In 1943 Karr came under the scrutiny of Rep. Martin Dies, chairman of the House Special Committee on Un-American Activities for his Communist affiliations. Karr was at the time working for the Office of War Information (OWI). Karr appeared before the committee and stated under oath that he was an informant for the FBI, although this testimony was entirely a manufactured story. A special congressional investigation found no cause to remove him while at the same time the Civil Service Commission concluded he was both untruthful and unreliable. Karr resigned from the OWI and was immediately hired by Drew Pearson, one of America's most widely read columnists. In a Venona decrypt of June 1944, Vladimir Pravdin reported to Moscow information received through Samuel Krafsur from Karr.
Karr earned a reputation as an unscrupulous investigative reported who misrepresented himself to sources. In 1944 Karr was also active in Vice President Henry Wallace's effort to remain on the presidential ticket. President Franklin Roosevelt referred to Karr as a “chronic liar”. Karr was investigated twice by the FBI during the war, once after obtaining a secret report on CPSU General Secretary Josef Stalin prepared for President Roosevelt by another KGB source in the administration, Oskar Lange. Karr claimed to be on Vice President Wallace's staff to obtain the report.
On 12 September 1946 Pearson wrote an article based on a classified U.S. military study of British military operations against the Greek Communist insurgency. The article contained highly classified information on the British order of battle in Greece. This U.S. State Department was alarmed. The classified document had been in the office of the Director of the Office of Special Political Affairs Alger Hiss. An investigation revealed that the original document was missing, and that the information reached Pearson through his aide David Karr. It was suspected that he was working for the KGB, and that his vast wealth was paid by the Soviet government.
The FBI had Philip Jaffe under audio surveillance during the Amerasia investigation and overheard Jaffe discussing with Andrew Roth various possible contacts for information from government sources. Roth told Jaffe that Karr could obtain “a lot of stuff on the Far Eastern things that the other guys don’t get because of his Treasury connections. He goes up once a week with Harry”. Jaffe inquired as to whether this were Harry Dexter White, and Roth stated it was.
Karr began writing about the use of public relations in business takeovers. In 1959, Karr became CEO of the Fairbanks-Whitney Corporation, a large defense contractor whose divisions included Colt Firearms. After three years the stockholders disposed of him. Karr then turned to the movie and hotel businesses, and in 1971 became associated with Armand Hammer, who expanded Karr's contacts and business opportunities in the Soviet Union. Karr became a good friend of the son-in-law of Soviet President Aleksei Kosygin, Dzherman Gvishiani, and was granted North and South American trademark rights to Misha the Bear, the mascot of the 1980 Olympic games. Along with Hammer, he formed a joint venture to make and sell Olympic commemorative coins, an enterprise estimated to be worth some U.S. $200 million.
David Karr's boasted of have close ties with prominent U.S. senators and presidential candidates, and to have purveyed information between the Soviet and American governments on such issues as détente, trade, and strategic-arms negotiations. Karr, now living in Paris, was head of a Franco-American firm called Finatech. According to KGB files, Karr arranged meetings between Sen. Edward Kennedy and Soviet leaders. A KGB file describes Kennedy in 1978 trying to help a close friend, former Sen. John Tunney of California, get some business in the Soviet Union.
- “In 1978, American Senator Edward Kennedy appealed to the KGB to assist in establishing cooperation between Soviet organizations and the California firm Agritech, headed by former Senator J. Tunney. This firm in turn was connected to a French-American company, Finatech S.A., which was run by a competent KGB source, the prominent Western financier D. Karr, through whom opinions had been confidentially exchanged for several years between the General Secretary of the Communist Party and Sen. Kennedy. D. Karr provided the KGB with technical information on conditions in the U.S. and other capitalist countries which were regularly reported to the Central Committee,”
the report read, according to notes taken by Yevgeniya Albats, a specialist on the KGB and writer and now at Yale, who was assigned by the Russian Parliament to examine the archives after the aborted Soviet coup attempt of 1991.
In late 1978, as Occidental Petroleum was attempting an unfriendly takeover of the Mead Corporation, Karr told a bizarre storyi n secret testimony before the Securities and Exchange Commission. One night in 1972, Karr said, he was summoned to a hotel in Moscow to find Hammer in his pajamas, in tears and on his knees, pleading with two K.G.B. agents not to arrest him. Hammer was being accused of bribery and smuggling two letters written by the founder of the USSR, V.I. Lenin, letters Hammer purchased at an auction in New York. Karr said that Hammer was let off the hook by agreeing to donate the treasures to the Soviet Union.
Within days of learning of Karr's public disclosure, Hammer dropped his takeover bid of Meade. Seven months later, in July 1979, hours after returning from a trip to Moscow, Karr was found dead in suspicious circumstances in his Paris hotel room. Amid suspicions that Karr had been murdered, his widow halted the burial so that an autopsy could be performed. One claim was that Karr had swindled his Russian partners. Rumors linked his friend Gvishiani to bribery scandals. Israeli intelligence officials claimed Karr was involved in secret Russian arms sales to states on the U.S. State Department's terrorist watchlist, namely Libya and Uganda.
After the collapse of the Soviet Union in 1992, in the new atmosphere if openness, Soviet investigative journalist Albats published an article in Izvestia quoting documents from KGB archives that Karr was “a competent KGB source” who ‘‘submitted information to the KGB on the technical capabilities of the United States and other capitalist countries.”
- Yevgenia Albats, Senator Edward Kennedy Requested KGB Assistance With a Profitable Contract for his Businessman-Friend, Izvestia 24 June 1992, 5.
- Paul Quinn-Judge and Kathryn Tolbert, KGB file tells of prime treatment for Sen. Kennedy The Boston Globe 24 June 1992. 
- Statement of Rep. Fred E. Busbey, Congressional Record 18 February 1944, A876.
- Statement of Rep. Martin Dies, Congressional Record 1 February 1943, 504–516.
- Extension of Remarks of Hon. Francis E. Walter, Congressional Record 6 February 1957.
- Henry Wallace Papers: see Harold Young from Oskar Lange, 3 July 1944.
- Washington Post, 3 July 1944.
- FBI Silvermaster file, (PDF p. 33).
- Washington Post, 4 July 1994.
- Arthur Schlesinger, Jr. to Harvey Klehr, 18 April 1990.
- John Earl Haynes and Harvey Klehr, Venona: Decoding Soviet Espionage in America, New Haven: Yale University Press, 1999, pgs. 244–247.
- Yevgenia Albats, Reporting Stories in Russia That No One Will Publish Nieman Reports, The Nieman Foundation for Journalism at Harvard University, Vol. 53 No. 4 Winter 1999.