Berkshire Audit Report: David Sokol’s Trading Violated Company Insider Trading Policies and Procedures

Wednesday, 27 April, 2011

Today Berkshire Hathaway‘s Audit Committee released its report, “Trading in Lubrizol Corporation Shares by David Sokol” (PDF file). Have a read. Here is a notable paragraph,

“Mr. Sokol’s answer to Berkshire Hathaway’s CFO, Mr. Hamburg, concerning the investment bankers similarly fell short of the degree of candor required of a corporate fiduciary, and suggests his answer to Mr. Buffett’s earlier inquiry noted above was intended to deceive.

Check out what Alice is saying in “World Learns New Facts Showing Buffett Was Misled” (here is an excerpt),

“However, upon several readings of this release, there do not appear to be *any* new significant facts that were unknown to Berkshire on March 30th when its initial press release was issued. These facts are only *new* to those of us who are reading the audit committee report “

and “Sokol Fights Back Round 1“.

Here are some notable media reports.

Bloomberg (Alice Schroeder), “Buffett Disciples Want ‘Oracle’ to Come Clean” [Apr 28 update] Highly recommended reading. Have a watch of Alice’s Bloomberg video interview. Here is an excerpt from the article (emphasis added),

“The problem isn’t the about-face. It is the missing explanation for why Berkshire went so easy on Sokol in the first place. Whatever the detailed reasons, ultimately it boils down to Berkshire’s reliance on Buffett’s personal judgment about his managers and his ability to delegate to them to the point of abdication. When this one-man infrastructure makes a mistake, it’s hard to admit that Buffett is at fault. Changes in the way the company is managed are personal, not corporate. Under the circumstances, the temptation is high to blame everything on a single rogue employee. That doesn’t excuse Sokol’s behavior, but the failure of oversight needs to be acknowledged and corrected. [...] Read the rest of this entry »


Worth Reading: Michael Douglas headlines fundraiser for McGill, Berkshire Hathaway Insider Trading/Shareholder Suit, Herzog/McCarthy/Krauss talk science & art

Tuesday, 19 April, 2011

* CBC News, “Michael Douglas began cancer journey in Canada – Star will headline Montreal fundraiser for head and neck cancer

* Alice Schroeder, Berkshire Hathaway Insider Trading, Shareholder Suit [Here is a link to the shareholder suit filing http://www.scribd.com/doc/53362856/kirby-v-sokol]

* Filmmaker Werner Herzog, novelist Cormac McCarthy, and physicist Lawrence Krauss talk about the connection between science and art (NPR Science Friday).


Barrage of questions for Warren Buffett at this month at Berkshire Hathaway’s annual meeting?

Friday, 8 April, 2011

Have a read of Alice’s “Annual Meeting“,

“> Becky Quick. Has put away the pompoms. Taking a sober, detached and traditionally journalistic stance toward Berkshire/Sokol/Buffett.”

and Andrew’s “Buffett’s Ruthlessness Is Oddly Absent on Sokol” (here are two questions Andrew has, emphasis added).

“¶You have said that Mr. Sokol did not do anything “unlawful.” But Mr. Sokol bought shares of Lubrizol a day after he told Citigroup to indicate Berkshire’s interest in buying the company.

Why don’t you consider that “material” information, a crucial component of insider trading? Do you not believe that a Lubrizol shareholder would have considered such information important to their investment decision? Clearly Lubrizol felt that Mr. Sokol’s inquiry was material enough to hold a board meeting on Jan. 6, one day before Mr. Sokol bought almost $10 million of shares.

If Mr. Sokol was aware of Lubrizol’s board meeting, would you consider that material information? And if a news outlet had reported Mr. Sokol’s inquiry or Lubrizol’s decision to meet, do you not think that the price of Lubrizol’s shares would have risen?

Here is another way to think about it: If a Citigroup banker had bought shares of Lubrizol at the same time as Mr. Sokol, would you have considered that insider trading? Isn’t that the definition of insider trading? What did Mr. Sokol do that was different?

¶Berkshire has always been a very decentralized institution with only 21 of its 257,000 employees working at headquarters and each subsidiary left to its own devices. “Most of these managers are happiest when they are left alone to run their businesses, and that is customarily just how we leave them,” you recently wrote in the annual letter.

This structure might seem like a bastion of efficiency. But given Mr. Sokol’s possible transgressions, do you now think Berkshire needs more compliance programs and people to manage them?

P.S. I have never thought I would be tagging a post about Warren with “ethics” where I question if it is sadly missing.

Update: “Bloomberg Columnist Schroeder on Berkshire Holdings” (with video)


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