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What Was David Sokol Thinking?

Posted by Larry Doyle on March 31, 2011 10:53 AM |

When an executive is in a position of recommending takeovers to perhaps the most legendary business executive on the planet, what is he doing purchasing a sizable position in that stock a week before making that recommendation? Are Americans still supposed to believe the manner in which markets operate and corporate takeovers occur are fully on the up and up? Stop it.

David Sokol can attempt to explain away his personal trading of Lubrizol stock during the month of December but his purchase of close to 100,000 shares (a dollar commitment of more than $9 million) in early January and less than ten days before broaching the topic to Warren Buffet that Berkshire Hathaway purchase the company SMELLS.

Sokol’s unexpected resignation, Buffett’s quick defense of his highly regarded colleague, and Sokol’s appearance on a morning business show strike me as a totally scripted and managed defense. Who in Washington will take the other side of the argument and say, “well, just hold on a second here, gentlemen. There is a lot of smoke around this campfire. While you may care to douse it with some cold water, those in America who care about pursuing truth, transparency, and integrity in our markets, would like a full accounting of all conversations and meetings on this topic.”

Will Mr. Buffett’s relationship with the current administration along with his elevated position and status negate a regulatory investigation? Will a mere resignation by Mr. Sokol be the end of this? Should all the personal trading records of Mr. Sokol be pulled and reviewed? Has this happened previously? What about the personal trading activity of other executives at other Berkshire subsidiaries?

If David Sokol, working for Warren Buffett, did not purchase the stock in Lubrizol but Raj Rajaratnam did, what would people think? Would Raj be treated in a similar manner?

Let’s get the full accounting and entire truth from an INDEPENDENT regulatory entity and then determine the rectitude of Mr. Sokol and Mr. Buffett.

Thoughts, comments, constructive criticism always encouraged and appreciated.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • wsm

    “Are Americans still supposed to believe the manner in which markets operate and corporate takeovers occur are fully on the up and up?”

    Are you aware of any (smart) Americans who DO still believe this? I am not.

    “Let’s get the full accounting and entire truth from an INDEPENDENT regulatory entity”

    If you can name one, I would be all ears. I cannot think of one.

  • LD

    WSM,

    Your points are good ones and also a major part of the problem in our country BUT does that mean we should stop calling for these pursuits and elevating these issues. Of course not. I have yet to see anybody ask for a full and independent accounting of this situation. Maybe I just have missed it but the fact is the mainstream media should be writing editorials asking for the same accounting as I am here at SoC.

    Thanks for the prompt.

  • MG

    The US govt. or the MSM can’t start pulling on loose, dangling threads such as Buffet’s Sokol. The US govt.,TBTF’s and their lobbying arms are nothing more than an elite criminal syndicate. One that would make Capone, Luciano and others green with envy. Thick as thieves, so the saying goes. Start pulling on loose threads and they run the risk of unraveling the entire syndicate. Monetize and print, print and monetize. That is all this country has left.

    • MG

      Forgot to add bombs and bullets in with print and monetize. Sorry.

  • fred

    as posted on Zero Hedge…

    “What people are missing is in plain sight: Sokol bought the stock with a “free option” not available to the public. If WB bit and bid for LZ, Sokol wins big (whether the likelihood was 5% or 50% does not matter), but if WB did not bite and passed, then Sokol would have non-public information that BRK would NOT be interested in LZ. In the latter hypothetical, any sale of LZ shares would then be an insider trade. A win/win situation for Sokol – last I checked, those are not available to the public.”

    I do not agree with the writer’s analysis as being a win/win for Sokol. Sokol traded in LZ as an employee of BRK knowing that he was going to pitch the stock to Buffett; he clearly acted on information not availible to the public in an attempt to bank substantial profits.

    Contrary to the ZH post, I think that only after Sokol realized that he was in a lose/lose situation did he decide to come clean. If Warren went ahead with the purchase how was Sokol going to explain his frontrunning?

    I wonder if Buffett decided to not pull the trigger after learning of his friends misdeed? Does Buffett then become an accomplice after the fact?

    If Sokol had purchased LZ after Buffett,(ignorant of Sokol’s actions), had rejected the purchase, it would have been a different matter, but then he wouldn’t have expected to bank the windfall profit from the insider information.

    Good case study for MBA ethics class.

    In the state I live in, unknowingly driving with an expired license is a criminal offense subjecting a person to a criminal record, fines and jail time; why don’t our public servants go after the “big money” when there is clearly intent to commit a crime?

  • Peter

    By the time Washington responds to “smoke,” all that remains is scorched earth. What are the odds that this one “front running” episode of Sokol is a singular event?
    Absolutely pull his trading history; in this post Madoff era – no one is beyond reproach!

  • fred

    Money corrupts, power intimidates.

    The call for the ouster of Buffett, Murdoch and Redstone, ironic.

    We recruit our children into the military, why don’t we recruit accomplished senior “leaders of industry” into critical government roles in persuit of the public interest.
    They don’t need more money or power, their interest now, their legacy.

    If Buffett was the Sec of the Treasury, would he have settled for the TARP terms Geithner did?

    If Redstone was the Sec of State, do you think we would have a clearer picture of U.S. foreign policy initiative in Africa and the Middle East?

    If Murdoch was in charge of the SEC, do you think there would have been a higher or lower number of prosecutions after the MBS meltdown?

    How about Bill Gates for Sec of Education, do you think we would we be graduating more or fewer Engineers in this country?

    • fred

      Anyone for Sam Zell, Dept of HUD? How about Jimmy Rogers over at the Dept of Agriculture? Jack Welch, Sec of Commerce? T. Boone over at Energy?

  • Jim

    Further indication that ALL of Sokol’s personal trading activity should be reviewed. Do we trust the SEC to properly investigate?

    Mixed Signals Marked Sokol Meeting

    Lubrizol was one of the companies reviewed by Citigroup and Mr. Sokol in that December meeting, at which Citigroup’s bankers touted Lubrizol’s management team and chief executive, according to people familiar with the matter.

    The bankers viewed those as essential components of how Berkshire Chief Executive Warren Buffett would evaluate the chemicals concern as a possible takeover candidate, the people familiar with the matter said.

    At that meeting, Mr. Sokol didn’t say he was personally interested in buying Lubrizol shares, the people said. When one banker said he knew Lubrizol’s chief executive, James Hambrick, Mr. Sokol asked to set up a meeting. He subsequently pitched the idea of buying Lubrizol to Mr. Buffett.

    Mr. Sokol’s varying roles are at the heart of the controversy over his Lubrizol stock purchases, which Mr. Sokol has said weren’t a factor in his decision to resign from Berkshire this week. His state of mind may figure in a regulatory investigation of his actions.

    “If Citigroup’s bankers put together this list of takeover candidates because he’s from Berkshire Hathaway, then in my view Sokol was so out of line it’s not even funny,” says Jeff Matthews, founder of hedge fund Ram Partners LP who owns Berkshire shares personally.

    Many financial institutions, money managers and U.S. corporations have codes of conduct that prohibit employees from using company resources or information obtained in the course of their work to buy stocks or achieve personal gain, unless they get approval from their compliance department.

    The varying roles of David Sokol, here at Berkshire’s 2010 meeting, are at the heart of the controversy over his Lubrizol stock purchases.

    Berkshire’s code of conduct states that conflicts of interest could arise when an employee “receives improper personal benefits as a result of his or her position at the company” and all its senior executives have to disclose any material transaction or relationship that could give rise to a conflict.

    What A FARCE!!!

  • coe

    This scenario seems pretty obvious..I think you hit the nail on the head by relating it to Rajaratnam..consider the unimpeachable wisdom of the Oracle of Omaha..isn’t this the same self-serving billionaire that publicly decried all derivatives as the work of Satan, and then used them to lever his own corporate profits? who stepped in to “save” Salomon Brothers, and in so doing lambasted the value proposition on Wall St, only to secure a predatory preferred coupon when injecting capital to perform the same public service to stability in global markets via a capital CPR on Goldman in recent times? Sokol may indeed be a vile inside trader, but to believe that Warren Buffett is a paragon of moral rectitude – well, as Jack Webb said, “Just the facts, ma’am” – and that applies to both his business dealings as well as his personal life. Since when should we admire someone for his money and celebrity – oh, I forgot, we live in a culture here in America where the priorities and leadership is flawed!






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