alwaysinvert Posted March 31, 2011 Share Posted March 31, 2011 A clear case of insider trading in my layman opinion. Sokol buys stocks very shortly before he brings up to case to Buffett (an action he well knows is positive expected value for his position in Lubrizol). That is both insider knowledge about the stock and acting upon it. The real question is rather why Buffett didn't force Sokol to sell before the deal went official. Link to comment Share on other sites More sharing options...
maxprogram Posted March 31, 2011 Share Posted March 31, 2011 Sure doesn't seem like insider trading to me. Just the same as if Berkshire itself loaded up on stock, then made an offer. However, regardless of legality, it does look bad on the surface which is obviously why Buffett felt he should come out with it up front. Also maybe behind the scenes Sokol may have been less than up front about it to Buffett -- if he had kept Buffett up to date about his purchases/position, I don't see how this could come up as a problem now. Li Lu owned a lot of BYD stock before Berkshire announce the 10% position (which rocketed the stock up) and that wasn't a problem. Link to comment Share on other sites More sharing options...
alertmeipp Posted March 31, 2011 Share Posted March 31, 2011 So if I bot some stocks and then post a message on this board about it to tell other ppl to buy it too. Is that insider trade? He wasn't really an "insider" when he bot the stock, right? Link to comment Share on other sites More sharing options...
bluedevil Posted March 31, 2011 Share Posted March 31, 2011 Im pretty sure it is not insider trading because he is not an insider. it is standard practice for hostile acquirers for example to buy a toehold in a target (up to sec disclosure limits of around 5%) before actually going hostile, thereby paying a cheaper price for the first 5% stake. Link to comment Share on other sites More sharing options...
bookie71 Posted March 31, 2011 Share Posted March 31, 2011 The old saying, "if it quacks like a duck, walks like a duck...then it must be a duck." This just shows poor judgement and will hurt both BRK and Sokol as he was very talented. I'm sure it was a momentary lapse and like many things had unintended consequences. Link to comment Share on other sites More sharing options...
gregtx81 Posted March 31, 2011 Share Posted March 31, 2011 While this is a rather shocking happening, I had really cooled to the idea that Sokol was the front runner to succeed Buffett. Particularly after the WSJ profile of him that ran around the time of the 2009 Shareholders Letter release which was replete with Attila the Hun references in regard to his management philosophy as well as his fondness for ruminating over whom of his subordinates he would fire first. That was not exactly, to put it mildly, the type of thinking that's within the mold of the Berkshire culture. Additional yellow flags, imo, were his heavy handed-dealings at NetJets (as extensively chronicled on Alice Schroeder's blog) and the fact that he was, as far as I can ascertain (could be wrong), quietly demoted at MidAmerican (given a ceremonial title) and replaced by Greg Abel. Link to comment Share on other sites More sharing options...
Liberty Posted March 31, 2011 Share Posted March 31, 2011 the fact that he was, as far as I can ascertain (could be wrong), quietly demoted at MidAmerican (given a ceremonial title) and replaced by Greg Abel. Anyone has more info on this? At first glance I would say that this happened because he was spending so much time fixing other companies and flying around the world looking for deals. Now that we know how this story ends, we must be careful about retroactively seeing red flags that maybe weren't really there but that would fit the conclusion nicely. I'm not saying this is one of those, but I'd like more evidence to make up my mind either way. Link to comment Share on other sites More sharing options...
seshnath Posted March 31, 2011 Share Posted March 31, 2011 This is like watching Star Wars - Revenge of the Sith and hearing Obi-Wan Kenobi said, "But you are the Chosen One, Anakin!" Very sad to see it happen to a talented guy like Sokol... I wish him well at Middleburg and philanthropy. 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. Link to comment Share on other sites More sharing options...
Rabbitisrich Posted March 31, 2011 Share Posted March 31, 2011 While this is a rather shocking happening, I had really cooled to the idea that Sokol was the front runner to succeed Buffett. Particularly after the WSJ profile of him that ran around the time of the 2009 Shareholders Letter release which was replete with Attila the Hun references in regard to his management philosophy as well as his fondness for ruminating over whom of his subordinates he would fire first. That was not exactly, to put it mildly, the type of thinking that's within the mold of the Berkshire culture. Additional yellow flags, imo, were his heavy handed-dealings at NetJets (as extensively chronicled on Alice Schroeder's blog) and the fact that he was, as far as I can ascertain (could be wrong), quietly demoted at MidAmerican (given a ceremonial title) and replaced by Greg Abel. That would imply that MidAmerican is somehow the crown of the Berkshire empire, which does not seem to be the case from an operating income and growth rate perspective. The Schroeder coverage represented nothing more than hearsay from ex-employees, recently let go or otherwise marginalized in the turnaround, and from an anonymous source in the comments section. Link to comment Share on other sites More sharing options...
Ballinvarosig Investors Posted March 31, 2011 Share Posted March 31, 2011 Im pretty sure it is not insider trading because he is not an insider. I am not so sure. Citigroup presented Lubrizol to Sokol last Autumn as being on the block. Sokol used this information, that was not public knowledge, to acquire stock. That seems pretty open and shut to me. I do agree, that Sokol's position in the company was untenable and if he hadn't left by choice, he would have been pushed. Some questions that this throws up. 1. Sokol still owns 6.2% of Mid-American energy. Will Buffet buy him out, or will he cut the cord to Berkshire himself? 2. Middleburg financial have just served notice for their AGM. Sokol's name isn't currently on any of the proxy documents. If he is going it alone with Middleburg, he would want to be throwing his name into the hat fairly soon. Link to comment Share on other sites More sharing options...
rijk Posted March 31, 2011 Share Posted March 31, 2011 i sold my shares in MBRG last year when i discovered the family link with the CEO without any disclosure..... could this derail the LZ transaction? the merger premium is less than 20%, what if some large shareholders believe that LZ is worth more? regards rijk Link to comment Share on other sites More sharing options...
Parsad Posted March 31, 2011 Share Posted March 31, 2011 This interview isn't actually making things better, but worse! He doesn't see any impropriety, and I'm pretty sure he never meant to do anything irregular...the problem is that sometimes treading anywhere near the line, just isn't good enough, and this certainly has something to do with Warren's comments in the press release. I'm quite surprised by how intense the questioning was by Becky Quick and dumb-dumb Joe Kiernan. This is definitely going to change the way executives at Berkshire go about investing their own private portfolios. I suspect you either own Berkshire shares and T-bills, or you work elsewhere...no in between...or alternatively you don't buy stock in anything Berkshire may be interested or you divest immediately after taking the idea to Buffett. He ended the interview with the wrong answer by saying if he had to do it again, he just wouldn't have mentioned it to Berkshire, since no company has the ability to properly police it's employees family investments. Sokol also mentioned that Munger owned 3% of BYD before Berkshire acquired it, but I suspect Munger had his shares much longer. The problem wasn't so much that Sokol owned shares in Lubrizol, but the fact he acquired the substantial stake so close to the acquisition announcement. Cheers! Link to comment Share on other sites More sharing options...
Guest Bronco Posted March 31, 2011 Share Posted March 31, 2011 I surprised he wasn't told to sell the shares before Berkshire made their offer. Then this would be put to bed. In the big scheme, this will fade away. Link to comment Share on other sites More sharing options...
Buffetteer Posted March 31, 2011 Share Posted March 31, 2011 He ended the interview with the wrong answer by saying if he had to do it again, he just wouldn't have mentioned it to Berkshire I thought the same thing. A couple of times during the interview he mentioned that he told Warren about the shares, almost as though he was shirking responsibility for what he did. The timing is too coincidental. He resigns right after this is made public and Mr. Buffett doesn't try to talk him out of it this time. I'm very surprised at how this is being handled. Link to comment Share on other sites More sharing options...
twacowfca Posted March 31, 2011 Share Posted March 31, 2011 Im pretty sure it is not insider trading because he is not an insider. I am not so sure. Citigroup presented Lubrizol to Sokol last Autumn as being on the block. Sokol used this information, that was not public knowledge, to acquire stock. That seems pretty open and shut to me. I do agree, that Sokol's position in the company was untenable and if he hadn't left by choice, he would have been pushed. Some questions that this throws up. 1. Sokol still owns 6.2% of Mid-American energy. Will Buffet buy him out, or will he cut the cord to Berkshire himself? 2. Middleburg financial have just served notice for their AGM. Sokol's name isn't currently on any of the proxy documents. If he is going it alone with Middleburg, he would want to be throwing his name into the hat fairly soon. I agree. If one has material information about a publically traded company from a private source that is not potentially available to the public, one is an insider. However, trading on speculation about what might happen is not a clear violation of insider trading rules, especially as Warren was skeptical about the deal immediately after Sokol's purchases. :) Link to comment Share on other sites More sharing options...
NumquamPerdo Posted March 31, 2011 Share Posted March 31, 2011 I think this does speak to how hard it is going to be to replace Warren & Charlie. Top tier investment managers would be better off managing their own money or building smaller versions of BRK on their own. Link to comment Share on other sites More sharing options...
Guest ValueCarl Posted March 31, 2011 Share Posted March 31, 2011 Hmm. If he said this, and I am a regulator watching, I would wrestle him on the mat looking for the PIN! That's a bit arrogant and self-serving to say the least. I guess some people begin to believe the MYTHS which are placed upon their heads. imo <He ended the interview with the wrong answer by saying if he had to do it again, he just wouldn't have mentioned it to Berkshire, since no company has the ability to properly police it's employees family investments.> Link to comment Share on other sites More sharing options...
S2S Posted March 31, 2011 Share Posted March 31, 2011 This is definitely going to change the way executives at Berkshire go about investing their own private portfolios. I suspect you either own Berkshire shares and T-bills, or you work elsewhere...no in between...or alternatively you don't buy stock in anything Berkshire may be interested or you divest immediately after taking the idea to Buffett. That'd be consistent with compliance policies at many other investment companies and banks. Unfortunately it would significantly dampen the incentives for great talent to join Berkshire ranks as well. Link to comment Share on other sites More sharing options...
merkhet Posted March 31, 2011 Share Posted March 31, 2011 Sokol also mentioned that Munger owned 3% of BYD before Berkshire acquired it, but I suspect Munger had his shares much longer. Sanjeev, Any idea whether Munger owned his 3% through his own account or through his investment in Li Lu? If Munger held his shares through Li Lu or even picked up shares near when Li Lu first started picking them up, then he would definitely have had them for a few years before Berkshire had even heard of the company. Link to comment Share on other sites More sharing options...
Guest ValueCarl Posted March 31, 2011 Share Posted March 31, 2011 Sanjeev, Tilson must be having a field day scooping up all those BRK shares at a 1.5 percent discount during the course of this trading day. He's using all the CAPITAL SAVED from getting his head out of his arse, and having it handed to him from that NETFLIX short he was wise enough to close! I am not typically one who likes to exhibit schadenfreude except in rare cases. On the other hand, his pompous, preppy arrogance is one character type I wouldn't have minded gaining joy from by witnessing his failure! :-X Link to comment Share on other sites More sharing options...
Parsad Posted March 31, 2011 Share Posted March 31, 2011 I think this does speak to how hard it is going to be to replace Warren & Charlie. Top tier investment managers would be better off managing their own money or building smaller versions of BRK on their own. The easiest way would be to just buy Fairfax or Markel. Done deal...you have successors that not only live and breathe Berkshire's culture and understand it's insurance business, but are damn good at it and would never screw over Berkshire shareholders. Plus, they all also follow the rule about not doing anything that you wouldn't want seen in the papers the next day! Then again, I doubt if any of them would ever take the job. Cheers! Link to comment Share on other sites More sharing options...
Myth465 Posted April 2, 2011 Share Posted April 2, 2011 Interesting take. Based on this he may have had inside info. http://www.gurufocus.com/news.php?id=127910 Link to comment Share on other sites More sharing options...
given2invest Posted April 6, 2011 Share Posted April 6, 2011 http://online.wsj.com/article/SB10001424052748703806304576245271170720328.html?mod=WSJ_hp_LEFTWhatsNewsCollection Warren Buffett warned Berkshire Hathaway Inc.'s top employees last year against trading in shares of companies in which Berkshire might invest—the very issue that now is dogging the conglomerate. His memo, "'Insider' Trading Policies and Procedures," sent last May and in place for more than 10 years, could turn up the heat on Mr. Buffett regarding recent trading by his top lieutenant David Sokol. However, the memo bars certain Berkshire officials from trading in public companies "that may be involved in a significant transaction with Berkshire," including those "in which Berkshire has invested or may in the future invest." Link to comment Share on other sites More sharing options...
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