David Sokol’s lawyer says Warren Buffett lied or mis-remembered the facts: David Sokol told Buffett twice that he was invested in Lubrizol.
(Background: David Sokol, a Berkshire Hathaway senior exec, recommended to Buffett that Berkshire buy Lubrizol while owning the stock, an obvious conflict of interest.)
Buffett of course says that Sokol told him once in a “passing remark” that he was invested in Lubrizol.
The big questions now are, is Sokol’s lawyer telling the truth? And if so, when was the second time Sokol told Buffett and what did he say?
Sokol’s lawyer only tells us that “David Sokol told Buffett twice, not once“ in the statement issued moments ago.
Sokol’s lawyer issued the statement in response to the huge report Berkshire Hathaway released on David Sokol earlier today. Bershire’s report threw Sokol under the bus because it had to insulate Buffett.
Not everyone was putting 100% of the blame on Sokol. People wanted to know, why didn’t Buffett ask for more information when Sokol told him that he owned Lubrizol? So Berkshire’s big report set out to insulate Buffett and answer one big question: what did Buffett know, and when?
According to the report, not enough, because Sokol deceived Warren Buffett.
When the Lubrizol issue first came to light, Buffet said immediately that Sokol told him in a “passing remark” that he owned Lubrizol stock, and that Buffett had known about Sokol’s stock purchase before he made the decision to call Roger Altman of Evercore, Lubrizol’s investment banking advisor, to discuss Berkshire’s buying the company.
The extent of Buffett’s knowledge remained a question mark, until Berkshire’s attempt to settle the matter today.
Today’s report made it clear that Buffett found out that David Sokol owned Lubrizol stock during the same conversation in which Sokol proposed Berkshire’s buying Lubrizol. Sokol’s remark during the conversation was “deceptively incomplete,” said Berkshire.
Sokol’s lawyer’s statement might have damaged the credibility of the Berkshire report.
I am profoundly disappointed that the Audit Committee of Berkshire Hathaway would authorise the issuance of its report to the public without the care and decency to ask even a single question of Mr. Sokol. Mr. Sokol had been associated with the Berkshire Hathaway companies for 11 years. During this time, his indefatigable efforts helped create enormous value for the Berkshire shareholders. He deserved better. While I take issue with much of the Committee’s report, I briefly make the following points. If the Audit Committee had asked, it would have learned that:
Mr. Sokol had been studying Lubrizol for personal investment since the summer of 2010; such investments are specifically allowed by his employment agreement.
Mr. Buffett was told twice, not once, about Mr. Sokol’s ownership of Lubrizol stock before Mr. Buffett engaged in any discussions with Lubrizol.
Contrary to the Audit Committee’s statement, Mr. Sokol’s Lubrizol shares were not acquired pursuant to a “100,000 limit order.” Rather, they were purchased as a result of several limit orders, over a period of days, at specified prices, for the day only, in order to acquire the stock at low prices. At that time, Mr. Sokol had no reason to anticipate that Mr. Buffett would have any interest whatsoever in Lubrizol.
I have known Mr. Sokol and have represented his companies in business litigation since the mid 1980s. I know him to be a man of uncommon rectitude and probity. He would not, and did not, trade improperly, nor did he violate any fair reading of the Berkshire Hathaway policies.