Friday, April 1, 2011

What Warren Buffett Didn't Disclose in His Sokol Letter

Although Warren Buffett has always promoted fast and full disclosure as a primary virtue, it should be noted that Buffett failed in his letter/press release on the David Sokol resignation to disclose a few pieces of information that would shed a much better light on the real reason Sokol resigned.

In the letter, Buffett tells us:
Shortly before I left for Asia on March 19, I learned that Dave first purchased 2,300 shares of Lubrizol on December 14, which he then sold on December 21. Subsequently, on January 5, 6 and 7, he bought 96,060 shares pursuant to a 100,000-share order he had placed with a $104 per share limit price.
But full disclosure would require Buffett to tell us how he learned. Did Sokol come to him and tell him?  Did the SEC contact Berkshire? Did internal Berkshire compliance discover the trade? Did Lubrizol discover the trading in its stock and inform Buffett?

Further, although Buffett says that Sokol's resignation letter came was a complete surprise, Buffett didn't disclose in his letter if he discussed Sokol's trading in Lubrizol with Sokol, after he learned about it on March 19.

Answers to these questions would provide much better light on what might have prompted Sokol to resign.

Again I repeat, in my view the SEC should stay out of all so-called insider trading cases, unless they involve government officials, and leave it up to corporations to police their own (should they deem it necessary to do so).

As for Buffett, this is a typical Buffett howdy duty act that he is very good at pulling off. He presents his "full disclosure" letter and tells us in it:
I have held back nothing in this statement. Therefore, if questioned about this matter in the future, I will simply refer the questioner back to this release

When in fact, he left out the information that would make it easier for Berkshire shareholders to understand what really went down.

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