The Oilman, The Playmate, And The Tangled Affairs Of The Billionaire Marshall Family
The Oilman, The Playmate, And The Tangled Affairs Of The Billionaire Marshall Family
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J. Howard Marshall II was never ashamed to push the boundaries in his business or personal life. A Haverford and Yale Law School graduate who amassed a multibillion-dollar fortune in Koch Industries stock, he loved strippers almost as much as he hated paying taxes. He disguised millions of dollars in gifts to one mistress as consulting fees and married another, a Playboy Playmate of the Year with the stage name of Anna Nicole Smith, at the age of 89.
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Nearly two decades after Marshall died in 1995, his heirs are still wrestling with the mess he left behind. His eldest son and namesake, J. Howard Marshall III, filed for bankruptcy in 2002 after being cut out of his father’s will. He’s been stuck there ever since, thanks to the dogged lawyering of his late brother, E. Pierce Marshall, and now his brother’s widow, Elaine.
The favorite: E. Pierce Marshall
Elaine and her children, meanwhile, have been hit with an Internal Revenue Service demand for more than $100 million in back taxes dating to the frenzied financial maneuvering Pierce and his father did in the years before his death. Tax records in that case show the massive expansion of Koch Industries since the early 1990s, with the Marshall family's dividends growing into the tens of millions of dollars a year.
And then there’s this: Depending upon how a federal judge rules in a long-running case in California, Anna Nicole Smith’s 6-year-old daughter, who has followed in her mother’s footsteps to become a model for Guess jeans, could tap the Marshalls for another $40 million.
At the center of this tangle of litigation and family infighting is a 14.6% stake in Koch Industries, the nation's second-largest private company with some $115 billion in sales. J. Howard the elder, a Texas oil industry executive, accumulated it in the 1950s when he invested in a refining business that ultimately became Koch Industries. Marshall guarded that stock with a fierce protectiveness that sometimes exceeded the concern he showed toward his own sons.
A federal judge once described J. Howard II as “immensely proud” of his eldest son, for example, who graduated at the top of his class at Cal Tech and went on to a successful business career. At J. Howard III's wedding in 1974 Marshall gave 4% stakes in Koch to each of his sons, reportedly telling them “Boys these are the crown jewels, take care of them.”
The outcast: J. Howard Marshall III
But Marshall turned on his namesake in 1980 after J. Howard III backed William and Frederick Koch in a fight against their brothers Charles and David for control of Koch Industries. Marshall demanded the stock back from his son and ultimately paid $8 million for it – an “exorbitant” price, he fumed, even though the stock could be worth more than $2 billion today. Then he cut J. Howard III out of his will, saying the $8 million was all he’d get.
After that episode, Marshall placed his remaining Koch shares in a Delaware corporation called Marshall Petroleum Inc. Following standard tax strategy, he split MPI into voting and non-voting stock and divided it among his ex-wife, Eleanor (whom he divorced in 1961), and trusts for himself and family members. (Eleanor originally owned 37% of MPI, but sold much of the stock back to the company in 1989 to fund a charitable trust.)
By the late 1980s, Pierce Marshall was closely involved in his father’s financial affairs. His father dallied, meanwhile, first with an ex-stripper named “Lady” Diane Walker (she died in 1991 from complications following facelift surgery; the senior Marshall later sued her estate to recover $15 million in gifts) and then Vickie Lynn.
Marshall met the bombshell who would later be known as Anna Nicole Smith in 1991 at Gigi’s, a Houston strip joint. Perhaps it was fate: Vickie Lynn was reportedly on the day shift because of her lack of experience and (then) small breasts, and Howard was too old to go out at night. He almost immediately started paying her $4,000 a month for “consulting.”
The Grieving Widow: Anna Nicole Smith
A federal judge later said Vickie Lynn’s “actions leave very little doubt that money was the central facet of her relationship with J. Howard.” But the judge didn’t think much of the aging billionaire’s behavior, either: “In sum, their lives were intertwined in need, driven by greed and lust.”
Vickie Lynn "had a dark side -- I'm not going to deny it," said Houston lawyer Tom Cunningham who represented her in litigation with the Marshall family. "But she had another side."
"She had a great sense of humor," Cunningham said of the ninth-grade dropout, about whom one judge said "her illiteracy is striking." "In her way, she was a very smart person."
He recalled one time when Vickie Lynn set off the metal detector at the entrance to the glass-walled family court building in Houston. "She went into her routine," he said. "Clothes came off. By the time she finished going through that metal detector three times she had that room stopped."
As J. Howard got closer to Vickie Lynn, Pierce began shuttling the Koch stock around to keep it out of the reach of both her and the IRS. In a series of transactions in the early 1990s, J. Howard transferred his 69% interest in MPI, and hence Koch Industries, to Pierce, Elaine and trusts for their children Preston and E. Pierce Marshall Jr. There were 236,437 shares in MPI when the process started, worth about $500 a share. By the end, Pierce owned 54% and his mother owned 43%. The corporation, in turn, owned 863,000 of Koch’s 5.9 million shares.
The Heiress? Dannielynn Birkhead
An analysis by Texas Commerce Bank at the time showed Koch paid $7 million in dividends in 1994 and $8 million in 1995. Those amounts would rise spectacularly in the next decade as Charles Koch used the company's refining profits to expand and buy companies like Du Pont's Stainmaster carpet business and Georgia -Pacific, which makes building materials and consumer products like Brawny paper towels and Dixie cups.
J. Howard married Vickie Lynn in June, 1994 and died 13 months later. She filed for bankruptcy the following year in California. Pierce, in a maneuver he probably later regretted, sued her for defamation for suggesting he’d used forgery and fraud to gain control of his father’s assets. The bankruptcy judge dismissed his case but awarded Vickie Lynn $475 million on a countersuit accusing Pierce of interfering in her inheritance. That judgment was reversed in 2011 after going to the U.S. Supreme Court twice.