Wednesday, April 27, 2011

Scathing Report on David Sokol by Bekshire Hathaway

Berkshire Hathaway has released a 19 page (19 page!) Audit Committee press release/report regarding the trading of Lubrizol stock by former top Berkshire officer David Sokol.

Clearly, in this on going soap opera, Warren Buffett has decided that Sokol can no longer be protected. Berkshire has put the man through a meat grinder and he is likely only to be able to put himself together after a stint in the slammer. As details emerge, it appears, that what most thought, is most likely truly the case, Sokol bought Lubrizol stock in anticipation of an acquisition by Berkshire.

Most damning, however, is that it appears that Sokol misled Buffett and Berkshire CFO Marc Hamburg. He misled Buffett as to how he learned of the stock. According to the report, Sokol gave Buffett the impression that he had been a long-term holder of Lubrizol stock and never mentioned the role of Citi investment bankers. Sokol also, after the acquisition, also seems to have lied to CFO Hamburg about Citi's role in the acquisition. (Sokol didn't make his purchase in Lubrizol until after he learned that Citi had set up a meeting for Sokol with Lubrizol as a possible Berkshire acquisition candidate.)

Specifically, the Audit Committee found that Sokol's "purchases of Lubrizol shares while serving as a representative of Berkshire Hathaway in connection with a possible business combination with Lubrizol violated company policies, including Berkshire Hathaway’s Code of Business Conduct and Ethics and its Insider Trading Policies and Procedures.

In other words, Sokol is in serious trouble, given the way he misled Buffett and Hamburg. The SEC will most certainly find some reg on which to hang him. As for Buffett, it remains very curious as to why he protected Sokol until the heat became intense. Buffett's first press release on the matter clearly did not come clean on everything he knew, as he stated in the release.

As The World Turns may be canceled, but As Buffett Turns looks like it has at least a few more episodes, starting with this weekend when shareholders meet in Omaha. The latest press release states that any comments made about the Sokol matter during the shareholder meeting will be immediately put into transcript form and posted to Berkshire's web site.

The full report is here.

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