seshnath

I recently finished reading FTWtF. I highly recommend it. Personally, it clarified the Chinese government and mindset for me more than any other book I have ever read.

Don't forget us, the BRK shareholders who paid for Citi's research that turned up LUZ as a potential buy and allowed Sokol to make a profit. If Sokol were a CFA Charterholder, he would have violated code VI B of Standard of Conduct Priority of Transactions. Investment transactions for clients and employers must have priority over investment transactions in which a Member or Candidate is the beneficial owner.

Kit - I was making a similar point in the post on Sokol earlier. Also, Munger didn't have Berkshire pay for the due diligence/short listing before he decided to buy. That is what Sokol did - Berkshire/subsidiaries paid Citi to short-list the candidates including LUZ, then Sokol decides to buy. In Munger's case, it was clearly the other way round. Sokol used the result of a corporate spending for personal/family benefit.

WEB was on the invitees before the senate committee reviewing this some time ago. One other gentleman was a farmer with a similar issue. WEB's suggestion after hearing the farmer was that payment of the tax can be deferred to a point where the farm is sold or ceases to be part of the family. Until that point in time, the estate tax due will show up as a liability. I thought it was a brilliant suggestion. For real estate, can't you 1031 into something more marketable/liquid and then use part of that to pay the taxes?

Let us set aside the scope of inside information for a moment. The services of Citi were/will be paid for by Berkshire or subsidiaries. Sokol used the services to gain personal benefit. Obviously we are not talking about taking a pencil from the office supply room to write a personal letter. Contrast this against the behavior of the exemplars like WEB who reimburses BRK for personal travel on company jet and personal phone calls. CTM's situation, put in this context, becomes very different. CTM didn't first hire an investment banker on behalf of BRK to short-list BYD. He did his due diligence either by himself or as speculated, through his associate, Li Liu. Then he took the idea to WEB/BRK. It passes all standards of conduct. To put in context, here are some of CTM's quotes about Sokol's type of rationalisation ""I'm used to people with very high IQs knowing how to recognize reality, but there's a huge human tendency where it may be instructive to think that whatever you're doing to succeed is all right. These people say to themselves: I need it and I want it, therefore I must have it....." "My favorite human misjudgment is self-serving bias: how the brain subconsciously will decide that what’s good for the holder of the brain is good for everyone else. If the little me wants it, why shouldn’t the little me have it? People go through life like this. I’ve underestimated this phenomenon all my life. People go bonkers taking care of their own self-interest." - both quotes taken from http://mungerisms.blogspot.com/ (lines in bold for emphasis) Secondly, when Sokol approaches Citi or any other IB and ask for a short list for acquisitions, he is holding himself out as an agent for BRK and subsidiaries. According to the English law, he is an agent by "holding out". I don't know if this particular English law is taken cognizance in the US jurisdiction or not. Applying it as a minimum standard of conduct, Sokol has "a duty to avoid conflict of interest between the interests of the principal and his own (that is, the agent cannot engage in conduct where stands to gain a benefit for himself to the detriment of the principal)." (http://en.wikipedia.org/wiki/Law_of_agency). Since the service is paid for by BRK/subsidiaries, arguably there is detriment to the principal (BRK/subsidiaries). Sokol should be out, no question about it. Whether WEB should have given a pat on the back on the way out or should have thrown him under the bus is really a question of culture. I could see a lot of other managements doing that; but not WEB. The press release makes adequate disclosure for informed shareholders to come to their own conclusions. (as we are in the course of doing here) That is all the fiduciary duty WEB owes. Whether there is insider trading or not, is not a matter that he need decide (I guess, this issue goes to the "too tough" pile). He has disclosed the holdings which he can reasonably expect to set off a process in motion to investigate a case for insider trading. Like I commented earlier, happy for WEB that Sokol is out.

My end assessment is I am happy for WEB. He wouldn't have wanted someone who worked for money than the fun of the job anyway. I just read Petey's earlier comment about CNBC asking questions about constellation and all - my last comment was before I read that.

I think for this to be insider trading, Sokol needs to have material non-public information and needs to act with the intent of profiting from that information. He needs to have been told by Warren that BRK is considering an offer. It's not enough that he spotted the value before Buffett did, invested, and then told Buffett. That's an ethical issue, not a legal issue. I believe an investigation would reveal that Sokol passes dozens of recommendations to Buffett and no action is taken. Therefore, just because Sokol will be making the recommendation that BRK acquire Lubrizol, doesn't mean that it will happen. In fact, the probability is quite low based on Sokol's 19/20 rejection rate metric. Where I think it would be insider trading is if Sokol has a history of buying shares in a company, making a recommendation, and then dumping them if Buffett passes on the reco. In this scenario, Sokol's intent appears to make excess profits through BRK's actions. If it is part of a pattern, then LUZ is definitely excusable. I would be interested to know if Sokol did the same thing with say, BNSF or other acquisitions in the past or other rejected acquisitions.

Ronald Barusch has an excellent analysis of the legality, corp governance aspects. http://blogs.wsj.com/deals/2011/03/30/dealpolitik-has-warren-buffett-lost-his-way/?mod=yahoo_hs Ethically and morally, it looks bad. I don't get Sokol's thinking behind it at all. If I were him, I would have run it by Munger. The reasons mentioned in the letter make sense about Middleburg fin. stake though.

Hamburgers in India!!!! Teenagers and youth are crazy about McDonalds there. About five years ago, I flew from DC to Delhi to see a prospective bride and all she wanted to do was take me to a McD (as she called it). (Please don't ask me about the outcome of that visit - rejection sucks in any language). It has in fact gotten better these days. These days even a B city like Kochi has at least a subway and a few pizza delivery places. Bottom line, burgers are no big deal.

http://economictimes.indiatimes.com/articleshow/7777447.cms?prtpage=1

"At any given time the current politicians are never so bad that if you live long you won't want to see them come back and replace the current crew. " is what Charlie was trying to say I think.

ValueCarl - There is a mention of this incident in Andrew Kilpatrick's OPV. Could it be from there? That's the first place I remember seeing this incident reported. (Mine is 2006 edition).

Outstanding Investors Digest has some good coverage from late 80s and 90s in their website.

On November 3, 2009, Berkshire also announced that its Board of Directors approved a 50-for-1 split of its Class B Common Stock. The stock split is subject to the approval of Berkshire’s shareholders who must approve an amendment to Berkshire’s certificate of incorporation to increase Berkshire’s total number of authorized shares of common stock. Berkshire’s Class A Common Stock is not being split. - 10Q (Page 2120)

I just posted my notes from Wesco at seshnath.blogspot.com.

Michael Lewis was one of the speakers at the CFA Conference this year at Orlando. This was my first time listening to him in person - his biases came out in the open while discussing the current economic situation and political solutions. (I guess, it may be due to the absence of someone to edit the words). Having said that, I am looking forward to his next book that he plans to write on AIG. As an end note - did anyone see the "AIG, I quit" letter from one of the AIG-FP employees - I believe it was in International Herald Tribune? It seems, Lewis had a role to play in publishing it. - Nathan

I just posted my notes at http seshnath dot blogspot dot com - Nathan