(FORTUNE Magazine) – "Be kind and generous to one another," wrote Fred C. Koch to his young sons half a century ago. Never did such good advice fall on such deaf ears. "Old Fred's" legacy of squabbling sons is every supersuccessful parent's worst nightmare. He revolutionized an industry, built a large company, made a fortune, tried to cram values into his four sons, then crossed his fingers and hoped they could handle their inheritance when he died. He warned the boys that their wealth could be "a blessing or a curse." He was right--about the curse.

Meet the Koch family of Wichita, Vail, Cape Cod, New York, Palm Beach, and Monte Carlo--financial scions of Koch Industries, possessors of one of the greatest private fortunes in the land, and participants in perhaps the nastiest family feud in American business history. The fight might come to a climax in the courtroom sometime this year. But don't bet on it.

When it's not fighting, this clan has spent its wealth on colorful private agendas. Old Fred Koch (sounds like coke) was an early supporter of the John Birch Society. David, 56, one of Fred's four sons, was the Libertarian candidate for vice president in 1980; two years ago he bought Jackie O's New York City apartment. David's twin, Bill, won the America's Cup sailing race in 1992. Charles, 61, founded the Cato Institute, a Libertarian think tank, and seriously considered buying Time or Newsweek to proselytize for a political revolution in the U.S. Eldest son Freddie, 63, has bought castles, villas, and estates in Europe.

There has been so much scheming, name-calling, and backstabbing among these guys that J.R. Ewing might feel outdone. Bill tells of a homosexual blackmail attempt by Charles against Freddie to get his stock at a cheap price. (Charles vigorously denies it.) Freddie was partially disinherited by his father in a dispute over a missing $700. And for family harmony, you can't beat Bill's subpoenaing his mother onto the witness stand a few months after she'd had a stroke.

It's no accident that you may have barely heard of the Kochs. Except for Bill, they loathe public attention. And much of what Koch Industries does is so remote and boring--collecting oil from wells, refining it, running energy pipelines, making bulk chemicals--that few people are even curious about the company. Nonetheless, the wealth that Koch Industries has created--and family members can squabble over--is staggering. Imagine a $25 billion-a-year oil company--nearly as big as Amoco--earning $750 million annually, owned almost completely by two brothers. With two huge refineries (Koch refines about 4% of the gasoline produced in the U.S.), 37,000 miles of pipelines, and 450,000 acres of cattle-ranch land, Koch Industries has more revenues than any privately held U.S. company but Cargill. Estimates of the brothers' wealth range from nearly $1 billion each for Freddie and Bill to well over $2 billion apiece for Charles and David. So they are rich indeed. But only in money, not in spirit.

Why are these grown men behaving so badly? To vastly oversimplify, Bill believes that in 1983 Charles tricked him into selling his shares in the family firm for half a billion dollars less than they were worth. (Bill got only $470 million.) Charles denies it. He says he is reluctant to attack his brother publicly. Nonetheless, he paints Bill as greedy, lazy, incompetent, neurotic, and vindictive.

But, of course, it's not that simple. With dysfunctional families, it never is. This is a titanic clash between driven, controlling, by-the-book Charles--who runs the family firm--and his flaky, insecure, kid brother Bill, who bitterly resents Charles's dominance and tightfistedness. It's also a tale of what can go wrong when a father anoints one son as his favorite and successor and assumes that the others will be able to get along with him. "My father set up the seeds of disaster," says Bill. "He left the company to all of us, and he wanted us to work together." When the sons had different interests and abilities, there was no way for them to resolve their differences easily.

Bill cringes when anyone suggests that he is waging a vendetta based on Freudian hurts and sibling rivalries. "It's about money, that's all," says Bill. "Charles is a cheat, and I hope he sues me on it." But in practically the same breath, he says his mother didn't love him and that Charles bullied him as a kid. "I have a lot of reasons to have a lot of grudges against Charles," says Bill. "I resent the fact that Charles cheated me all my life."

Bill is hitting hard below the belt to win this fight. He is determined to prove that Charles is, in fact, chronically dishonest--and therefore immoral enough to cheat him out of his half billion. Bill has financed his own investigations into rumors of criminal wrongdoing by Koch Industries, claiming that the company steals oil from Native Americans and the federal government. He has passed his findings on to Senate investigators, a federal grand jury, and the Department of Justice. Currently, Bill is bringing his own whistle-blower suit over the oil allegedly stolen from federal lands. He hopes it will cost Charles his reputation--and more than $1 billion in fines and damages. "Bill feels that if he can prove Charles stole from the Indians, he can prove Charles stole from him," says Bill's attorney, Roy Bell.

For Charles, who rarely talks about the conflict, the fight has been 17 years of harassment, embarrassment, and worry. "I can't believe I'm wasting my life on this," he says. "[Bill] is stalking us, and he has the money to get the federal government to join his vendetta against us." Charles and Bill haven't spoken since 1982--not even at their mother's funeral--and friends say the battle has taken its toll. "We'll be playing golf or having dinner," says George Ablah, a Wichita developer. "Everybody is having a great time, until someone mentions Billy's name. Then Charles gets glum, and [his wife] Liz damn near starts crying."

The other Koch brothers play minor roles in this family tragedy. Bill's twin, David, is a board member and a division president of Koch Industries; he is allied with Charles and is also a target of Bill's litigation. Freddie, who drifted away from the family years ago, has joined in several of Bill's civil lawsuits. He says he, too, was cheated in 1983 when he sold his Koch shares; he is seeking another $300 million.

A Kansas judge might decide this year to either dismiss Bill's main "he cheated me" case or put it before a jury. Bill says if a jury rules against him, he will quit his fight. Horse poop, say his brothers, who doubt he will ever stop filing lawsuits, even though he has yet to prevail in any of the ten cases he has filed so far.

Given the history of Koch Industries, perhaps the strife was inevitable. The company was practically born into hostility and litigation. Old Fred, the son of a Texas newspaperman, developed an oil-refining process in the 1920s that greatly increased the yield of gasoline from crude oil. But a consortium of big oil companies, which owned similar patents, sued him for patent infringement and prevented him from selling his process in the U.S. To make a living, Fred spent the Depression years in Russia, helping Stalin expand his petroleum industry. He also spent a lot of time in U.S. courts fighting the oil companies; in 1952 he finally won a $1.5 million settlement after it came out that the companies had bribed the judge handling his case.

Fred returned from Russia shaken by what he saw. Many of the Soviet engineers he had befriended were killed in Stalin's purges. He bought some ranches and refineries, and started a company making refinery equipment. But he devoted much of his considerable energy to supporting the newly formed John Birch Society and thundering against "godless communism."

Fred was hard on his sons as well. "He was a monarch, untouchable," says a family friend who knew him. "You didn't play ball with him." Worried that his boys would turn into "country club bums," Fred forced them to take menial summer jobs on the family's vast cattle ranches. Charles says Freddie had a nervous breakdown on a ranch one summer. Years later, Freddie, then in his early thirties, ran into trouble with his father after the old man blamed him for stealing a few hundred dollars. When Freddie refused to admit wrongdoing, his father said he never wanted to see him again, and disinherited him. Freddie had already gotten a large chunk of Koch Industries stock. But when Old Fred later gave shares eventually worth billions of dollars to his other sons, Freddie got nothing. According to Bill, Old Fred believed Freddie was a homosexual. No big deal nowadays, but not something a John Bircher could easily accept 30 years ago. Freddie declined to be interviewed for this story.

Life with father wasn't easy for Charles, either. A psychologist told his parents that Charles's presence at home was causing problems for Bill. Charles played with David but excluded Bill, who was becoming angry and depressed. So at 11, Charles was sent to a boarding school in Arizona. "I pleaded with them not to send me away," he says. Several years later, after he had been expelled from another boarding school for drinking beer, his father sent him to live with relatives in Texas. "Father put the fear of God in him," David recalls. "He said, 'If you don't make it, you'll be worthless. You've disappointed me.' Father was a severe taskmaster. He could do that sort of thing so effectively."

In college, the boys did not disappoint. Charles, David, and Bill all graduated with multiple degrees from MIT. Freddie studied drama and fine art at Harvard and Yale. In 1961, Old Fred asked Charles, then 25, to return to Wichita to help run Koch Industries. Six years later, at 67, Fred died gloriously in a Utah duck blind; he fired off a round, turned to a companion to say, "Wasn't that a great shot?" and collapsed due to a heart attack.

As chairman and CEO of Koch Industries, Charles performed brilliantly. The company's revenues, $177 million a year when he began, have climbed 140-fold. Charles is such a tough negotiator, says one lawyer, "that in a fifty-fifty deal, he keeps the hyphen." He relentlessly drove himself and everyone around him. He put in 12-hour days at the office, then spent hours more working at home. Executives were expected to work Saturday mornings, and Charles thought nothing of calling meetings that ran into Saturday evening. He even proposed to Liz over the phone; she could hear him flipping his calendar to find a time for the wedding.

Charles's drive, discipline, and impatience probably exacerbated his conflict with Bill. In 1968, Charles asked Bill, then getting a Ph.D. in physics at MIT, to start a small venture capital fund for the family. It performed badly, losing $90,000, says Charles. "Bill couldn't get to work on time. Couldn't get himself out of bed." Worse, according to Charles, Bill was unable to spot the key issue that would determine a deal's success. Bill says the fund project was "respectably" profitable, but adds that he'd been depressed at the time and had virtually no business experience when he began. "The only other job I'd ever had was working on my father's ranches."

Things didn't get any better when Bill began working for Koch Industries out of a small office near Boston in 1975. He took the company into the coal business, but irritated executives with his indecision. "He spent months trying to find a mine to buy," says Bill Hanna, chief operating officer at Koch. Charles says the coal business was a financial failure under Bill. Told that Bill now insists it made money, Charles rises briskly from his chair, strides to his desk, and pulls out a folder: "Here are the results of Koch Carbon." Either Bill is deluding himself or Charles whipped up a phony financial statement, but the coal mines appear to have been an erratic money loser. Aside from a successful gas deal, all the other projects Bill handled fared almost as badly, say Koch officials.

Bill whined that Charles treated him like a second-class citizen. He owned as many shares as David and Charles, and they had a company plane in Wichita, so why couldn't he have one in Boston? He felt snubbed by Charles when he tried to discuss complex issues at board meetings. "Billy would want to debate everything for hours," says Hanna. "Charles would say, 'That's so-and-so's area. Why don't you take it up with him later?' Bill hated that." He was miffed that David reported directly to Charles, but he had to report to people like Hanna. (During a 1980 dinner at a coal industry convention at the Greenbrier Hotel, Bill called Hanna "the prick from headquarters" in front of a dozen coal barons and their wives.)

Charles thought it bad enough that his brother lacked drive and talent, but Bill also pushed for big titles. "It was important for Bill to be important," says Hanna. Even before he had joined Koch Industries, he wanted to be made a vice president. Later, he pressed Charles and David to appoint him director of corporate development, in charge of acquisitions. They were opposed, but gave in, saying now that they were trying to accommodate his demands. "He wanted a big organization that would analyze everything," says David. "He wanted the fun of negotiation, not the hard work of making a business succeed."

Charles says Bill was after his job: "He wanted to be co-chief executive." Charles's friend George Ablah is more sympathetic with regard to Bill. Ablah says Bill was deeply resentful toward his father, and is taking it out on Charles. "I have the feeling that the father made a choice for heir apparent before the other boys had a chance to compete. I think Billy felt cheated because the die was cast before he got out of college. And since his father had died, Billy had no way to punish him, so he's punishing Charles." But it was money that put Bill over the edge. By the late 1970s, he was making a few million dollars a year. It wasn't enough. Bill complained that dividends were paltry because Charles was pouring so much money back into the business. "Charles had a house in Vail and a company plane," says Bill. "We shareholders were worth millions, but our income was nothing."

Just before Thanksgiving in 1980, Bill pounced. With the support of Freddie and some outside shareholders, Bill had control over a majority of Koch stock. He called a special board meeting to install new directors who would boost dividends and weaken Charles's grip on the company. David got wind of the plans just days before the meeting and arranged for one dissident to switch sides, barely tipping the vote in Charles's favor. The board then promptly voted to fire Bill.

Hungry for cash, Bill, Freddie, and some cousins sold their shares to Charles and David in 1983. Bill retained Goldman Sachs to evaluate the assets of the company and determine a fair price for the group's shares. Eventually the two sides agreed to a price of $200 a share, for a total payment of $1.1 billion to Bill, Freddie, and the cousins. Bill says he was "ecstatic" with his $470 million. "I felt like a kid let out of reform school." In the next few years he bought sailboats, houses, and paintings, and a big diamond ring for wife-to-be Joan. He began building a 27,000-bottle wine collection, one of the largest in the U.S. In 1983, Bill started Oxbow Corp., which mainly runs power plants and trades commodities. "It earned $50 million last year. Not bad for a bad businessman, eh?"

But Bill didn't enjoy his money for long before concluding that he had been hoodwinked. In 1984 his bankers told him that Koch Industries, which had borrowed nearly $1 billion for the buyout, had paid off the loan three times faster than first predicted. "I was stunned," says Bill. "How could they have so much cash?" He accused Charles and David of hiding assets and changing accounting practices to make Koch look less valuable. In 1985 he pointed a legal blunderbuss at his brothers and has held it there ever since.

Some of the suits were amazingly petty. Twice Bill sued his brothers and his mother over who got to disburse $60,000 a year from her charitable trusts; in 1981 he subpoenaed his 82-year-old mother a few months after she had suffered a stroke. Bill sued the brothers over a coin collection and over a problem with his income taxes. He lost every time. "Bad lawyering," he says, though he has hired some of the best legal talent in the country.

But one big legal issue just keeps rolling along: Did Charles and David hide assets and fool Bill into selling his Koch shares for less than they were worth?

Bill asserts that his brothers misled him in 1983 about the value of the company's huge refinery near Minneapolis. During negotiations over his shares, he says, they insisted that refining margins were poor and that the refinery's capacity was just 127,000 barrels of crude a day. But soon after Bill sold his shares, he says, volume climbed to 150,000 barrels, and margins soared.

What happened? Bill claims that Koch had quietly persuaded a pipeline company operating near Minneapolis to periodically reverse the flow of petroleum products through its pipe. Instead of pumping gasoline from Koch competitors north into Minnesota, the pipeline could ship Koch's gasoline south, to more profitable new markets around Chicago, Omaha, and Des Moines. Bill claims that his brothers knew the valuable pipeline deal was in the works, so they secretly boosted the refinery's capacity. A Koch official says there was no agreement with the pipeline company and that Bill knew about the refinery expansion.

Bill may have a valid complaint against his brothers. But in his petulant eagerness to hurt them, he has stepped over the bounds of fair play. About eight years ago he tried to add racketeering charges to his suit. To win a racketeering case he had to prove a widespread pattern of ongoing misconduct by his brothers. So he hired detectives to investigate rumors that Koch stole oil by purposely mismeasuring the crude it bought from independent producers. In 1989 a Senate committee looking into charges of oil stealing on Native American lands got wind of Bill's investigation. He cooperated freely, turning over much of his information. The result was a painful, probably undeserved, black eye for Koch. The subcommittee cited Koch Industries as "the most dramatic example of an oil company stealing by deliberate mismeasurement and fraudulent reporting." The committee calculated that Koch had stolen $31 million worth of oil over three years--and implied that all of it came from Native Americans.

Upon close examination the Senate investigation appears to have been deeply flawed. Nationwide, Koch buys an average of $4 billion of oil a year. The $31 million it is accused of stealing represents less than one-quarter of 1% of the $12 billion in oil it purchased over the three-year period. That's well within the industry's normal margin of error in measuring oil. Virtually none of the crude came from Native Americans, who sell the company less than two-tenths of 1% of its oil. It seems unlikely that Koch Industries could be as dishonest as Bill and the Senate charge and still remain in business. Several independent oilmen contacted by FORTUNE say Koch is very fair and reliable when it gathers oil. "We measure our oil every day," says Melvin Moran, managing partner of Moran Oil Enterprises in Tulsa and former president of the Oklahoma Independent Petroleum Association. "If they were stealing, we'd know right away."

The Senate committee turned its findings over to the U.S. attorney's office in Oklahoma City, which could have brought criminal charges against Charles, David, and Koch Industries. But three years later the government announced it was dropping its investigation. Meanwhile, Bill filed a whistle-blower suit over oil thefts from Native American and federal land, claiming Koch defrauded the U.S. government. If Bill manages to prevail, he could collect one-third of any judgment.

Why would a man accuse his own brothers of racketeering? Bill says it's to pressure them to negotiate. "I was cold-blooded and Machiavellian about coming up with it. It was not emotional." Racketeering charges, he says, "have a sting. They bring people to the negotiating table sooner." He concedes that "part of this is very sad. I don't want to see my brothers in jail. But I'm at war."

That kind of malevolence leaves Charles and Liz Koch sad and angry. "Sometimes I feel sorry for Bill," says Liz. "How could he screw things up so much? We would have loved taking our kids to see him win the America's Cup. I'd love to see Freddie's castles. I feel cheated not being able to bask in their successes and say, 'They're my brothers.'" But mostly, Liz is angry. "Did Bill ever say to Charles, 'Thanks for building the company so I could have the life that I want?' I could stand a lack of gratitude, but the vindictiveness galls me to the marrow of my bones." Charles is even more bitter, says David. "They will never reconcile. That wound will never heal."

Old Fred knew that money might not buy happiness for his sons. What he could never have imagined is how much unhappiness it has bought.

REPORTER ASSOCIATE Patty de Llosa