Kochs sue for control of Cato Institute

[Updates below.]

Billionaire libertarian philanthropists Charles and David Koch filed suit yesterday against the Cato Institute, one of the country’s biggest free market think tanks. The suit also names Cato co-founder and president Edward H. Crane and board member Kathryn Washburn as defendants.

According to court documents obtained by the Washington Post, the dispute centers around the disposal of Cato stock owned by the late William A. Niskanen, Cato’s chairman emeritus. At the time of his death in October, Cato had four shareholders, with one share of stock each: Charles Koch, David Koch, Bill Niskanen, and Ed Crane.

The Kochs argue that Cato’s shareholder agreement requires that Niskanen’s 25% stake revert back to the company, meaning that Cato would only have three shareholders: the Koch brothers and Crane. Crane believes that Niskanen’s share should go to Kathryn Washburn, his widow and beneficiary, who is also a current member of Cato’s board of directors.

According to Cato’s bylaws, each shareholder controls an equivalent share of seats on the board of directors, and the board appoints the president and manages the Institute.

Wes Edwards, counsel for the Kochs, said that they proposed private arbitration but felt they were turned down. “We haven’t alleged any wrongdoing or sought any damages. This is not about money. We view this as a matter of shareholder rights,” Edwards told POLITICO.

Cato currently employs about 220 full-time and adjunct scholars, researchers, and staff.

UPDATE #1: Copies of Cato’s Articles of Incorporation and Bylaws.

UPDATE #2: A Cato official has confirmed that if the suit is successful, the Kochs would control a two-thirds majority of Cato stock and, by extension, a majority of board seats.

UPDATE #3: Ed Crane has issued a statement accusing Charles Koch (David, who sits on Cato’s board of directors, was not named) of attempting a “hostile takeover” in order to transform Cato into a “political entity” to support his “partisan agenda.” He vowed to fight the lawsuit. Here is Mr. Crane’s full statement:

Charles G. Koch has filed a lawsuit as part of an effort to gain control of the Cato Institute, which he co-founded with me in 1977. While Mr. Koch and entities controlled by him have supported the Cato Institute financially since that time, Mr. Koch and his affiliates have exercised no significant influence over the direction or management of the Cato Institute, or the work done here.

Mr. Koch’s actions in Kansas court yesterday represent an effort by him to transform Cato from an independent, nonpartisan research organization into a political entity that might better support his partisan agenda. We view Mr. Koch’s actions as an attempt at a hostile takeover, and intend to fight it vehemently in order to continue as an independent research organization, advocating for Individual liberty, limited government, free markets and peace.