Is Buffett Hanging Sokol Out to Dry on Berkshire Scandal?

by Billy Currano | April 28, 2011 4:00 pm

The war of words has begun. On Wednesday, Berkshire Hathaway (NYSE: BRK.A[1], BRK.B[2]) released a report prepared by its Audit Committee[3] bluntly stating David Sokol violated Berkshire’s code of conduct and insider trading policies.

This report follows a March 30 press release by Warren Buffett[4] revealing Sokol’s purchases of Lubrizol (NYSE: LZ) stock just before Berkshire’s offer to acquire the company, which sent Lubrizol shares up 28% and increased the value of Sokol’s position some $3 million.

Among the damning statements in the Audit Committee report: “Mr. Sokol’s actions did not satisfy the duty of full disclosure inherent in the Berkshire Hathaway policies and mandated by state law.” That is in stark contrast to Buffett’s March 30 statement that he did not believe Sokol had done anything unlawful.

For all the report’s finger-pointing at Sokol, however, what was missing was any acknowledgement that Buffett may share responsibility for the fiasco. The Audit Committee states that Sokol “did not tell Mr. Buffett what he needed to know.” But if so, why didn’t Buffett ask for more information?

That is just one of the many questions that shareholders doubtless would like the answers to at Berkshire’s annual meeting this Saturday. And this year, shareholders may not be the only ones to get them. Unlike most years, when no official transcript or recording of the conference is published, the Audit Committee has promised to release “a complete transcript of all questions and answers related to the David Sokol.”

However this plays out, Sokol now stands alone in defense of his actions, as both the Audit Committee’s report and Lubrizol’s revised proxy statement[5], released April 11, distance the companies from responsibility for the affair and place the blame squarely on him. Now Sokol’s attorney Barry Levine[6] and Berkshire’s Ron Olson[7] are duking it out in a PR battle.

But as a champion of ethical conduct and reputation, it seems that at the least Buffett made a big boo-boo of his own in not handling this acquisition more carefully. It may not turn out to be as expensive as the $3 billion he lost after purchasing ConocoPhillips (NYSE: COP[8]) as the oil market topped, but by his own proclaimed standards, it’s far more important.

Billy Currano owns shares in Berkshire Hathaway.

Endnotes:

  1. BRK.A: http://studio-5.financialcontent.com/investplace/quote?Symbol=BRK.A
  2. BRK.B: http://studio-5.financialcontent.com/investplace/quote?Symbol=BRK.B
  3. report prepared by its Audit Committee: http://www.berkshirehathaway.com/news/APR2711-2.pdf
  4. March 30 press release by Warren Buffett: http://www.berkshirehathaway.com/news/MAR3011.pdf
  5. Lubrizol’s revised proxy statement: http://sec.gov/Archives/edgar/data/60751/000119312511093951/dprer14a.htm
  6. Sokol’s attorney Barry Levine: http://www.prnewswire.com/news-releases/statement-of-dickstein-shapiro-partner-barry-wm-levine-attorney-for-david-sokol-120826204.html
  7. Berkshire’s Ron Olson: http://www.berkshirehathaway.com/news/APR2711-2.pdf
  8. COP: http://studio-5.financialcontent.com/investplace/quote?Symbol=COP

Source URL: https://investorplace.com/2011/04/is-buffett-hanging-sokol-out-to-dry-on-berkshire-scandal/

Copyright ©2024 InvestorPlace unless otherwise noted.