Sunday, September 11, 2011

What Did Warren Buffett Know about Bank of America and When Did He Know It?

Insider trading shouldn't be illegal, but, sadly, many in the US are prosecuted for it. That is unless you reach a certain power level, which seemingly causes the SEC to look the other way at possible insider trades. It appears that Warren Buffett has been given a pass for many years. His investment in Goldman Sachs at the height of the recent financial crisis, just before the government announced a bailout of Goldman and other investment banks, is highly suspicious. The purchase sure looks like a crony government-Buffett deal.

Early on I raised questions about Buffett's timing on his recent Bank of America purchase. Now, NyPo is featuring questions about Buffett's timing:

Is Warren Buffett the Oracle or the consummate insider?

That depends on whom you ask.

Some see him as beloved, especially business news cable anchors and Berkshire Hathaway shareholders, but others view him as vastly overrated and a controversial institutional investor with an unfair advantage over small investors.

The homespun Buffett of legend and lore, claim some critics, racked up a $50 billion fortune on sweetheart deals that hide a lifetime of missteps and shocking inconsistencies.

Buffett’s latest “insider” deal is his trade in embattled Bank of America, which is a classic Buffett “investment.” Berkshire comes first, the US next, investors last.

His $5 billion investment in the bank -- expected to announce savage job cuts of up to 40,000 employees, and last week also announced the firing of two powerful executives -- raises a deeply troubling question to one analyst.

“Did he have inside information that other investors were not aware off? Did he know that there were going to be these two major announcements [of the job cuts and executive firings] at the time he made his investment?” asked banking analyst Dick Bove of Rochdale Securities. “If he did know, I think it is illegal.”...

Although he has no proof, Bove said it struck him as “awfully coincidental” that Buffett made his Bank of America investment right before the company made the pair of announcements. These are the kind of announcements likely to drive the stock price higher, he said.
Most fascinating is that NyPo was able to get BofA on the record denying Buffett was given any inside information:
“Those are two separate and distinctive transactions,” said BofA spokesman Jerry Dubrowski, referring to BofA’s new cost-efficiency drive (known as Project New BAC) and Buffett’s investment. “And we would not have provided any information to him [Buffett] in advance, nor would we do that for any shareholder.”
This means that if BofA did tip off Buffett, they are now guilty of misleading the public. And further because of BofA's statement, it could result in a sharp lawyer, on a civil class action basis, seeking to determine if Buffett was tipped off.


  1. Regardless of whether he was tipped off or not, BAC's plans were not a secret. I work at Bank of America and the talk of 30k+ employees (formerly Associates) being let go was on people's lips for over a month prior to the announcement. Add to that the business redesign efforts in the "New BAC" initiative and you can see that many more than just the few at the top of the BAC Corporate Center were aware of what was going on. The specifics (the loss of Joe P and Sallie K) were just details in the larger effort. These plans were in motion for a while. Any analyst with a decent network should have known what was going on.

  2. The bigger question about insider trading, as I pointed out in my initial post, was that just days after Buffet put $5 billion into Bank of America, B of A announced it would raise an additional $8 billion by selling its stake in China Construction Bank. B of A was up nearly 4% on the news.

  3. So there's no proof, no evidence, and no particular reason to even think this happened. But boy, it sure sounds shocking! Hold the presses!

  4. A close friend of mine works for Canada's largest bank. He told me insider trading is part of the game. Us peons are lucky if we end up with a portfolio enough to help with our retirement. Them the facts.