folder filled with
documents.
Even with sources and the subjects of his
articles, Mr. Wilke usually was an easygoing
presence.
He mentored many younger reporters. At
his desk, he often juggled two calls at once,
and he furtively guarded his stories—until
he believed them ready for publication—from
the prying eyes of editors.
He wrote and rewrote the leads of his arti-
cles, sometimes dozens of times, until he
was happy with the tone and content, and
he nursed story ideas for weeks or months,
cultivating a slight air of mystery, while gath-
ering threads.
For his Microsoft coverage, Mr. Wilke and
his San Francisco-based colleague David
Bank won a Computer Press Association
award. Mr. Wilke’s coverage of earmarks
won him the 2007 Everett McKinley Dirksen
prize for distinguished coverage of Congress.
A native of New York, Mr. Wilke received a
bachelor’s degree in psychology and biology
from the New College in Sarasota, Fla.,
before going on to Columbia.
He is survived by his wife, Nancy, a son
and a daughter.
 THE WALL STREET JOURNAL, May 13, 1992
On the Spot
At Digital Equipment, Ken Olsen Is Under Pressure to Produce
Board Asks That He Bring
In High-Level Outsiders,
Speed Up Restructuring
Unfruitful Talks With Apple
By John R. Wilke
Two of the computer industry’s most
powerful figures, Apple Computer Inc.
chairman John Sculley and Digital Equip-
ment Corp. president Kenneth H. Olsen, met
in secret last spring in Washington, D.C., at
Mr. Sculley’s request. His question: Would an
alliance make sense?
Apple needed a partner for a new gener-
ation of chip designs. And Digital, which
makes large office computers, needed a
bigger presence in the surging business of
personal computers. But the talks, which
were never disclosed, went nowhere. Instead,
Apple stunned the industry with a sweeping
technology-sharing agreement with its
arch-foe, International Business Machines.
Thus was another opportunity apparently
lost to Digital and Mr. Olsen, whose long-
standing skepticism about the PC—he used
to call it a “toy”—hobbled the nation’s second
largest computer maker as PCs reshaped the
market. Mr. Olsen also long resisted two other
major industry trends of the last decade: the
moves to so-called “open” systems that use
standard operating software, and to a new
generation of simpler, more potent chips.
This legacy now haunts Digital and its
66-year-old founder as they face the danger
of being left behind by the industry they did
so much to create. The $14 billion company
that has been Mr. Olsen’s singular passion
for 35 years is mired in huge losses on
declining sales. Despite vast resources spent
on research and engineering, its latest prod-
ucts have largely failed to ignite growth.
Repeated restructurings have sapped morale.
Key employees and executives have departed
following run-ins with Mr. Olsen. The compa-
ny’s shares now trade at one-fourth their
1987 peak, closing at $45.25 on the Big Board
yesterday.
And it isn’t clear Mr. Olsen knows what
to do next. Even though DEC has made some
deft moves recently, such as an alliance with
software powerhouse Microsoft Corp., there
is no quick relief in sight. The depth of the
latest loss ($294.1 million in the quarter ended
March 28) “caught us by surprise,” Mr. Olsen
says. “When we laid out our restructuring
last summer, we thought we’d have more
time.” One of Mr. Olsen’s first moves after
the loss was to disband much of the organi-
zational structure he had created only weeks
earlier, sidelining a key executive and leaving
an impression of management in disarray.
The troubles inevitably raise anew the
difficult question of succession at Digital,
which has been dominated by Mr. Olsen’s
towering presence for so long that few leaders
have emerged and remained. “He’s at a
defining moment in his extraordinary career,
where he can be remembered as a titan who
built this great company, or the founder who
couldn’t let go,” says Jeffrey Sonnenfeld,
author of “The Hero’s Farewell,” a study of
corporate succession.
But as Digital’s difficulties have deepened,
so too has Mr. Olsen’s determination to solve
them. “No way am I going to leave now,” he
says. “I only want the job as long as I’m the
best. But there’s a clear mission to accom-
plish now. I’m not a quitter.”
For now, Digital’s directors are behind
him; no one expects a General Motors-style
board revolt. But in a secret, seven-hour
meeting recently, the long-compliant board
pressed Mr. Olsen as never before. Directors
insisted that restructuring efforts be stepped
up and that strong outsiders be brought into
senior executive ranks, beginning with the
chief financial officer’s post, which has been
empty since James M. Osterhoff resigned
last year.
The board’s new aggressiveness is being
led by former Ford Motor Co. president Philip
Caldwell, insiders say. He has the support
of Thomas L. Phillips, retired chairman of
Raytheon Co., who has long been viewed as
an Olsen ally, someone who’d attended a local
monthly prayer breakfast with Mr. Olsen
for more than a decade. Also supporting Mr.
Caldwell were Robert Everett, former presi-
dent of Mitre Corp., and Colby Chandler,
Eastman Kodak Co.’s former chairman, say
Digital insiders. None of the directors would
comment for this article.
Mr. Olsen, the only Digital executive on
the nine-member board, won’t discuss the
reaction of directors either. But he says the
unexpectedly steep loss “certainly got their
attention,” and the board “wants a clear
plan” for faster restructuring.
Mr. Olsen says he supports reaching
outside for new talent: “Over the years, we
haven’t brought enough new blood and new
ideas into the company.”
A new urgency was apparent the day
after the board meeting. On April 24 senior
!
vice president John F. Smith said Digital will
record a charge that may reach $1 billion
and will cut more jobs—perhaps 10,000 to
15,000—in the year beginning July 1. That’s
on top of $1.65 billion in charges already taken
and 10,000 previous dismissals (employees
currently number about 116,000). And Mr.
Smith did nothing to dispel expectations of at
least three more losing quarters, nor did he
predict when revenue would pick up. In the
latest quarter, sales fell 7.6% to $3.25 billion.
Some former managers say Mr. Olsen
must take the blame. Digital “has every-
thing it needs to turn around—good people,
good products and great service—but it won’t
happen while he’s still in charge,” argues
John Rose, who resigned last month as
manager of the company’s PC unit.
Mr. Olsen rejects criticism of his leader-
ship. “The real question is whether I have
allowed too much freedom,” he says. And he
has, indeed, rescued Digital from hard times
in the past and managed each time to ignite
new growth. In the early 1980s, in particular,
Digital was written off and Mr. Olsen sharply
criticized—old and in the way, analysts said—
only to roar back with the strongest growth of
any major computer maker of the time.
Moreover, the Maynard, Mass.-based
concern still has a strong balance sheet, with
no debt. And, though long overdue, it has a
powerful new computer design that could fuel
a comeback in 1993. Based on RISC chip tech-
nology (reduced-instruction-set computing),
its new Alpha computers aren’t limited to
Digital’s proprietary operating software but
can also use Unix and Microsoft’s Windows
NT.
“They’re doing a lot of the right things,
playing off their technological strengths
with foresight about the way the industry is
headed,” says John Levinson, a Goldman,
Sachs & Co. analyst. “The problem is, they
still have a ridiculous amount of baggage left
over from the successes of the past.”
Most people can’t imagine Digital without
Mr. Olsen. “No matter what changes, there’s
one constant, and that’s Ken,” says David
Smith, a former Digital software analyst.
“He’s a living legend.”
But many Digital executives contend that
Mr. Olsen, who shows no signs of retiring,
has become increasingly isolated and iras-
cible. His convoluted, rambling speeches,
long a staple of company lore, have become
even more difficult to follow, and the pearls
of wisdom that once rewarded the careful
listener seem more scarce.
At a managers’ meeting April 16, Mr.
Olsen’s presentation left many in the audi-
ence confused, participants say. The speech
meandered from topic to topic and went
on for an hour and a half. Some managers
stared down at their cold chicken lunches and
others rolled their eyes or shook their heads.
At one point, Mr. Olsen made an attempt
at black humor. “You know, someone just
came up to me in the hall and said, ‘Ken, I’d
been considering taking early retirement but
decided to stay because working here is so
much fun,’” he told the group. “There was
an embarrassed silence,” one manager says.
The atmosphere in the crowded room, he
says, “was like a wake.”
“He’s the Fidel Castro of the computer
industry,” contends Gordon Bell, a onetime
star computer designer at Digital, who
resigned in 1983 after a run-in with Mr. Olsen.
Mr. Bell charges that “he’s out of touch, and
anyone who disagrees with him is sent into
exile.”
A recurring criticism of Mr. Olsen’s stew-
ardship is that his dominance of decision
making tends to drive out good people. The
most recent casualty is William Strecker,
Digital’s chief engineer, whose product-devel-
opment group was abruptly disbanded by Mr.
Olsen three weeks ago. The group had been
created only weeks earlier, and Mr. Strecker
had been promoted to oversee all develop-
ment. Mr. Strecker remains at Digital, which
said he wasn’t available for comment.
Colleagues of Mr. Strecker say he had
repeatedly crossed Mr. Olsen, including
opposing a mainframe project that had Mr.
Olsen’s personal backing but has so far
proved a costly failure.
Mr. Strecker’s demotion dismayed some
longtime Olsen loyalists. “It’s a criminal
shame, because Bill Strecker was really
the only one capable of charting a coherent
product strategy in the inner circle” of senior
executives, says Don McInnis, a former
Digital manager now a vice president at
Prime Computer Inc.
Another key talent was lost when Mr.
Olsen pulled the plug in 1989 on Prism, a
RISC computer design headed by David
Cutler, a highly regarded software engineer.
Instead, Digital bought a stake in MIPS
Computer Systems Inc. and designed a line
of workstations around its RISC chips. Mr.
Cutler resigned and went to Microsoft. Mr.
Strecker also opposed the Prism cancellation
and the alliance with MIPS.
When it began to appear that Digital’s
MIPS-based machines weren’t going to be a
big hit, Digital recharged its internal RISC
project. Ironically, Mr. Cutler became the
designer of Microsoft’s Windows NT soft-
ware, which Digital now hopes will boost
future Alpha sales.
And just when Digital most needs an expe-
rienced hand overseeing finances, the chief
financial officer’s job remains unfilled, nearly
a year after Mr. Osterhoff quit following a
disagreement with Mr. Olsen. “He went to
the mat” against Mr. Olsen, opposing acquisi-
tion of two European companies without more
research, an associate says. Mr. Osterhoff’s
concern was well placed: Digital last year
paid a total of $390 million for the computer
units of Philips Electronics N.V. and Mannes-
mann AG, but so far their weak performance
hasn’t helped results, while adding 10,000
people to the payroll. Mr. Osterhoff won’t
discuss his departure.
There are signs, too, of stress within Mr.
Olsen’s core management group. Mr. Smith,
his second-in-command, appears to have lost
some authority in the latest reorganization.
Colleagues say Mr. Smith, fiercely loyal to
Digital, seems increasingly exasperated.
Mr. Smith says he continues to have a close
working relationship with Mr. Olsen, adding:
“It shouldn’t come as a surprise that the level
of frustration inside the company right now is
sky high.”
The management problems are worri-
some, critics say, because Mr. Olsen’s vision
of the computer industry has proved to be
lacking of late. From PCs to standard soft-
ware, the choices he has made have left the
company at a disadvantage in a fast-changing
market.
As a result, his critics say, he didn’t grasp
the significance of a possible alliance with
Apple, in which Apple might have used Digi-
tal’s Alpha RISC chip. That could have estab-
lished Alpha instantly in a market segment
where Digital was weak. The apparent lost
opportunity still leaves some current and
former Digital executives bitter.
Within the small circle of Digital’s senior
staff aware of the Olsen-Sculley meeting a
year ago, Mr. Olsen gets the blame for its
going nowhere. Digital executives and Apple’s
Roger Heinen, senior vice president, confirm
that the meeting took place. Mr. Heinen
asserts that Mr. Olsen’s “lack of interest and
!
understanding of the role of the personal
computer industry” was indeed an obstacle.
Mr. Heinen, himself a former Digital execu-
tive, says the companies “continue to have a
close relationship.”
Mr. Olsen dismisses the talks with Apple.
“It just never came to fruition. It wasn’t that
important to me.” He notes that Apple talked
to other companies, too, before settling on an
alliance with IBM, and that such alliances are
decided on a whole range of factors.
But at Mr. Olsen’s direction, Digital has
tried to make up for lost time in PCs. In the
past six months, it has brought out a line
of aggressively priced IBM-compatible PCs
sold by mail order, which are going strong.
Though the late start makes it unlikely
Digital will be a major player anytime soon,
PC hardware sales should hit $500 million this
year.
One of Mr. Olsen’s most costly decisions
has been backing the ill-fated VAX 9000 main-
frame computer, which cost $1 billion to bring
to market but attracted few buyers. “It wasn’t
a mistake, because we needed a high-end
machine,” says Dorothy Terrell, a former
Digital manager now at Sun Microsystems
Inc. “But it was late, too complicated and
costly to build, and the sales force wasn’t
selling it effectively.” Mr. Olsen repeatedly
resurrected its funding after others tried to
kill it, she adds.
Mr. Olsen concedes that the project “took
longer and cost us more than it should have.”
But, he says, “we belong in that business.”
Before long, Digital is expected to introduce
a redesigned mainframe based on simpler
technology.
While such hugely expensive projects
have gone forward, management’s efforts to
cut other costs often have focused on items
such as water coolers and magazine subscrip-
tions. In January, a memo circulated at a
Digital office in Acton, Mass., identifying
the building as a test site for lower-cost toilet
tissue, “a project being driven by Win Hindle,
corporate staff senior vice president.”
Mr. Hindle, who has been acting chief
financial officer since Mr. Osterhoff’s depar-
ture, says, “I can see how that might look
silly. But if a new national paper-supply
contract can save something like $300,000 a
year, well, every little bit helps.”
 THE WALL STREET JOURNAL, September 18, 1998
At Augusta National, Microsoft’s Bill Gates Hits an Iron (Curtain)
Billionaire Duffer Would Love To Belong to Storied Club, But He Lacks an Invitation
By John R. Wilke
They don’t let just anybody into Augusta
National Golf Club. Ask Bill Gates.
You’d think Microsoft Corp.’s chairman,
the world’s wealthiest duffer, would fit right
in at the exclusive club, home to the famed
Masters golf tournament. Its 300 members are
a who’s who of corporate America, including
John Reed of Citicorp, Jack Welch of General
Electric Co., Hugh McColl of NationsBank
and the current or former chief executives of
AT&T Corp., International Business Machines
Corp. and Ford Motor Co.
So far, though, Augusta’s elite member-
ship doesn’t include Mr. Gates. He hasn’t
actually asked to be admitted. That would
be bad form; membership at Augusta is by
invitation only.
But over the past two years, he has made
it known, in the discreet way people do such
things, that he’d love to be a member. Within
the past year, the software mogul has golfed
and played cards with Augusta members, and
enlisted the aid of his friend and fellow golfer,
investor Warren Buffett, who has long been
on Augusta’s membership roster. He has also
tried to raise his profile in the golfing world,
including an endorsement of Big Bertha golf
clubs in a TV ad campaign.
In the simple, 30-second spot for Callaway
Golf Co. of Carlsbad, Calif., Mr. Gates talks
about his love of the game. “I started playing
golf about five years ago,” he says. “It was
humbling. I really like it, but it’s so frus-
trating. I think I’m getting better.”
He also has donated cash and stock
options to a foundation started by golfing
star Tiger Woods, and was a sponsor of this
year’s PGA Championship, played at Sahalee
Country Club not far from the company’s
headquarters in Redmond, Wash. A big new
building under construction at Microsoft is
code-named “Augusta.”
It isn’t clear why Mr. Gates hasn’t been
able to sink this putt. The club’s member-
ship rules are shrouded in secrecy, and a
spokesman refused to discuss them or Mr.
Gates. People close to the club speculate that
Mr. Gates, who is 42 years old, may be too
young—or his golf swing might not measure
up to Augusta’s standards. The club prefers
members who play the game reasonably well
and have a deep appreciation of its nuance
and lore.
If age and skill are the barriers, Mr. Gates
may yet, with a few more years behind him,
gain entrance; he has a mediocre 26 handicap
at the Broadmoor Country Club near Seattle,
where he sometimes plays. But he is competi-
tive on the course and works diligently at
improving his game.
Indeed, a person close to Augusta with
knowledge of Mr. Gates’s interests thinks
time is on his side. “I’ll bet my last nickel
that he’ll eventually get in.”
Or it may be that Mr. Gates is guilty of the
one thing that is known to often disqualify
Augusta aspirants: He wants it too badly.
“The old saying goes that if you want
to play the club, don’t ask the members,”
says Curt Sampson, author of the recent
book, “Augusta: Golf, Money, and Power in
Augusta, Georgia.”
Though Mr. Sampson has no personal
knowledge of Mr. Gates’s situation, he says
asking can backfire, adding, “It’s odd—some-
thing you want so dearly and you can’t have
it because you want it.”
A spokesman for Mr. Gates says it’s unfair
to suggest that he is actively trying to get
into Augusta: “Bill loves golf and plays when
he can with friends, family and business
partners around the world. In some cases,
he’s been asked to endorse or support certain
golf activities. And, in all of these cases, he
has done so out of his love for the game and
respect for friends who have asked.”
Golf has become ingrained in Microsoft’s
corporate culture, and country-club member-
ships are a status symbol for many of the
more than 2,000 millionaires at the company.
A mutation of the game has also cropped
up in Microsoft’s offices called “swing
around the wing,” or hallway golf. “It’s a
great de-stresser,” says David Hufford, a
spokesman for Microsoft’s interactive-media
group. “If you hit a ball onto someone’s desk,
!
you have to play it where it lies.” Mr. Gates
has observed the game, but never played,
Mr. Hufford says.
Whatever eventually happens, it has to
be humbling for now for Mr. Gates who, as
one of the most driven and successful busi-
nessmen in history, is used to getting what he
wants. Yet his interest in the genteel Georgia
club is hardly out of character with gener-
ations of business barons who have made
fortunes while making golf their leisure-time
obsession.
If the game is religion, Augusta’s azalea-
necklaced course is its cathedral. Stroll down
its long front lane, shaded by century-old
magnolia trees, and you follow in the foot-
steps of golf’s legends—from the late Ben
Hogan to Jack Nicklaus and that new guy,
Mr. Woods, who all have worn the green
polyester-and-wool jacket worn by members
and bestowed on Masters winners.
How Augusta, which opened in 1933, ulti-
mately decides on membership remains
mysterious. Unlike most golf clubs, it shuts
down each summer (shortly after completion
of the Masters). New members discover they
have been admitted only when they receive a
bill for dues sometime after the club reopens
in October. By tradition, final membership
decisions rest solely with the chairman, now
William “Hootie” Johnson, a retired banker
in Greenwood, S.C.
The all-male club (though women are
allowed to play the course) has become a
cloistered refuge for the rich that jealously
guards its privacy. In its annual report,
members are told to “actively discourage any
form of publicity.” Members know they can
be booted without recourse for any offense to
sportsmanship or violation of the club’s many
unwritten rules—especially that greatest of
sins, speaking publicly about the club or its
membership.
That helps explain the reaction of one
Augusta member when asked recently about
the Gates matter. This person, one of the
most powerful executives in America, lowered
his voice and replied that he simply couldn’t
discuss it.
 THE WALL STREET JOURNAL, February 18, 1999
BROWSER-BEATEN
As Microsoft Struggles With Antitrust Case, Tactical Errors Emerge
Inflexible on Monopoly Point,
And Poor on PR, Firm Finds
Defense in Disarray
Judge Offers Equine Allegory
By John R. Wilke
WASHINGTON—Bill Gates’s lawyers went
to federal court last fall with a good hand.
But it isn’t the hand they played.
They could have conceded that Micro-
soft Corp. is a tough competitor, but more
forcefully argued that consumers are helped,
not harmed, by its hardball tactics. They
could have acknowledged Microsoft’s monop-
oly—like dominance in personal-computer
operating systems, but argued that restric-
tions enforced by government bureaucrats
would do more harm than good in such a fast-
moving industry.
Instead, Microsoft refused to give an
inch. Rather than emphasizing the strongest
elements of its case, the company’s lawyers
have become mired in defense of the weakest
parts. They have argued fervently that the
company doesn’t have a monopoly, despite
Windows’ 90% share of the market in PC
operating systems. They have maintained
that the company doesn’t bully its competi-
tors, despite internal electronic mail and
documents suggesting otherwise.
The result: Although a decision by Judge
Thomas Penfield Jackson is still at least
three months away, Microsoft’s defense is in
disarray and its executives and economist
have been battered so badly on the witness
stand that the judge has questioned key
elements of the Redmond, Wash., software
giant’s case. Microsoft’s supporters—and,
privately, even some members of its defense
team—harbor doubts about its course.
“They’re letting the government define
the case, instead of going with their stron-
gest cards,” says Thomas Hazlett, a visiting
scholar at the American Enterprise Institute,
a conservative Washington think tank, who
has been a vocal opponent of the antitrust
case brought by the Justice Department and
19 states. “Microsoft should stand up and say,
`Yes, we tried to eliminate our competitors.’
Instead, they argue over threats, e-mails
and exclusive contracts that are common in
any industry—playing right into the govern-
ment’s hands.”
Others who have strongly opposed the
government’s case express frustration with
Microsoft’s defense. “They’re bungling it,”
says Stephen Margolis, a North Carolina
State University economist who, like others
quoted in this article, was on a list of pro-Mi-
crosoft economists that the company recently
distributed to reporters.
Mr. Margolis notes that Microsoft’s
lawyers failed to pursue the strong argu-
ments they could have made on “the lack of
consumer harm and the idea that competitors
aren’t foreclosed from the market. Instead,
they are defending themselves by saying
they are not a monopoly. If people find that
unreasonable—and many people probably
do—it undermines everything else they say.”
Microsoft’s lawyers also refused to accept
that this case is as much a public-relations
battle as a legal one. And on the publicity
front, as even they now concede, they have
been clobbered. The government’s lead trial
counsel, David Boies, has proved to be a
master showman, serving up juicy docu-
ments and courtroom pyrotechnics that play
well in the press. The Microsoft lawyers, with
their dry and legalistic arguments, frequently
wind up sounding defensive. Given the high
stakes in this case for Microsoft’s reputation,
the public-relations fight may prove almost as
important as the legal arguments.
Microsoft’s field general is William
Neukom, the company’s courtly, silver-
haired general counsel, who takes copious
notes during the trial and passes scribbled
instructions to his team of lawyers from New
York’s Sullivan & Cromwell seated around the
defense table. As his client’s troubles have
worsened, he has been stepping more often
before the news cameras outside the court-
house to remind the media that courtroom
theatrics aren’t going to prevail in this case;
rather, Mr. Neukom says, “the facts and the
law are going to win it, and they are on our
side.”
Mr. Neukom says there has been no
second-guessing on the defense team, “not
a minute’s worth.” The core of the govern-
ment’s case is “fatally flawed,” he says, and
its evidence of illegal conduct is weak. As for
engaging each and every one of the govern-
ment’s specific charges, he says, Microsoft
had no choice. “You have to meet those alle-
gations with the facts,” he says. “We feel
very good about where this case stands right
now.”
It’s unclear what role Mr. Gates, Micro-
soft’s chairman, has played in shaping the
legal strategy, but it certainly mirrors his
combative style. Mr. Gates was personally
involved in the company’s response last
year to the Justice Department’s charge
!
that Microsoft wasn’t living up to terms of a
1995 consent decree, which settled an earlier
antitrust case. It isn’t known whether he
has continued the hands-on involvement; a
company spokesman wouldn’t say.
While there is no sign that Mr. Gates has
lost faith in his legal team, Tod Nielsen, a
young executive who has the chairman’s
ear, was sent to attend the trial. Mr. Nielsen
sits in the front row each day, like a third-
base coach, focused intently on every play.
You can tell how he thinks witnesses are
doing by watching him—grimacing, grinning,
shaking his head. During breaks, he reports
to Redmond from the corridor, chattering
into a cellular phone; Mr. Nielsen says he
simply is providing technology advice to the
legal team.
Much of the defense rests on the claim
that Microsoft isn’t a monopoly. But some
involved in the company’s defense now are
asking why they are trying to defend turf
that can’t be held, thus losing credibility
with the public and the judge? Retreat to
the high ground, these insiders argue, by
shifting emphasis. Defend Microsoft’s right
to innovate. Show that consumers haven’t
been hurt. And play the trump card: If there
is a problem, can government lawyers and
economists really be trusted to fix it?
These insiders say the defense has been
hemmed in by the hard line taken by Mr.
Gates, and by fear of what one of them called
“collateral damage” from private lawsuits.
If Microsoft is declared a monopoly by the
court—even if no other limits are placed on
the company—its ability to acquire compa-
nies and make other deals could be reined in,
while the number of private antitrust suits
against the company would be likely to grow.
It is legal for a company to have a
monopoly if it has been fairly won. But it is a
violation of the antitrust laws to try to use that
monopoly to keep out rivals or hurt competi-
tors in other markets. Microsoft hasn’t been
accused of gaining a monopoly illegally, but
rather of trying to use its monopoly in PC
operating systems to thwart challengers and
win dominance of other markets, such as that
for Internet browsers.
If Judge Jackson formally tags Microsoft
as a monopoly, every private antitrust suit
against it would start at the 50-yard line.
Plaintiffs no longer would bear the burden
of proving that Microsoft has a monopoly.
That’s likely to set off a race to the court-
house by lawyers itching to file class-action
suits against the company. And Microsoft
could face even more serious legal threats
from Netscape Communications Corp., which
is being acquired by America Online Inc., and
others that have been targeted by Microsoft’s
business tactics, legal experts say. Already,
cases filed by Caldera Inc. and Bristol
Technologies Inc. are headed for trial, and
another, by Blue Mountain Arts, is pending.
One of Microsoft’s arguments has been
that it doesn’t dominate the PC operating-
system market because of competitive threats
from Silicon Valley start-up Be Inc. and tiny
Red Hat Software Inc., in Research Triangle
Park, N.C. But it isn’t too convincing.
“Once you get to the point where people are
laughing, you have to do something,” says
Stanley Liebowitz, a University of Texas
economist who has been a strong Microsoft
supporter. But the company’s defense team,
he says, “doesn’t seem to have any fallback
position.”
Waning courtroom credibility has been
another problem for the company, and it
can be traced directly to Mr. Gates. Even
before the trial began last year, the Micro-
soft chairman’s unyielding approach set a
confrontational tone with Judge Jackson that
persists today. Mr. Gates insisted that Micro-
soft couldn’t unbundle its Internet software
from Windows, despite the judge’s order to
do so.
Mr. Gates also appeared defiant and
uncooperative in his videotaped deposition,
so that any executive testifying later who
wanted to be more candid risked countering
his boss’s testimony. In the Gates videotape,
which continues to haunt Microsoft’s defense,
the famously hands-on chairman appeared
forgetful and repeatedly insisted he wasn’t
involved in key decisions and company
strategy.
That deposition gave Mr. Boies, the
government’s lead trial counsel, an opening
to attack Microsoft’s credibility, an approach
he has pressed with each witness since.
If Judge Jackson finds that Microsoft’s
witnesses aren’t credible, much of the rest of
the company’s defense is threatened as well.
And such a finding would make the judge’s
ruling harder to overturn by the appeals
panel that almost certainly will review the
case.
Microsoft’s lawyers have complained
bitterly that Mr. Boies is waging little more
than a public-relations campaign that has
scant bearing on the substance of the case.
The press has fallen under Mr. Boies’s spell,
they say, reporting only the trial’s drama and
ignoring more pertinent facts. One Microsoft
lawyer says, “We have not done as good a job
as we should have to explain our message
and the law,” which he says strongly favors
Microsoft. Mr. Boies, he says, “has been
focusing on largely peripheral and tangential
issues, doing a good job turning to his advan-
tage the theater of the courtroom.”
Case in point: On his first full day cross-
examining Microsoft’s lead-off witness, econ-
omist Richard Schmalensee, Mr. Boies barely
touched on the witness’s 328-page statement.
He hammered away at other points, such
as whether Dr. Schmalensee’s testimony
squared with his past writings—it didn’t—and
avoided the line-by-line dissection of witness
statements that Microsoft’s lawyers had
conducted earlier in the trial.
At the end of the day, just as reporters and
television crews were deciding what to report
about the trial that day, Mr. Boies produced
a memo written by Mr. Gates last year that
asked his staff to survey software developers
that would support Microsoft’s Windows
strategy. Then Mr. Boies produced another
memo showing that the survey—which had
been cited by Mr. Schmalensee—was rigged
in Microsoft’s favor. A third memo, displayed
on oversize video screens, noted that most
of the companies polled thought Microsoft
should be sued—a finding the company
hadn’t made public.
Gotcha. On the courthouse steps, Mr.
Neukom denounced the ambush as a cheap
stunt, irrelevant to the substance of the trial.
But it got prominent play on television news
programs and in major newspapers.
Then came the famous videotape fiasco.
When Microsoft senior vice president James
Allchin took the stand, Mr. Boies gleefully
dismantled a video demonstration Mr. Allchin
had brought. The tape was supposed to show
that Windows doesn’t work well when its
Internet software is removed, countering a
key government argument. But Mr. Boies’s
dissection of the video prompted the judge to
say that the tape was so deeply flawed that it
“casts doubt on the . . . entire reliability” of
that evidence.
Mr. Allchin was given a chance to redo
the tape, and after a grueling all-night effort,
he played it the next day with fewer prob-
lems. The affair was later dismissed by Mr.
Neukom as “a sideshow” and a “melodrama
about four minutes of tape” that will have
little bearing on the facts of the trial.
But Mr. Boies also has scored substan-
tive points that strike at the core of Micro-
soft’s case. When he rattled Dr. Schmalensee
with questions on the survey, it was after
!
the economics professor had been forced to
concede a more important point: that there
was no viable alternative to Windows for
most PC makers today.
Similarly, the most damaging day for
Mr. Allchin wasn’t the day that landed him
on the front pages of newspapers. It was
the day before, when Mr. Boies pressed Mr.
Allchin to admit—not once, but 19 times—
that the benefits of adding Internet software
to Windows could be achieved using the
products separately as well. That undercut
one of the company’s key arguments: that
Microsoft bundled the two products to benefit
consumers, not to crush rival Netscape, as
the government alleges.
Some of Microsoft’s supporters wonder
why the company’s lawyers bothered arguing
the unbundling point. In a separate but
related case, a federal appeals court ruling
last year gave Microsoft wide latitude to add
new features to Windows, even if it targeted
a product already being sold by another
company. (After that ruling, exultant Micro-
soft lawyers said the decision would let the
company add “a ham sandwich” to Windows
if it chose to.)
Some members of the Microsoft team are
preparing for an appeal, as if this part of
the case already is lost. And as Microsoft’s
fortunes flag in court, the prospect of court-
imposed restrictions on its business practices
becomes increasingly likely. Justice Depart-
ment officials insist that, since it is impos-
sible to know whether or how broadly the
judge will rule against Microsoft, such talk
is premature. They also say that none of
the possible remedies under discussion in
recent months—ranging from a breakup of
the company to forced licensing of Windows
or a more narrowly tailored set of conduct
restrictions—has been decided on.
Judge Jackson clearly would like to
wrap things up. Before Tuesday’s after-
noon session, he offered an allegory that he
insisted was irrelevant to the Microsoft case,
but is relevant to “our work” as lawyers.
“When you discover you are riding a dead
horse, the best strategy is to dismount,”
he said. But lawyers have other strategies,
including “buying a stronger whip, changing
riders . . . declaring that the horse is better,
faster and cheaper dead, and, finally,
harnessing several dead horses together for
increased speed.”
“That said,” he concluded, turning to Mr.
Boies, “the witness is yours.”
 THE WALL STREET JOURNAL, September 1, 2006
SOUR NOTE
Wine Lover’s Nose For Fakery Leads To Famed Bottles
Collector of 1780s Bordeaux
Says He Was ‘Swindled’;
German Dealer Denies It
A Probe Using Gamma Rays
By John R. Wilke
PALM BEACH, Fla.—When Boston’s
Museum of Fine Art displayed William Koch’s
private collection last year, the treasures
included paintings by Monet, Degas and Dali,
a trove of Greco-Roman and American West
artifacts, and his renowned racing yacht,
winner of the 1992 America’s Cup.
But the museum wanted proof of the prov-
enance of some of the energy tycoon’s most
prized possessions: hand-blown bottles of
Bordeaux from the 17,000-bottle cellar beneath
his estate here. The wines bear the vintages
1784 and 1787 and the initials of the then-am-
bassador to France, Thomas Jefferson.
The museum’s questions prompted Mr.
Koch to bankroll a year-long quest to discover
whether he, along with many experts in the
wine world, had been duped by the mysterious
bottles.
Mr. Koch assembled a team of former
Federal Bureau of Investigation and British
intelligence agents, wine and glass experts,
Sotheby’s former head of wine sales, even a
nuclear physicist. Led by a former federal
judge, the effort has already cost more than
twice the $500,000 Mr. Koch paid for the four
bottles in 1987.
Now the 66-year-old chemical engineer and
yachtsman believes he has found proof the
bottles were fakes—as well as evidence of
other fraud in the wine-auction business, espe-
cially for vintages older than 1945. And he
wants to settle the score.
“I bought them for the mystique, to own
something that belonged to the third presi-
dent, the author of the Declaration of Inde-
pendence,” Mr. Koch says over a silken 1971
Petrus in his ornate dining room here. “If
someone robs you of those bragging rights,
you get p----- off.”
In the rarefied world of historical wine
collecting, the Jefferson bottles, said to have
been discovered in a bricked-up cellar in Paris
in 1985, have long inspired awe and contro-
versy. In December 1985, the late Malcolm
Forbes paid $156,000 for a Jefferson Lafite at
a Christie’s auction, still a record bid for a
bottle of wine.
While doubts about the authenticity of the
bottles have been voiced over the years, many
wine experts vouched for them, including
Christie’s board member and wine author
Michael Broadbent. The Jefferson bottles are
believed to have been sold to wealthy buyers
around the world by auction and private sales.
Yesterday Mr. Koch filed suit in federal
court in New York against a German collector
and dealer, Hardy Rodenstock, who supplied
the Jefferson bottles and other rare vintages
to auction houses and merchants. Mr. Koch
alleges that the former pop-music promoter
defrauded him and engaged in a scheme to
deceive wine buyers and reviewers around
the world. Even his name is a creation, the
suit says: He was born Meinhard Goerke, and
later changed his name.
A second wealthy collector, Russell Frye,
says he also bought wine provided by Mr.
Rodenstock, including some of the world’s
rarest Bordeaux vintages. In federal court
in San Francisco yesterday, the Massachu-
setts software entrepreneur filed suit against
a California distributor that sold him Mr.
Rodenstock’s wines. Christopher Forbes, vice
chairman of Forbes Inc., publisher of Forbes
magazine, has also challenged the authen-
ticity of the Jefferson bottle purchased by his
father.
“Mr. Rodenstock is a clever, intelligent and
refined con artist,” Mr. Koch says. “He has
swindled a lot of wealthy people.” More trou-
bling for the auction houses and great French
chateaus whose brands could be tarnished by
counterfeiting: Mr. Rodenstock and others
“completely polluted the market with fake and
mislabeled wines,” he says.
Often called the Indiana Jones of fine
wine for his uncanny ability to unearth rare
vintages, Mr. Rodenstock is known for his
tastings, which are widely cited in wine refer-
ence books. He denies Mr. Koch’s claims. In
a series of faxed messages to The Wall Street
Journal, he repeated that the Jefferson wines
were found in Paris, but said that he bought
them from a man who he said may no longer
be living—and whom he wouldn’t identify. He
added that even if it turned out after all these
years that the bottles weren’t genuine, any
legal action “would be barred by the statute of
limitations.”
Mr. Rodenstock sent pages from a French
winery’s records that he said support the
authenticity of the bottles by showing orders
made by Jefferson. He also rejected the claim
that he has supplied other mislabeled wines,
such as a 1961 Petrus that was withdrawn
from a Christie’s auction in Los Angeles in
June. “Are there any pieces of evidence, or is
this again only a stupid rumor?” he asked.
Mr. Rodenstock maintained that “the
subject [of] fakes is totally over-rated” and
!
that “it is nearly impossible to fake an old
wine” because it would be easily exposed.
Still, he said in a July 18 fax, “fakes have
always existed and will certainly always exist,
but that does not mean the end of the wine
world. Jesus Christ was already a faker, as he
changed water into wine.”
Mr. Koch owns and operates Oxbow Group,
a global energy company that mines low-
sulfur coal and produces coke and natural
gas. He is perhaps best known as skipper of
the America3 racing yacht, which brought the
America’s Cup back to the U.S. in 1992.
With wire-rim glasses, a thick shock of
white hair and a perpetual tan, Mr. Koch has
long had an independent streak. His billion-
aire brothers control Koch Industries, a $25
billion business empire. He carried on a long
legal battle with his brothers over the division
of family assets. The suits have been settled
and he is reconciled with his brothers. His
twin, David, was best man at his wedding last
year.
Mr. Koch says he took on the wine investiga-
tion because he didn’t expect police or federal
prosecutors to be able to do much. “No one’s
going to have much sympathy for rich guys
who got cheated—it’s not as if the public at
large is hurt,” says Mr. Koch. Besides, “I get a
kick out of being able to play Wyatt Earp.”
Early in the investigation, his posse
obtained a copy of a previously unpublished
1985 report by the Thomas Jefferson Memorial
Foundation, a nonprofit educational group that
runs Jefferson’s Monticello estate in Virginia
and supports scholarly research. The study,
conducted after Mr. Rodenstock approached
the foundation about a tasting, examined the
former president’s extensive personal records
of his contacts in Bordeaux. It raised serious
questions about Mr. Rodenstock’s claims
based on those records.
At that point, “we knew the game was
afoot,” says Mr. Koch, sitting in his Palm
Beach mansion under an oil portrait of
the daring American naval Capt. James
Lawrence, an ancestor of Mr. Koch on his
mother’s side, who famously commanded:
“Don’t give up the ship.”
The Jefferson foundation’s report found no
documentary link to the bottles Mr. Roden-
stock discovered. The former president was
indeed an admirer of French wine and toured
Bordeaux in 1787 as ambassador to France,
riding on horseback through the vineyards
and buying cases of Haut-Brion, d’Yquiem
and Margaux for himself and for George
Washington.
He ordered more from Bordeaux on his
return to the U.S. in 1790, always keeping
precise ledgers and receipts. “Jefferson’s
surviving records for the period are virtually
intact,” the report said. And Ch. Lafite 1787,
the vintage sold to Mr. Forbes in 1985, “does
not appear in a single one,” it said.
“Nor do any of the other vintages [found
by Mr. Rodenstock] appear in the records,
except the Ch. d’Yquem 1784, which we know
Jefferson ordered and received in 1788,” the
report found. It also challenged Mr. Roden-
stock’s interpretation of winery records that
he cites in his support.
“He seems to have made the connection
between the bottles and Jefferson by a study
of the records,” the foundation report said.
“But it is precisely those records which make
such a connection less and less likely.”
The report has since been described in a
book published early this year by Bacchus
Press, “An Evening with Benjamin Franklin
and Thomas Jefferson,” by James Gabler.
Mr. Gabler, a writer and lecturer on Jeffer-
son’s passion for wines, said that based on his
research, the Rodenstock bottles “were not,
in my opinion, ever owned or possessed by
Thomas Jefferson.”
In response, Mr. Rodenstock said Mr.
Gabler “never talked to me in detail about
the Jefferson bottles.” He added, “he must
be careful with such untrue statements as he
or his publishers can get into a lot of legal
trouble.”
Mr. Koch sent his investigators across
Europe, interviewing wine makers in France
and collectors in Germany and searching their
cellars for fakes. At one point, an agent of the
fraud-control office of the French Ministry
of Finance accompanied Mr. Koch’s team.
A French government official declined to
comment on whether the ministry is investi-
gating the matter.
Mr. Koch also went to extraordinary lengths
to conduct physical tests of his Jefferson
bottles. A nuclear scientist in a top French
government laboratory in Bordeaux, Philippe
Hubert, agreed to test for levels of radioac-
tive cesium in the bottle. His method is based
on the fact that any wine made after 1945
contains traces of fallout from atmospheric
nuclear tests.
Mr. Koch’s 1787 Lafite was brought to a
special laboratory deep under a mountain on
the Italian border, says Dr. Hubert, director of
the Centre d’Etudes Nucleaires de Bordeaux.
The lab’s depth minimizes the level of natu-
rally occurring gamma radiation; addition-
ally, the detector was shielded by “archeo-
logical lead,” prized by scientists for its low
radiation, retrieved from a Roman cargo ship
that sank on its way to Brittany nearly 2,000
years ago.
After a month of testing the wine inside a
nitrogen supercooled gamma-ray spectrom-
eter, results were inconclusive. They showed
the wine was made before 1945, but couldn’t
answer the question of authenticity.
With that setback, the Koch team focused
on the bottles themselves. They purchased
hand-blown antique bottles and worked to
re-create etchings similar to the initials “Th.
J.” and other script that appeared on Mr.
Koch’s bottles, using copper engraving wheels
spun by foot pedals as in Jefferson’s time. And
they worked with a Corning Glass Museum
expert and a former FBI glass-forensics
specialist to study the bottle engravings under
a microscope.
Their conclusion: The chateau, vintage and
“Th. J.” initials on the bottles were engraved
using a high-speed diamond drill with a
movable head—an instrument that obviously
didn’t exist in the 1700s.
“At that point,” says Mr. Koch, “we knew
we had him.”
Mr. Koch’s investigators also reached out
to some of the top wine makers in Bordeaux,
including Count Alexandre de Lur-Saluces,
whose family owned Ch. d’Yquem for four
centuries before its sale to LVMH Moet
Hennessy-Louis Vuitton in 1996. Jefferson
corresponded with a Count Lur-Saluces in 1788,
seeking the chateau’s sought-after Sauternes,
a sweet white wine whose older vintages sell
for $1,000 or more per bottle.
In an interview, Mr. de Lur-Saluces, who is
still affiliated with the chateau, said “there is
almost no way to prove whether these bottles
are genuine or not, but I am very skeptical.”
He said that several years ago, Mr. Roden-
stock brought a Jefferson bottle to the chateau
for a tasting. He was not convinced.
Others who drank the Jefferson d’Yquems
at tastings held by Mr. Rodenstock raved
about them. A 1998 Los Angeles Times profile
of Mr. Rodenstock said the 1787 d’Yquem
evoked “autumnal aromas of burnt sugar and
undergrowth,” while the oldest, the 1784, stood
out, “strange as it seemed, for youthfulness.”
Mr. Rodenstock has long been a colorful
and mysterious figure in the wine-auction
world, a self-described expert in “pre-phyl-
loxera” wines, referring to wines made before
vine lice devastated Europe’s wine industry
by 1945. For years, he has staged annual blind
tastings in a Munich hotel of the world’s rarest
wines, inviting luminaries such as Chris-
tie’s Mr. Broadbent, Robert Parker and the
publisher of Wine Spectator.
Mr. Koch discovered that Mr. Rodenstock
had been sued once before for alleged coun-
terfeiting. A German collector, Hans-Peter
Frericks, accused Mr. Rodenstock in a Munich
state court, which found in favor of Mr. Frer-
icks on Dec. 14, 1992, saying “the defendant
adulterated the wine or knowingly offered
adulterated wine.” Mr. Rodenstock appealed,
and the men also filed criminal complaints
against each other for defamation. The
charges were dropped and the cases eventu-
ally were settled in 1995. The details of the
settlement are confidential.
The German court files, which had been
under seal and were obtained by Mr. Koch,
reveal correspondence between Sotheby’s
and Mr. Frericks in which the auction house
declined to sell his Jefferson wine and other
bottles, including Petrus and Mouton Roth-
!
schild, given concern about authenticity.
“My worst fears were confirmed following
the recent sensational annual tasting by
Hardy Rodenstock,” a 1989 letter from Sothe-
by’s to Mr. Frericks said. “None tasted like
Petrus of those years,” Sotheby’s said, and
many bottles supplied by Mr. Rodenstock “had
been obviously re-corked.”
David Molyneux-Berry, who wrote the
Sotheby’s letters and is now an independent
cellar consultant, has been retained by Mr.
Koch to identify other fakes in his collection.
Mr. Molyneux-Berry says he is also working
to get the major chateaus in Bordeaux to
take a unified stand against Mr. Rodenstock
and other alleged counterfeiters, “since the
chateaus are the real victims of this fraud,
with their enormous cellars.”
The German court file also contains corre-
spondence between the Thomas Jefferson
Memorial Foundation and Mr. Rodenstock, in
which the wine merchant is firmly told, only
months after the Christie’s sale to Mr. Forbes,
that there is likely “no connection” between
Jefferson and his wine.
Christie’s did not share Sotheby’s reserva-
tions, and earned a commission on its sale of
the Jefferson wine to Mr. Forbes.
“Looking back, more questions could have
been asked,” says Richard Brierley, who is
head of Christie’s U.S. wine sales but wasn’t
involved in the 1985 auction. At the time, Mr.
Broadbent, the renowned wine author and
Christie’s board member, had vouched for the
bottles and backed Mr. Rodenstock. “When
more Jefferson bottles surfaced later, that
cast a cloud on them,” Mr. Brierley says.
Mr. Broadbent, who is 79 years old and still
consults for Christie’s, wasn’t available for
comment, a spokesman said.
Christie’s is extremely vigilant about the
wine it sells today, Mr. Brierley says, “to
protect not just our clients but the market-
place itself.”
Despite his many business interests, Mr.
Koch’s greatest passions have long been his
vast collections of art, wine and maritime
memorabilia. The lush, heavily guarded
grounds of his Palm Beach estate—which
is a few doors down from Donald Trump—
feature the monumental bronzes of sculptor
Fernando Botero. Inside, every room offers
a new theme, from Monet and Picasso to
Remington, Rodin and a soaring Western
room, featuring Gen. George Custer’s rifle,
among other artifacts.
In the cavernous wine cellar below, the
Jefferson bottles are displayed behind a
wrought-iron gate in a brick alcove. Walking
among the thousands of bottles, Mr. Koch says
he has a century of Latour vintages and 150
years of Lafite. He estimates that out of his
35,000-bottle collection, including a cellar at
his summer estate on Cape Cod, perhaps 200
are fake.
After Mr. Koch has found the evening’s
wine, he scans bar codes into a computer that
tracks each bottle. With a doctorate in chem-
 THE WALL STREET JOURNAL, April 21, 2007
ical engineering from Massachusetts Insti-
tute of Technology, Mr. Koch treats his wines
like rare elements. When he chooses an older
vintage to drink, he filters it in his kitchen
into a glass beaker kept under constant pres-
sure supplied by vacuum pumps built into the
pantry cabinet. This protects delicate wines
while filtering out sediment. “Wine experts
might consider this a heresy, but I just do it
because it tastes better,” he says.
Fears of counterfeiting are now buzzing
through the wine world. On a Saturday
morning in June in Beverly Hills, Christie’s
sold a 1961 Petrus magnum, described in the
catalog as “pure perfection . . . crammed with
viscous, over-ripe black cherry, mocha-tinged
fruit flavors,” for $13,000 to an undisclosed
European bidder. But a second 1961 Petrus,
from another seller that Christie’s didn’t iden-
tify, was withdrawn just before bidding.
The auctioneer, Mr. Brierley, says his
experts doubted the provenance of the wine
and pulled it from the sale. “It’s a heavily
counterfeited wine.”
In the San Francisco lawsuit yesterday, Mr.
Frye lists several alleged counterfeit wines
more recent than the Jefferson bottles. The
suit cites an 1811 Ch. d’Yquem, said to have
been found in the cellars of Czar Nicholas
II—another celebrated discovery by Mr.
Rodenstock—and a 1961 Petrus, among many
others.
Mr. Frye, who started collecting wine after
he sold his software company in 1995, said he
was “shocked” when Sotheby’s experts told
him some of the bottles he planned to auction
were fake. Weeding them out “cost me millions
of dollars” in lost sales, he said. The auction
took place in May, bringing in $7.8 million for
such rarities as a double magnum of Lafite
Rothschild 1865, which fetched $111,625. “We
want other collectors to come forward if they
think they’ve been cheated,” Mr. Frye said in
an interview yesterday. “This is an attempt to
restore integrity to the wine industry.”
Mr. Brierley of Christie’s said counterfeiting
has risen sharply in recent years, given the
soaring value of older vintages and the ease
with which digital scanners can knock off
labels. “In 10 years in the business, I have
seen more suspicious bottles in the past year
or two than ever before,” Mr. Brierley
said. But he said these instances are rarely
publicized. “Such things are usually settled
privately” because most buyers don’t want to
be identified.
Some wealthy collectors contacted by Mr.
Koch have already settled quietly with distrib-
utors or auctioneers after they questioned
wines supplied by Mr. Rodenstock. Others
would just like the whole thing to go away.
The late Malcolm Forbes apparently was
among those with misgivings about his 1787
Lafite, whose cork dried out in its display case
and dropped into the bottle. His comment: “I
wish Jefferson had bloody drunk the thing.”
deal breaker
Land-Swap Plan Causes
Trouble For Congressman
Mr. Renzi Offers Field
To Mining Companies;
Grand Jury Is Active
By John R. Wilke
SUPERIOR, Ariz.—As they dig for nickel,
copper and other commodities in the far
corners of the earth, the world’s largest
mining companies, Rio Tinto PLC and BHP
Billiton Ltd., are used to solving geological
problems. Here, though, the problems they
encountered were political.
North America’s largest copper lode is
believed to be buried more than a mile
beneath Apache Leap, the stark red cliffs that
loom above this storied Old West town about
an hour east of Phoenix. Resolution Copper
Co., a joint venture between Rio Tinto and
BHP Billiton, wants to mine it. But first it
needs Congress to approve a federal land
exchange, under which Resolution would
swap 5,000 acres of private land for 3,000
acres of public land near its planned mine.
In exchange for supporting the bill, the
local congressman, Rick Renzi, a Repub-
lican, insisted on something in return: He
wanted Resolution to buy, as part of the land
swap, a 480-acre alfalfa field near his home-
town of Sierra Vista, according to documents
and people involved in the deal.
Resolution executives refused. For starters,
they thought the land was overpriced, people
close to the deal say. More troubling, they
discovered it was owned by Mr. Renzi’s
former business partner, these people say.
Resolution wasn’t the only party troubled
by the congressman’s demands. His chief of
staff resigned and began cooperating secretly
with the Federal Bureau of Investigation,
according to witnesses and others close to the
case. The FBI began a preliminary inquiry
that was first reported in October, just before
Mr. Renzi was elected to a third term.
That investigation has now become a
formal public-corruption probe by a federal
grand jury in Tucson. On Thursday, the
grand jury authorized a search warrant of
a Renzi family business. Investigators have
uncovered evidence that Mr. Renzi received
a cash payment from his former business
partner, funneled through a family wine
company, after a second investor group
pursuing an unrelated land swap agreed to
!
pay $4 million for the alfalfa field, according
to people contacted in the course of the two-
year investigation.
Mr. Renzi denies any wrongdoing and says
that he intends to cooperate with the inves-
tigation. The search of the family business,
he said in a statement Friday, is “the first
step toward getting the truth out.” His lawyer
says the cash payment he received was to
settle an unrelated debt.
The case could add fuel to the firestorm
over the Bush administration’s firing
of federal prosecutors late last year. Paul
Charlton, the U.S. Attorney who had been
overseeing the case, was among those
dismissed at the behest of the White House.
A spokesman for Mr. Renzi dismissed as “a
political hatchet job” the suggestion that Mr.
Charlton’s firing was connected to the probe
of Mr. Renzi. On Thursday, Attorney General
Alberto Gonzales told Congress that none of
the dismissals were politically motivated, and
said the Justice Department is committed to
battling corruption.
The Renzi case is the latest in a wave
of public-corruption investigations of local
and federal officials. At least five members
of Congress—three Republicans and two
Democrats—are now under federal criminal
scrutiny. Two former members, both Repub-
licans, have gone to prison in the past year.
Voter polls have suggested that the investi-
gations were one reason Republicans lost
control of Congress last November.
The Renzi case spotlights the potential for
abuse in the murky world of legislated land
swaps, which have become more common in
recent years. Thousands of acres of public
land worth hundreds of millions of dollars
change hands each year through narrow
special-interest bills. There is little public
scrutiny, and often no vote is recorded in
Congress. Some swaps serve public goals,
such as protecting wild habitat. Others enrich
private interests at taxpayers’ expense,
sometimes sidestepping federal rules in the
process.
The proposed Arizona land exchange would
sweep aside a 1954 order by President Eisen-
hower protecting national forest in the area,
including Oak Flats, a campground located
above the proposed mine. “Yet another
piece of land that was being ‘permanently’
protected is being put on the block because a
private interest has use for it,” Janine Blae-
loch, director of the nonprofit Western Lands
Project, complained to Congress last year.
 Resolution, which declined to comment
about its contacts with Mr. Renzi, has said it
hopes to sink 7,000-foot shafts into the ground
to reach the rich vein of copper ore. It has
worked for years to win support for the mine,
reaching out to local officials, environmen-
talists and rock-climbing groups. Arizona’s
governor and most members of its congres-
sional delegation are backers. The governor
told a Senate hearing last year the project
could bring 1,000 jobs and $1 billion or more
to the state’s economy.
Although Superior has long been a mining
town, it has escaped some of the ravages of
open-pit mining that have scarred nearby
towns. It is rich in natural beauty, including
otherworldly rock formations and steep cliffs
that draw thousands of climbers each year.
Mayor Michael Hing sees the new mine as a
way to escape the boom-and-bust cycles that
have whipsawed the town for more than a
century, ever since silver was discovered in
1875 at the Silver Queen mine and hundreds
flocked to town, including famed gunslingers
Doc Holliday and Wyatt Earp.
In order to secure the use of the govern-
ment land for mining, Resolution has
proposed buying a number of parcels else-
where and transferring them to government
entities for uses completely unrelated to
mining. The town of Superior, for example,
would get title to the town graveyard, now
on federal land. Climbers would get another
place to explore. Resolution says the vast
Apache Leap rock escarpment—so named
because Apache warriors on horseback
are said to have jumped to their deaths to
evade capture—would be protected. The San
Carlos Apache tribe opposes the mine, citing
concerns that culturally significant areas
would be disturbed.
Mr. Renzi told Resolution in 2005 that his
support for the land swap would hinge in
part on whether it helped fulfill a goal to
cut water consumption along the San Pedro
River, which slices through the desert far
from the mining area, in southern Arizona,
participants in the deal say. Fort Huachuca, a
big U.S. Army base nearby, was under court
order to cut water consumption, and it had
been seeking help to retire farmland near
the river. Mr. Renzi has longstanding ties to
the base, the economic engine of the area.
He grew up near it, and his father, retired
U.S. Army Gen. Eugene Renzi, is its former
commandant, now employed by one of its
largest contractors, ManTech Corp.
Resolution proposed buying and handing
over to the government thousands of acres
of bird and wildlife habitat along the banks
of the San Carlos, which would further the
water-conservation goal.
In early 2005, however, Resolution balked
at buying the 480-acre alfalfa field owned by
Mr. Renzi’s business partner, James Sandlin.
Mr. Renzi then turned to another investment
group, called the Petrified Forest group, that
was looking to put together a unrelated land
swap. That group, which included Bruce
Babbitt, the former governor, agreed that
April to buy the patch of farmland for nearly
$4 million, says Philip Aries, a land-swap
expert that was part of the group.
“Congressman Renzi told me that the
purchase of the Sandlin parcel was a matter
of national security, and that it was key to
ensuring the viability of Fort Huachuca,” Mr.
Aries says. “He said that if we were to buy it
before” upcoming hearings about the possible
closure of the base, “he would give our swap
priority—a ‘free pass,’ he said, would be
sure to get through the Natural Resources
Committee,” thereby ensuring its approval.
Mr. Aries says that after his group’s
purchase of the alfalfa field went through in
2005, Resolution complained that the Petrified
Forest group had gotten priority treatment,
and Mr. Renzi dropped his support for that
group’s land swap.
Mr. Aries, Resolution executives and others
involved in the proposed transactions have
been interviewed about the matter by the
FBI, people close to the case say. Mr. Aries
declines to discuss those conversations, or
other details of his group’s dealings with Mr.
Renzi. Mr. Sandlin, the former owner of the
alfalfa field, declines to comment.
Public records show that Mr. Sandlin and
Mr. Renzi became business partners in 2001,
when Mr. Sandlin bought shares of Fountain
Realty &Development, one of Mr. Renzi’s
companies. In 2002 and 2003, Mr. Sandlin
paid his partner between $1 million and $5
million for Mr. Renzi’s stake in that busi-
ness, according to House financial-disclosure
records.
In 2004, a Federal Election Commission
audit found that Mr. Renzi had received a
total of $369,000 in illegal corporate funds from
Fountain in the 2002 election cycle. It found
that Fountain had shifted $131,000 of this
through Mr. Renzi’s personal accounts to the
Renzi for Congress campaign account—and
that at least $70,000 of it was put back into
Mr. Renzi’s personal account.
Mr. Sandlin bought the alfalfa field in 2003
for about $1 million, land records show. The
farmland, more than a mile wide, with moun-
tains rising on two sides, lies fallow today.
One focus of the FBI’s current investigation
!
is whether Mr. Renzi profited from the sale of
Mr. Sandlin’s land to the Petrified Forest
group, people close to the case say. Federal
investigators have been asking questions
about a May 2005 payment of $200,000 from
Mr. Sandlin to Mr. Renzi, which was sent the
same day that Mr. Sandlin received the first
payment from the Petrified Forest group,
these people say. The payment went to a wine
company owned by Mr. Renzi, which was sold
to his father days later, public records show.
Phoenix lawyer Grant Woods, one of
Mr. Renzi’s attorneys, said Friday that Mr.
Sandlin sent Mr. Renzi the $200,000 to settle
a debt stemming from a previous business
transaction involving land in northeast
Arizona. “The note was due, and he had
to pay it off,” Mr. Wood said. He said Mr.
Renzi was not pushing the sale of the Sandlin
property to help his former business partner.
“He was working to solve the water problems
of the San Pedro River and help save Fort
Huachuca,” Mr. Woods said. When Mr. Renzi
was pressing Resolution and then the Petri-
fied Forest group to buy the land, “he did
not know Mr. Sandlin had an interest in that
land,” Mr. Wood said.
Executives of Resolution and participants
in the Petrified Forest group are cooperating
with the FBI in its investigation, people close
to the case said. The Petrified Forest group
is not being investigated for any possible
wrongdoing.
The FBI is also looking into the congress-
man’s dealings with Fort Huachuca, these
people say.
Mr. Renzi said Friday he would take a
leave of absence from the House intelligence
committee “until the matter is resolved.”
John Boehner, the House Republican leader,
had warned colleagues in a letter earlier
this year that “clear likelihood of serious
transgressions will lead to suspension from
important committee positions; guilt will
lead to immediate and severe consequences,”
according to Congressional Quarterly.
Mr. Renzi continues to serve on the House
Natural Resources Committee, which handles
land-swap legislation.
Resolution is pressing ahead with its effort
to line up congressional support for a land
swap. Bruno Hegner, who was Resolution’s
president when Mr. Renzi proposed that the
company buy the alfalfa field, was so troubled
by the incident that he wrote a letter detailing
what happened and mailed it to himself,
people close to the case said. He wanted a
postmarked record of what occurred, these
people say. That letter is now in the hands of
the FBI, they say.
 THE WALL STREET JOURNAL, October 30, 2007
MURTHA INC.
How Lawmaker Rebuilt Hometown on Earmarks
Johnstown Gets Billions With Power Broker’s Aid; FBI Questions a Contract
By John R. Wilke
JOHNSTOWN, Pa.—If John Murtha were
a businessman, he’d be the biggest employer
in this town.
The powerful U.S. congressman has used
his clout on Capitol Hill to create thousands
of jobs and steer billions of dollars in federal
spending to help his hometown in western
Pennsylvania recover from devastating floods
and the flight of its steelmakers.
More is on the way. In the massive 2008
military-spending bill now before Congress—
which could go to a House-Senate conference
as soon as Thursday—Mr. Murtha has steered
more taxpayer funds to his congressional
district than any other member. The Demo-
cratic lawmaker is chairman of the House
Appropriations Subcommittee on Defense,
which will oversee more than $459 billion in
military spending this year.
Johnstown’s good fortune has come at
the expense of taxpayers everywhere else.
Defense contractors have found that if they
open an office here and hire the right lobbyist,
they can get lucrative, no-bid contracts. Over
the past decade, Concurrent Technologies
Corp., a defense-research firm that employs
800 here, got hundreds of millions of dollars
thanks to Rep. Murtha despite poor reviews
by Pentagon auditors. The National Drug
Intelligence Center, with 300 workers, got $509
million, though the White House has tried for
years to shut it down as wasteful and unnec-
essary. Another beneficiary: MTS Technolo-
gies, run by a man who got his start some
40 years ago shining shoes at Mr. Murtha’s
Johnstown Minute Car Wash.
A review by The Wall Street Journal of
dozens of such contracts funded by Mr.
Murtha’s committee shows that many
weren’t sought by the military or federal
agencies they were intended to benefit. Some
were inefficient or mismanaged, according
to interviews, public records and previously
unpublished Pentagon audits. One Murtha-
backed firm, ProLogic Inc., is under federal
investigation for allegedly diverting public
funds to develop commercial software, people
close to the case say. The company denies
wrongdoing and is in line to get millions of
dollars more in the pending defense bill.
Mr. Murtha, a gruff, combat-decorated
former Marine, was thrust into the national
spotlight last year by his opposition to the
Iraq war. Yet he has long been known in
Washington, where he wields power like an
old-fashioned political boss and has become
a lightning rod for Republican attacks. With
years of strong support for the military, he’s
also been an important voice for Democrats
in battles over war funding and troop with-
drawal.
But for his 33 years in Congress, his over-
riding focus has been the revival of his hard-
luck hometown. In addition to using taxpayer
money to build a local defense industry, Mr.
Murtha has funded by legislative fiat miles of
new roads, water projects, medical facilities
and federal offices for his district. He even
brought a Marine attack-helicopter squadron
here; it’s next to the John Murtha Johnstown-
Cambria County Airport. Mr. Murtha has
steered at least $600 million in earmarks to
his district in the past four years, according
to Taxpayers for Common Sense, a nonpar-
tisan Washington group. The nonprofit group
estimates he’s sent $2 billion or more to the
district since joining the appropriations
committee in 1992.
Since Democrats took control of Congress
this year, they’ve reversed the huge growth
under Republican rule of earmarks—narrow,
special-interest items that are added to the
budget with little public scrutiny, sidestepping
the usual competitive-bidding process. In the
House, the value of earmarks in all pending
budget bills is an estimated $5.6 billion, down
by about half from last year, according to
Taxpayers for Common Sense. Horse-trading
in the House-Senate conference later this
week could change the earmark totals.
Mr. Murtha, too, cut his overall earmarks
in the House defense-spending bill, a
spokesman says. His earmarks in the current
bill are $166.5 million, more than any other
House member, Taxpayers for Common Sense
says. Mr. Murtha’s spokesman did not dispute
this year’s total, but said without providing
details that it is down by half from last year.
Prior to this year, earmarks couldn’t precisely
be counted because Congress didn’t release
comprehensive figures.
Mr. Murtha defends Congress’s right to
award such funds. Despite lobbying and
earmark scandals of recent years, he argues
that local lawmakers are best suited to under-
stand the needs of their district. He says he’s
backed new research into treating diabetes
and breast cancer, largely funded with
defense earmarks and steered to Pennsyl-
vania hospitals and institutions.
He’s particularly proud of the military
contractors that have flocked to his district.
“They do their work on time and at a compet-
!
itive price,” he said in an interview, saying
earmarks have helped spur economic devel-
opment. “I’m not going to apologize for that.”
Mr. Murtha underscored this point at a
breakfast fund-raiser held for him this
summer. “This is about jobs,” he told
hundreds of military contractors and lobby-
ists at the Johnstown Convention Center
downtown. Sponsored this year by defense
giant General Dynamics Corp., the event
drew more than 800 people, who paid $25 a
head for scrambled eggs and a chance to
meet the powerful lawmaker. Working the
crowd, he tells a visitor that bringing federal
dollars here “is the whole goddamn reason I
went to Washington.”
Across the street, an Army tank and
armored vehicles bristling with guns
and satellite dishes were on display, part
of a two-day trade show sponsored by the
chamber of commerce. It’s held each year
in War Memorial Arena, an old hockey rink
that is home to the minor-league Johnstown
Chiefs and the set for the 1977 Paul Newman
film “Slap Shot.” Inside, military contractors,
many of them recipients of Murtha-backed
earmarks, show off wares ranging from
fighter-jet ejector seats to military mapping
software.
In Washington, Mr. Murtha—Jack, as he’s
widely known—is used to getting his way. At
6-feet-6 and 75 years old, he has been known
to physically intimidate opponents and fly
into a red-faced rage when crossed. (One
recent tirade, against a Republican who had
tried to cut funding for a Johnstown earmark,
found its way onto YouTube.) He curses like
the Parris Island drill sergeant he once was,
punctuating conversations by punching a
finger into the chest of foes and friends alike.
Much of this money will dry up when Mr.
Murtha leaves office, an event local offi-
cials fear as much as the next flood. John-
stown, a city of 27,000, sits at the confluence
of the Stony Creek and Conemaugh rivers,
60 miles east of Pittsburgh. For a time, it
was the world’s largest steel producer and
made much of the barbed wire that fenced
the West. The rivers that fueled its steel and
coal industries also were a mortal danger. A
dam burst in 1889, destroying the city, and
floods again wreaked havoc in 1936 and 1977.
Steel mills, most of them unused, still line the
river’s banks.
By 1983, Johnstown’s unemployment rate
was more than 24%. Today it is around 5%.
New campuslike brick office and research
buildings stand just outside of town, with
assembly plants up the hill by the airport.
Mr. Murtha isn’t likely to leave office soon.
He was re-elected in 2006 with 69% of the
vote; in 2002, he won with 74%. Local Repub-
licans didn’t field a candidate to run against
him in 2004. Part of his support, no doubt, is
self-interest: Voters know that no freshman
challenger can match Mr. Murtha’s ability to
bring home bacon.
A move into Mr. Murtha’s district has
become a profitable business model for mili-
tary contractors. Some are subcontractors for
established defense firms; others are home-
grown, closely held firms.
Such companies work a well-worn back-
channel into the U.S. Treasury. Their exec-
utives give generously to members of the
congressional appropriations committees, and
hire lobbyists who often are former staffers
or friends of lawmakers. In turn, the compa-
nies seek earmarks inserted into the U.S.
budget. The company’s name typically isn’t
listed: Funds are sent instead to a federal
agency, such as the Army or the Justice
Department, which is then directed to award
the contract to the company. (Nonprofit firms
can be awarded earmarks directly; one of the
largest defense companies in Mr. Murtha’s
district, Concurrent Technologies, claims
nonprofit status.)
One beneficiary is New Jersey-based DRS
Technologies Inc., a multibillion-dollar maker
of military electronics. The company entered
Mr. Murtha’s district a decade ago when it
bought a small cable assembler. Since then,
the congressman has helped fund nearly $400
million in contracts for the local DRS unit,
building data-display terminals installed in
Navy destroyers and submarines.
The Pentagon didn’t ask for many of these
contracts in its annual budget requests. Mr.
Murtha assured the work would be done
in his district by earmarking part of the
program to DRS.
Paired with prime contractor Lockheed
Martin Corp., the DRS unit helped build
more than 4,000 display terminals in the past
decade, some costing as much as $240,000
each. A former Murtha staffer, Paul Maglioc-
chetti, helped get the funding through Mr.
Murtha’s committee. He was paid $3.2 million
by DRS over the period for his lobbying
efforts, federal records show. Since 1989, Mr.
Magliocchetti and executives of Lockheed
and DRS have given more than $377,000 to
Murtha campaign committees.
Mr. Magliocchetti, who has built a lobbying
business winning Murtha earmarks for
dozens of companies, won’t discuss his work.
“No comment,” he says. “I’m just a former
staffer.” A spokesman for DRS, Richard Gold-
berg, also wouldn’t comment on Mr. Murtha.
“We have a world-class manufacturing
facility in Johnstown, and a skilled, reliable
work force,” he said. A Murtha spokesman
says the program has saved money for the
Navy by using commercial, off-the-shelf
components.
Military officers and agency officials
sometimes gripe about congressional orders
to spend money on projects they didn’t ask
for. But the Pentagon tends to go along with
Congress to facilitate earmarks, keeping
lawmakers happy and ensuring political
support for other military programs. T.
Michael Mosely, the Air Force chief of staff
and a featured guest at this summer’s Murtha
breakfast, shrugs off the issue. Congressional
earmarks for local projects have been in the
military budget “for at least 200 years,” he
says.
Concurrent Technologies has been a
centerpiece of Mr. Murtha’s efforts to build a
defense industry in Johnstown. It has gotten
at least $228 million in new earmarks over
the past four years, according to a database
of defense earmarks created by Taxpayers
for Common Sense. Most are in the mili-
tary-research budget and often fund vaguely
worded research, producing white papers or
demonstration projects whose worth is hard
to quantify.
In budget bills now before Congress,
Concurrent stands to gain funding under at
least a half-dozen programs. In the House
defense-spending bill, it would get $3 million
for “Integrated Mission Critical ESOH Tech-
nology and Regional Sustainability,” $2
million for “Advanced Combatant Materials
Research” and another $2 million for “Stra-
tegic Logistics Initiatives—Asset Viability.”
Multiyear contracts already awarded to
Concurrent yield millions more each year. In
June 2003, Concurrent landed a five-year, $350
million contract from the National Defense
Center for Environmental Excellence, which
was created by Congress with Mr. Murtha’s
backing. Its stated mission is to demonstrate
and put into use antipollution technologies for
military bases and contractors, such as new
ways of stripping paint from warships.
But the program wasn’t very effective,
and there’s no way to measure its results,
Pentagon auditors determined. A 2001 report
found that out of 63 new antipollution tech-
nologies, 20 had been tried at a military site
and one was successfully in use at more than
one installation.
Concurrent also received millions of dollars
through another Murtha-funded military
program, the Electronic Commerce Resource
Centers. Created by Congress in 1991, the
program became a conduit for contracts to
politically connected companies, congres-
sional records show. The nonprofit company
was intended to help small and midsize
contractors use emerging Internet and elec-
tronic-commerce technology to do business
with the armed services, which were increas-
ingly requiring contractors to communicate
online. In its earliest review, in 1997, the
!
Pentagon called the program “not efficient or
cost-effective,” saying it overlapped services,
such as providing Internet connections, that
were available elsewhere.
With Mr. Murtha’s prodding, Congress
continued funding and also shifted more
control of the program from the armed
services to the contractors themselves.
Concurrent used this autonomy to set up
centers around the country, employing
hundreds of people in a half-dozen locations
from Bremerton, Wash., to Largo, Fla. That
first Pentagon audit “found none of these
initiatives to be of significant value.”
The Pentagon’s audit, which was previ-
ously unreported, describes surprising
tension at the time between the Air Force and
Concurrent. The Air Force at one point tried
to rewrite a contract that it said was “broadly
worded with few deliverables.” Assured of
funding from Mr. Murtha, Concurrent told
the Air Force that it “should not attempt to
manage” the work, the Pentagon report said,
and that the company said it had “no interest
in being hired help.”
In 2004, the Justice Department’s Inspector
General found serious problems in Concur-
rent’s handling of a Murtha-backed contract
to develop technology for use by police. The
audit questioned the company’s handling of
$1.8 million, and said that $647,000 had been
improperly charged to general operating
expenses.
Since 2000, Concurrent employees have
contributed at least $117,000 to Mr. Murtha’s
campaigns.
Daniel DeVos, Concurrent’s chief execu-
tive, said in an interview that the company
ironed out its problems with the Justice
Department and that its more recent grant
programs have run smoothly. He acknowl-
edged past problems in a handful of other
programs, some of them reflecting the diffi-
culty of dealing with government bureau-
cracy, he said.
“All of our programs are audited, and in
well over 90% of cases there are no prob-
lems at all. In the few cases where issues are
identified, we work hard to resolve them,”
Mr. DeVos said. He added the company
was working to wean itself from earmarks,
pursuing competitive contracts in environ-
mental services and other areas. “We have
gotten a great deal of leverage out of earmark
funding, but it’s a decreasing percentage of
our work.”
Johnstown’s National Drug Intelligence
Center has cost U.S. taxpayers almost as
much as Concurrent’s contracts. Since the
center opened 13 years ago, Mr. Murtha has
steered $509 million its way. For Johnstown, it
has brought 300 federal jobs and the restora-
tion of an abandoned red-brick department
store downtown, now its headquarters.
The center, operated as an arm of the
Justice Department to provide intelligence
and analysis to combat drug trafficking,
has been a target for lawmakers opposed to
pork-barrel spending. Even before the center
opened, the General Accounting Office had
called it a waste of money because it dupli-
cated drug-intelligence gathering in Wash-
ington and at a center on the Texas-Mexico
border. It spent millions on shoddy drug-in-
telligence reports, and on analytical software
that didn’t work well, congressional investiga-
tors said last year.
For 2008, the White House had proposed
spending $16 million to shut the center
down. Mr. Murtha fought back and added
$23 million more to the intelligence bill to
save the facility for another year. In a recent
letter to the House Intelligence Committee, he
called the center “an asset to our intelligence
community [and] an effective fighter in the
war against drugs.”
Other firms have grown rapidly with Mr.
Murtha’s help. ProLogic, a closely held soft-
ware and technical-services firm based in
Fairmont, W.Va., opened a facility in Mr.
Murtha’s district two years ago, though
its headquarters are less than a half-hour
away. The ribbon-cutting by Mr. Murtha
and other politicians promised more local
jobs, and the congressman’s office put out a
news release taking credit for recruiting the
company; more earmarks were soon steered
to ProLogic.
Funding for the new facility also helped
the chief executive. Local real-estate records
show that the building is part-owned by the
CEO’s family; ProLogic pays a monthly rent
higher than prevailing local rates. A ProLogic
official said the rent was justified because the
building had to have the special wiring and
shielding required for classified Pentagon
contracts.
Ken Boehm, of the conservative nonprofit
National Legal and Policy Center in Virginia,
says that county records reveal that ProLogic
had similar rental arrangements in other
facilities where it carried out defense
contracts. He noted that four of its six loca-
tions are in the districts of members of the
House appropriations committee.
ProLogic was subpoenaed last year as
part of a broader Federal Bureau of Inves-
tigation probe of earmarks granted by Rep.
Alan Mollohan, a West Virginia Democrat,
whose district includes ProLogic’s headquar-
ters. Both the congressman and company
have denied wrongdoing. More recently, FBI
and Defense Criminal Investigative Service
agents have begun looking into the alleged
illegal diversion of earmarked funds to a
commercial ground-radar software project,
people close to this inquiry say.
One approach squeezes even more value
from earmarks. James Ervin, a retired
lieutenant colonel, lobbyist and longtime
friend of the congressman, helped found a
venture-capital fund, Four Seasons Ventures,
that invests in companies that have gotten
earmarks and federal contracts. In a confi-
dential document for prospective investors
reviewed by The Wall Street Journal, Four
Seasons says its principals include people
with “long and proven expertise in govern-
ment acquisitions and appropriations.” The
firm doesn’t disclose its investors.
According to the Four Seasons Web site,
portfolio companies include PharmaThene
Inc., a biodefense research firm, and Rayd-
iance, a laser maker. Both received Murtha-
backed earmarks and are lobbying clients of
Mr. Ervin. Mr. Ervin declined to comment.
There’s no evidence that Mr. Murtha
personally profits from the hometown
spending he rams through Congress. He
ranked No. 333 in net worth among the 435
members of the House in a 2005 analysis by
the nonprofit Center for Responsive Politics.
But his campaign coffers have risen since he
became chairman of the defense-spending
panel. In the first nine months of this year,
Mr. Murtha’s campaign committees have
reported contributions of more than $1.05
million.
Mr. Murtha’s devotion to his district
became clear 26 years ago, in an infamous
encounter that would foreshadow the young
congressman’s long career. He told an FBI
agent—posing as a lawyer for a rich Arab
sheik—that he was reluctant to take the
$50,000 in cash the agent placed on a desk,
supposedly in exchange for help getting the
sheik a U.S. visa.
“After we’ve done some business, I might
change my mind,” Mr. Murtha said on the
grainy black-and-white video shot as part of
the FBI’s Abscam sting in 1980. The key, he
told the undercover FBI agent, was investing
in his district. “I think with a tie to the
district, there’s no problem at all getting this
taken care of,” he said, referring to helping
the sheik enter the country. Mr. Murtha
wasn’t charged in the case. He cooperated
with the government, testifying against two
congressmen who were eventually charged
and convicted for accepting cash in different
meetings.
Seated with the FBI agent, Mr. Murtha
also explained why he needed to be more
careful than other lawmakers, including the
two he later testified against. “I expect to be
in the f-ing leadership of the House,” he told
the agent. “I’m delighted to do business with
you. S---, I do business like this all the time to
get companies into the area.”