The Berkshire Hathaway report into David Sokol’s actions over Lubrizol shows that he deliberately deceived his boss, and even tried at one point to let Buffett think a Citi banker had lied about who approached who first over the acquisition.A Lubrizol proxy filing already showed that it was Citi bankers who presented Sokol with Lubrizol as a potential acquisition target, and that Sokol didn’t approach them.
That distinction is a major part of why Berkshire thinks Sokol not only violated company insider trading policy, but also deliberately deceived Buffett.
As a reminder: Sokol had told Buffett in “a passing remark” that he owned some Lubrizol shares in the lead up to the acquisition.
But the Berkshire report released on Wednesday shows that Sokol failed to admit to Buffett that he’d actually come to buy those shares because of meetings he’d had with Citi bankers over Berkshire acquisition plans, not prior to any discussions of a merger.
See, according to the report, on the morning of March 14 this year, Berkshire and Lubrizol announced the merger and a Citi banker with whom Berkshire had worked, congratulated Buffett on the deal. That banker also mentioned to Buffett that it was the bank’s representatives that “had brought Lubrizol to Mr. Sokol’s attention.”
Buffett Put On Guard
That March 14 conversation “was the first time” Buffett was made aware that “investment bankers played any role in introducing Lubrizol to Mr. Sokol,” according to Berkshire’s findings. And that scenario “did not square with Mr. Sokol’s remark in January that he had come to know Lubrizol by owning the stock.”
So Buffett decided to do some investigating.
According to the report, Buffett asked Berkshire’s CFO Marc Hamburg, to call Sokol on March 15 to ask about the “details of his Lubrizol stockholdings.” Sokol “provided the dates and amounts of his Lubrizol purchases.”
Then, according to the report,
Mr. Hamburg also asked about Citi’s role in introducing Mr. Sokol to Lubrizol. Mr. Sokol answered that he thought he had called a banker he knew at Citi to get Mr. Hambrick’s phone number.
When Mr. Hamburg commented that it sounded as if the banker must have exaggerated his role when he spoke with his colleagues, Mr. Sokol did not contradict him.
Of course we know both from official Lubrizol and Citi reports that the Citi banker was not exaggerating at all: it was Citi who approached Sokol about Lubrizol, not the other way around.
The report therefore found that:
Mr. Sokol’s answer to Berkshire Hathaway’s CFO, Mr. Hamburg, concerning the investment bankers similarly fell short of the degree of candor required of a corporate fiduciary, and suggests his answer to Mr. Buffett’s earlier inquiry noted above was intended to deceive.