Keeping up With the Sarofim Family: Divorce, Drugs, and Lawsuits (Part II)

I covered Fayez Sarofim as an billionaire investor in this prior post. Fayez first married Luisa in 1962 (only 4 years after he started his company). However Louisa and Fayez were divorced on June 25, 1990. The cost of the divorce was $250 million the largest in Texas at the time. With this wife Fayez had a son named Christopher (who now works at the firm and had his own troubles).  Daughter Allison was born in 1968. She recently was sued by someone who was bit by her dog.

By 1979 Fayez who was then 50 met a 26 year old woman named Linda Hicks. Together they had a son named Andrew who was born in 1984 (here is a picture of him with an attractive blond). Their second son Phillip was born in 1986. Linda then had another son who was not Fayez’s (this gets confusing as the even the people who get cheated are getting cheated on themselves). Finally on September 30, 1990 Fayez and Linda Hicks were married.

Linda Hicks graduated from the University of Alabama Linda herself left her husband and moved with her young son (Sean who ended up going to TCU) to Houston and worked as an entry level clerk at Sarofim’s office for between $25,000 and $50,000. Sarofirm actually got to know Linda because he needed a babysitter and offered to pay anyone at the firm $25 per hour (which back in the early 1980’s was very good money). Fayez who was already married at the time began to meet Linda for some loving at a Houston hotel. Sarofim even asked Linda to come into his meetings to “size people up”. Fayez then bought a house for her in River Oaks. Fayez was generous and offered Linda $390,000 per year (tax-free) to be his mistress.  With a new house in River Oaks Linda seemed to like nice things and used Fayez’s money to buy a Jaguar, have frequent visits to Neiman Marcus, and almost purchased every dress on sale at a trunk show. Friends would say she would drop $100,000 per day at Neiman’s.

Despite all this money Linda didn’t seem happy. By 1995 she was an alcoholic and also a pill addict looking for Valium pills. She was taking 15 milligrams of Valium every 2 hours according to this story.  The house staff (nannies, maids, and security guards) took care of the kids while Linda would go on her drinking binges and then come home and yell at the kids for no reason. Fayez would come home and remain in his suit from work and at 6:30 P.M. to watch Wheel of Fortune with the kids. Also in 1995 while in Italy Linda had one too many drinks and told Fayez to get on his Falcon 900 private jet and go back to Houston (he took her up on that offer). Another divorce was looming. Linda wanted the same $250 million that Fayez’s first wife Louisa got. However it wasn’t cheap. Linda used lawyers Bob Piro and Earle Lilly which charged a non-refundable retainer of $50,000, in addition to $450 per hour (to work on custody for kids), and then the icing on the cake was a 20% of anything above and beyond the pre-nuptial agreement they had.  This story gets ever crazier as Earle Lilly was trying to have a relationship with Linda. Linda would buy him gifts like a $4,300 Hermes briefcase. She also made Lily the trustee of her estate (which in estate planning is a big no-no). Lilly could basically use her estate to pay himself whatever he felt was reasonable. 

By November of 1996 Fayez agreed to give Linda $12 million and she could keep the River Oaks house (of course she would have to pay the property taxes on it), along with $960,000 tax free forever. However the Piro and Lilly got $6.5 million total in fees. After the case was over Lilly suggested Linda buy him a $130,000 Mercedes for his great work. By this time Linda was crashing with her alcoholism. On February 19, 1997 she was taken to a hospital for drinking too much. It was in the hospital where Linda was admitted into rehab and met Mason Lowe (high school drop-out). Mason also had a criminal record stealing equipment from Compaq computer while working as a security guard in addition to public intoxication. Linda apparently saw something in Mason though as they bought a $4 million property in Hawaii and $2 million condo in Toronto. Apparently just like Fayez took care of Linda, Linda took care of Mason buying him a Bentley, took him to art galleries, and bought him nice suits form Neiman’s. Linda’s personal problems however got worse. In 1998 Linda had been drinking for 3 days and Mason had to call an ambulance. Fayez and Linda were still friendly and Fayez even invited both of them over for dinner. Lawyers Piro and Lilly found 153 phone messages (2 hours worth) that were threatening from Linda.

In May of 2000 while climbing Mount Kilimanjaro Linda who was having trouble breathing because she smoked for so many years passed away as she try to make it up the mountain.  Linda and Mason were asked before the trip if they wanted a satellite phone however they declined. One issue Linda had was that she had two wills. The last will usually invalidate previous wills. One will named Lilly has the executor and the other will had Mason as the trustee and executor which is somewhat scary given that Mason has a criminal record for stealing things. We shouldn’t feel too bad for Mason he currently lives in an $840,000 4,700 square foot condo in Houston according to property records.

These days it seems as if the kids of the Sarofim family are also causing trouble. In 1999 Christopher (son of Fayez) married Valerie Sarofim however in the late 1990’s filed for divorce and had court hearings to fight over their daughter Gillian Sarofim. The Sarofim nanny in an affidavit said that Valerie Sarofim would just vanish and party ignoring her kids. The nanny also claims that there was drug use by Valerie. However, Christopher Sarofim admitted in court papers that he and his wife Valerie both used cocaine and marijuana in 1996. Christopher also seems to like the ladies as he seemed to be interested in Courtney Lanier (adopted daughter of ex-Houston mayor Bob Lanier).  Here is a picture of both of them (Courtney is in the middle and Christopher is on the right).

Despite all of this Fayez Sarofim has been very generous with his wealth. He has donated to many different charities including giving $25 million to University of Texas-Houston for a research building. In 2008, he gave $15 million to Southwestern University according to this article. Also he has contributed to the Houston Ballet, Museum of Fine Arts, provide financial support to Sloan-Kettering Cancer Center, Texas Children’s Hospital, Houston Grand Opera, the Houston Symphony, and given over $1 million to Hobby Center of Performing Arts.  Wherever there is a named building there is usually a capitalist behind it. Truly the Sarofim family is interesting from Fayez Sarofim as an investor, to the history of scandal, and to whatever the future holds. The Sarofim family does make the Kardashians look rather boring though.

Fayez Sarofim: Houston’s Billionaire Wizard Investor (Part I)

One day when I was in the medical center in Houston and I looked outside and noticed a building that was called the Fayez Sarofim Research Building. I thought there must be some capitalist behind it. I did some research and found it was donated by billionaire investor Fayez Sarofirm. What interest me was that Fayez made a name for himself buying high quality stocks and has been investing since 1958 which is pretty long term in the investment world. Sarofim’s motto is to never sell. However, as I did more digging I found a very different side of the Sarofim family such as $250 million divorces, having children with between different people, an ex-wife who climbed a mountain and then died, estate battles, and even drug use. Sometimes the truth is stranger than fiction.

Fayez actually came from a wealthy Egyptian family and came to the United States in the 1940’s and earned his degree from University of California at Berkeley and an MBA from Harvard. His firm was founded August 1958.

What is interesting is the number of clients that Fayez seems to have lost over the years. According to data from his website. According to this performance posted on the website it seems as if the number of portfolios decreased from 270 in 1998 to just 95 as of 2012. The assets have also decreased from $57 billion in 1998 to just $22 billion as of 2012. The firm use to (not sure if they still do) manage the pension funds of companies like General Electric and Ford along with the endowments of Rice University and the University of Houston).  There was this story last year from the Houston Chronicle that the firm might lay off people. This ADV form discloses biographical information of many of the employees who work at Fayez Sarofim (educational background, prior work experience, etc).  Many of the employees have been with the firm for many decades which is rare these days. What is also interesting is the company has many entities like Sarofim Trust, Sarofim International Management Company, Sarofim Advisors Group, Sarofim Realty Advisors, and The Sarofim Group.  The company according to this Morgan Stanley statement has 21 employees.  According to the same document Sarofirm after fees over the past 10 years has under performed the market 4.67% (versus 8.01% in S&P 500). This Fortune magazine story from 1992 discusses how “Successful investing is the result of judgment and discipline”.  During the early 1990’s he had outperformed the market.  In 1993 he was worth $300 million according to this article.  From 1983-1992 Sarofim outperformed 94% of all money fund managers.  In 1993 however he moved into the bottom 20% because of Phillip Morris. Sarofim got a personal phone call from the treasurer of Phillip Morris to say everything was okay and the company could still pay out its dividend. Fayez likes stocks with low price to earnings ratio, high return on equity, and decent dividend yields. NASDAQ actually has a website that discloses all of the firm’s holdings here.  The biggest holdings are in Phillip Morris, ExxonMobil, and Coca Cola. Fayez even helped an artist invest according to this 1999 story from the New York Times.

Sarofim owns multiple properties in Houston. According to property records he owns a 14,700 square foot home in River Oaks worth around $11.4 million. Also he owns a 8,700 square foot house in Houston that is worth $5.4 million. However, it seems like all this wealth comes at a price. (Part II Keeping up With theSarofims: Divorce, Drugs, and Lawsuits) 

Koch and Empire Grew Together (1994 Wichita Eagle Article)

Source: Wichita Eagle 

This past week I stumbled upon a really good article from June 26-27, 1994 about Charles Koch and Koch Industries. The article has some articles I referenced in my three part series (part 1, part 2, part 3) on the Koch brothers. However, the first article was more of a profile of Charles Koch. Bob Cox did a profile of Charles and his family in 1998 for the Wichita Eagle did a profile. The Wichita Eagle recently did a profile in 2012 by Roy Wenzl .

One thing I learned from the 1994 article was how much Charles Koch loves to read. According to the article at least in the 1990’s he spent at least 2 hours every day reading. He reads scholarly books on economics, history, philosophy, and psychology. He even read the Old Testament of the Bible just because he was curious. This is interesting because when Charles was younger he was more interested in parties and playing rugby and actually was expelled in high school for drinking. Koch thought about being a mathematician  scientist, or economist (thank goodness he didn't pick those). An interesting fact is he graduated M.I.T with 2 graduate degrees (chemical engineering and nuclear engineering) by the time he was 24. After all this he considered going to Harvard Business School. William Koch did take some business courses at MIT according to this.

Once Charles started working at Koch Industries he was working 7 days a week. He tended to look at problems as an engineer instead of understanding the importance of people. Everything I have read indicates that he is a workaholic which actually isn't bad as a side effect is becoming a billionaire. Charles didn't seem to understand that people had a life outside work, however Charles' life was work. One meeting in August of 1968 started at 4 P.M. and lasted until midnight. Executives were expected to work on Saturday.

Koch has an interesting management style. Up until this point I have never read anything about how he managed people. Even Charles Koch himself acknowledges that he doesn't try to be a tough boss however he may be insensitive from time to time.People say that while Koch is demanding he is also very fair and doesn't like people who lie. He has a great analytical mind (makes sense he is an engineer), sharp, and seems to know what questions to ask. Koch will actually let employees make the decision at the end of the day (this is part of market based management). One interesting quote from Koch about work is that "True self-respect only comes from real accomplishment, because you can't kid yourself for very long". Another good quote Koch has that could be applied to management is "If you have a proposition or thesis or theory, you're obligated to search just as hard for facts that disprove it as you do for facts that support it".

The relationship between Charles and Liz Koch is interesting too. Apparently the folk tale is that Charles was so busy he had to propose to Liz over the phone. Apparently when they first met Charles was not with the times as he was reading books in economics, philosophy, psychology, and history. There was a charm about Charles that was attractive to Liz however. After 5 years of dating Charles and Liz were married in 1972. What is interesting is that in the 1990's when this story was done the family had no servants or help despite being worth $1-$2 billion (according to my Koch historical net worth page)

Koch also doesn’t like to waste any time. He really uses every minute to add value or learn something. He only lives 15 minutes away from work and listens to books on tape (Dr. Walter E. Williams of George Mason University also does this listening to tapes from Academic Plant). In a 3 week trip to Orient that Koch had planned he didn't spend one minute relaxing. When the Koch family went on a trip to the Summer Olympics in Spain Charles wanted to see 4-5 events a day which wore every one out (kids swore it would be the last trip they would go on). Even on a Sunday afternoon Koch will be watching football games with his work papers out doing both things at the same time.

Charles isn't much of a partier (nor does he need to be running a multi-billion dollar company). David is more outgoing like mother Mary Koch use to hold (don't know if he still does) a New Year's Eve party that held 800 people as of 1993 in Aspen, CO. Even Newsweek said it was a great party to crash. Charles doesn't like to party but he does enjoy good wine.

What is really interesting is how in 1966 Koch Industries had $177 million revenue and in 2012 the company had $110 billion in revenue. This is an annual growth rate in revenue of 15% which is pretty amazing. One reason might be of Market Based Management. Personally I don’t think Charles Koch works for money as so many of the left claim. His house seems quite modest for his net worth. He does have homes in California and Aspen however even though they are only worth a few million dollars each it is very small compared to his net worth of around $31 billion. They didn’t even have servants in the 1990’s despite being worth in the billions. The Koch family does have expensive cars and charter company planes for trips however they are not socialites who party all the time and have fun. They say he is greedy and trying to control democracy by buying politicians. To me Charles Koch preaches about free markets and liberty. Liberals forget that means personal liberty which is for social liberty (legalize drugs, same-sex marriage, etc). People forget this and just label Charles and David Koch as Republicans but they really do have certain libertarian ideas.

Personally I am glad I found this classic article from 1994. It revealed to me that Charles Koch doesn't like wasting time, challenges himself on a daily basis, works his tail off, and really seems like a decent human being. Now if we can just get others to realize his enormous accomplishments we all might be better off. I personally do hope all the Koch brothers publish their own autobiographies so they can tell their own stories in stead of having other people tell it for them. 

Koch Industries: Challenge Process

Here is a video I dug up from YouTube from Koch Industries that discusses the challenge process that occurs at the company. Charles Koch is in the video as well and basically explains how Koch Industries became so successful in less than 2 and 1/2 minutes. I did blog about Market-Based Management in a book that Charles Koch wrote here.

John Allison on Financial Crisis and Market Purity

John Allison recently spoke to AEI on December 6, 2012. I have a lot of respect for John Allison who actually was a CEO of a bank during the financial crisis which gives him more credibility to discuss the topic rather than someone who believes what should have happened. Allison did a great interview for the Kaizen where he discussed his career at BB&T and explains how he grew the company. Dr. Walter E. Williams also wrote a column about the recent book John Allison published called "The Financial Crisis and the Free Market Cure . I read the book myself and really had no idea how much the banking industry was regulated or how government policies really were one of the main causes of the financial crisis in 2008. Allison was not to long ago was named the President and CEO of the CATO Institute. Cheers for Mr. Allison and bringing some sanity in a world of insanity!

Case for 24/7 Stock Market

So recently I have been thinking about markets and how they operate. One thing that seems strange is why the stock market is not open 24 hours a day, 7 days per week, 365 days per day. You might think this is odd however in the financial industry many people are at work a little before the market opens 8:30 A.M. and are done by 3:30 P.M. Of course there is other work that has to be done by trading can only be done in these hours. This is odd considering currency markets are open 24 hours a day 6 days per week (has been going on since 1995 too). I found this article from 1985 that talked about 24 hour trading (commissions back then were over $100 and a far cry from the $4 now paid by investors). Also since 1985 trading hours have been from 9:30 A.M. to 4 P.M. Eastern Time. However despite this after-hours trading can go on between 4-8 P.M.

Simple economics should suggest that a 24 hour stock market is a no brainer  If we had a 24 hour market then we would have less volatility because we would have more transactions. For some odd reason I believe people might get worried about the market taking a tumble at 3 A.M... However, nearly every other market is open 24 hours per day. Wal-Mart, McDonalds, and IHOP, are a few that are open 24 hours a day. People buy goods online all day and night. So it is really strange how anyone would argue against a 24 hour market. As long as there is a willing buying and seller we should have there always will be a deal to be made. 

Surgery Center of Oklahoma: First and Only Free Market Hospital in America

I saw this recent video about the Surgery Center of Oklahoma which may be in fact the only free market hospital in America if not the world. I blogged about the hospital in this post.  What is interesting is that the hospital actually posts prices for surgeries. What I found interesting was the hospital also published infection rates which I don’t see regular hospitals do. In the investment industry fund managers post data like risk, return, and other important data. Why don’t hospitals, physicians and surgeons do the same? As long as the insurance company is picking up the bill do patients really have that much incentive to care? By the way the Surgery Center of Oklahoma has a lower infection rate of a mere .001% which is much lower than the national average of 2.6%. Hospitals hire administers which can be in the six figure range and really just handle paperwork. I am amazed when I go to a doctor why they ask me the same questions (even after I have been to the same doctor for years). Never mind the fact that there is a staff just talking to insurance companies and filling out paperwork. Is this really making us better off? I would say no. Healthcare is not run like a business. What we need is more hospitals like Surgery Center of Oklahoma which don’t take insurance and inform patients of what the prices are. If you had more hospitals like this they would have to compete not only on price but also quality as well. This would be great for patients and lead to some advancements as doctors would try new things to improve care and reduce the risk for the patient. I notice we don’t need an Affordable Food Care Act, Affordable Computer Care Act, or Affordable Video Game Act. Food, computers, and video games operate in a free market where competition increases quality and lowers prices. Healthcare is not a free market by any means. Can you think of any think the government provides that is of higher quality and cheaper than the private sector? Economist Dr. Walter E. Williams summed it up with his own Williams’ law which states: whenever the profit incentive is missing, the probability that people’s wants can be safely ignored is the greatest.

H/T- Carpe Diem

Bill Koch Counterfeit Wine, Sailing, and Book

Bill Koch apparently keeps himself in the news. On Friday November 9, 2012 Inside Edition aired a story that actually featured Koch discussing counterfeit wine as I mentioned in this post. Koch told Inside Edition that he has spent over $4.6 million on fake wine. Even Koch admits that there will not be much sympathy for a billionaire.

In other news Bill Koch has also contributed $500,000 for a sailing exhibition at San Diego Halls of Champions in San Diego (it has been around 20 years since this happened). The exhibition will be available to the public. I have actually started a book about Bill Koch called “To The Third Power”. I have started the book and learned even more about Bill Koch then I did before. For instance Bill Koch graduated in the top 10% at M.I.T.. The book is really about how Koch guided his team to win the American Cup in 1992. I would point out that it was not a cheap one but it seems so far there are some lessons to be learned from a management perspective. I continue to learn more about Bill Koch and find him a very interesting character.

Newsmax: David Koch Speaks

I saw a preview of a profile David Koch did for the November 2012 edition of Newsmax magazine. As you know I have extensively probably more than any other blogger out there covered David Koch has given up to August 2012 $305 million to charity, how he endorses gay marriage, an analysis of David and Charles Koch net worth from 1984-2012 here, and even covered his dating here. Regardless of what your political affiliation is David Koch is truly an interesting person.

The article itself offers a pretty good interview with David Koch. I have read so much about David Koch and the Koch family nothing really is that new (however I did learn even in this article). The first is David Koch denies starting the tea party which is true since it was actually started by Rick Santelli after this famous rant here on CNBC. He also points out that inflation will soon come as the Treasury department with their quantitative easing program (QEinifity). What I probably found most interesting was the work life of David Koch. He wakes up at 7:30 A.M. eating his cereal and yogurt, then makes sure his kids get off to school and is taken to work and is in by 9 A.M.  Many people may believe David Koch doesn’t work hard however he stays until 7 P.M. before leaving to go home to see his wife and 3 kids (David Jr. Mary, Julia, and John Mark) and has a personal chef cook. Speaking of food Koch tips 15% when he goes out to eat which contradicts this foolish article from Bloomberg claiming he was the worst tipper at 740 Park Avenue. Although, he did give all the door men a $50 Christmas bonus (Park Avenue: Money, Power, and the American Dream is unfortunately  airing on November 12 on PBS and I have a feeling I am forecasting nausea in the near distant future after simply looking at the trailer).

Some other cool things about David Koch is that he charters a yacht on the French Riviera and some Greek Islands. Koch enjoys reading about the Founding Fathers and watching sports and documentaries. Another interesting fact I learned is that he doesn’t use the internet. From a Market-Based Management prospective I wonder if he could add value by having e-mail? Growing up David along with his other brothers had to do ranch work. Hard to believe now but David did actually work on a farm ranch driving bulldozers, operating hay bailers, fixed farm equipment, and dug ditches. When he asked his father for a quarter to buy a candy bar his father Fred Koch said he wanted his sons to “appreciate what money meant”, meaning the Koch brothers had to actually work for it.

David Koch runs an interesting group at Koch Industries known as the Koch Membrane Systems group. I blogged about Koch Membrane here.  Basically the company can turn salt water into drinkable water or water used for commercial purposes. The technology seems pretty cool and David has been interested in the technology since his days at MIT. Just about every week Koch flies to Boston and spends two days working at Koch Membrane. David finds the technology interesting and many opportunities available in the industry.

David Koch is also for same-sex marriages (people forget he did run as a libertarian candidate). On Obama Koch calls him, “charming” yet rightfully criticizes the President for attacking businesses who actually do create jobs. Koch would like to bring spending down to 19% (from 25% at present day). What is interesting is that Koch supports a tax increase if it is necessary to win support from Democrats to vote Republican however, Koch would want spending cuts to be five times greater than any tax increase.

The article is interesting and good for someone who does not know much about David Koch. I have said many times on this blog he is an interesting, caring, and generous individual. I really wish he would publish an autobiography since he is truly fascinating no matter what side of the political spectrum you are on.

David Koch 2011 Hope Funds Fundraiser for Cancer Research

People forget in the 1990's David Koch suffered from prostate cancer and still deals with it to this day. He has raised hundreds of millions of dollars to support places like M.D. Anderson Center in Houston, John Hopkins, and a $100 million facility at MIT to promote cancer research. Too bad you will never see this kind of video on MSNBC...