Alice Schroeder's Scathing Take On Lubri-Gate

Tyler Durden's picture

Alice Schroeder, who once upon a time was the current "Becky Quicky" of Buffett's inner circle (although to her not so great loss not allowed in the inner sanctum of the NetJets mile high club) until she turned rogue on the billionaire and wrote something not quite so flattering about the Octogenarian of Omaha, whose bubble of unparalleled hypocrisy has just popped, has now burned every last bridge to the annual borg collective meeting at Borsheims, writing the most scathing narrative of the revalations from the last 24 hours. Oh well, we can only advise Buffett and his sidekick Munger to suck it up, now that the dirty laundry of America's dream wealth creator is exposed for all to see.

From Bloomberg

Buffett Misses Chance to Show Moral Courage

What were they thinking? How could Warren Buffett excuse David Sokol’s trading in Lubrizol Corp. (LZ) stock while Sokol was pitching the company to Berkshire Hathaway Inc. (BRK/A) as an acquisition candidate?

Buffett and Sokol both say that nothing “unlawful” was going on (Sokol even went so far as to tell CNBC he did nothing inappropriate). Their explanation is that, because a deal with Lubrizol hadn’t actually been struck and wasn’t likely when Sokol bought his shares, it was all right for Sokol to profit from his knowledge of a possible deal.

On Wall Street, we call this kind of trading front-running, and everybody knows that it is wrong. People get fired for doing it. Sokol said that he is leaving Berkshire to pursue other business interests, and the timing is linked to Berkshire’s April 30 annual shareholder meeting, which is attended by tens of thousands of people. That’s probably true, in a sense. Buffett must want this mess cleared up and out of the way before he has to take questions from shareholders.

Buffett gave out a few facts in his press release yesterday, but the Schedule 14A filed with the Securities and Exchange Commission by Lubrizol fills in the damning pieces. After deciding to pursue Lubrizol as an acquisition candidate for Berkshire in the fall of 2010, Sokol tried to buy 50,000 shares on Dec. 13, the day he presented Berkshire’s possible interest to Citigroup Inc. and asked it to set up a meeting with Lubrizol’s management. He was able to acquire only 2,300 shares, and sold them a week later.
Sokol’s Purchase

On Jan. 5, the day before Lubrizol’s management held a special meeting to discuss a possible sale to Berkshire, Sokol began to buy stock again. The following day, Lubrizol hired Evercore Partners Inc. (EVR) as its banker to respond to the potential interest of Berkshire. By Jan. 7, Sokol had purchased 96,400 out of a targeted 100,000 Lubrizol shares.

It strains credulity to claim these dates were coincidental and that Sokol had only a 5 percent belief (as he has stated) that Berkshire would buy Lubrizol. Sokol covered his bases by casually mentioning to Buffett that he owned stock when he pitched the acquisition in December. He gave no details and apparently kept quiet for almost three months, until after the Berkshire board had sealed the deal on March 13.

When Berkshire announced it was buying Lubrizol, the stock soared and Sokol pocketed a $3 million profit. It’s a large sum, but Sokol is a very rich man already, and it looks like he fell into the classic trap of the rich and powerful, who so often blow their reputation over trivia.

Misleading by Omission

With hindsight, Lubrizol’s SEC filing may be misleading by omission -- inadvertently so. Nowhere is Sokol’s financial interest mentioned in the catalog of events leading up to the deal. The relevant section of the filing says, in short, that neither Berkshire nor any of its subsidiaries (other than its externally managed pension funds) directly or indirectly owned a material amount of Lubrizol stock within the past three years.

Sokol may not technically fit into the definitions of this section, but it highlights the importance of disclosing positions in acquired stock by interested parties who could profit from the deal and that are material. In this light, you have to wonder what Lubrizol management thinks today about its dealings with Sokol.

Not surprisingly, according to the Financial Times, the SEC is now beginning an investigation. Presumably, it will look into whether there are similar patterns of trading in advance of other acquisition pitches by Sokol to Berkshire, whether consummated or not. One specific transaction that has piqued the curiosity of onlookers for months is Sokol’s purchases of shares of Middleburg Financial Corp. (MBRG) since 2010. And even if the SEC concludes that Sokol did nothing illegal, the known facts suggest that what Sokol did was wrong.

Lottery Tickets

In substance, when Sokol pitched the deal to Buffett, he was holding stock in Lubrizol that had the equivalent of free lottery tickets attached. These 96,400 lottery tickets gave Sokol unfair odds -- odds far better than in the kind of lottery the general public gets to play.

It would be inexcusable for the chief executive officer of Berkshire Hathaway to front-run a potential acquisition this way. Why then, couldn’t the CEO of Berkshire admit it is inexcusable for one of his own senior managers to do so? Instead of condemning Sokol, Buffett gave him a pat on the back on the way out the door. Since when is it enough to merely uphold the letter of the law, especially at Berkshire? Whatever happened to Buffett’s famous saying, “Lose money and I will forgive you, but lose even a shred of reputation and I will be ruthless”?

It’s too bad that Buffett missed an opportunity to show moral courage, stand up for principle, reinforce to his employees what he expects from them, and, not least of all, to live up to his own public reputation.

Editor’s note: Alice Schroeder has been subpoenaed by Berkshire subsidiary NetJets seeking confidential information related to her news sources for other publications. The matter is being heard in Connecticut state court.

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redpill's picture

Takes some guts.  I'm so tired of people riding Buffett's nuts.  I want like hell to short his piece of shit company.


long juan silver's picture

His long term on Moody's looking DIE-NO-MITE!!!

nope-1004's picture

I'm so tired of people riding Buffett's nuts

Buffet claims he is good at what he does because he has some sort of "knack" for it.  Well, timing is where the knack is.

He started his investing during post war times where, for the last 50 years, we've seen nothing but fractional reserve profits.

What if he were to start today, as a 20-something with the same knack?  Could he do it?  I say no.  The world has changed.  He was born into a time that made him, not the other way around.

I think he's done and should step aside.  He also is obviously unaware of where the ethical line is, so for that, I will never listen to him or care what he as to say again.

He's another bankster.



Thomas's picture

In 1992, Michael Lewis put a bat to Saint Warren's wrinkly ass...

The absurdity is that Sokol's net worth is probably huge in comparison with his profits from this sleazy move.

rich_wicks's picture

The absurdity is that Sokol's net worth is probably huge in comparison with his profits from this sleazy move.

Possibly, the question you should be asking is how many sleazy moves has Sokol made?  That might be the primary source of his large net worth.

Sokol has shown himself to be a scumbag.  What makes you think this is his FIRST traversal into a lack of ethics?

reader2010's picture

Remember his strong backing of candidate Obummer back in 2008? I knew he is full of shit because he was planning to let the taxpayers bail out AIG so that his reinsurance profits would never get a hit. I say he is just another Wall Street criminal.

strannick's picture


Buffet said the adage 'behind every great fortune is a crime' doesnt apply to Berkshire. Maybe he wasnt being straightforward.

Imminent Crucible's picture

"behind every great fortune is a crime" is certainly not true of Uncle Warren.

As Long Juan notes below, in Warren's case it's "behind my fortune is a long list of crimes".

I would add the 130 million ounce iShares silver switcheroo to the list.

LibertyIn2010's picture

Buffet symbolizes the good ol' USA.

Take away the corporate propaganda machine (mainstream media) and behind the larger than life legend he's just another elitist who proves they don't play by the same rules that we're all expected to play by.

long juan silver's picture

Buffetts greasy fingers are all over the 2008-2009 blow out:

MCO (Moodys)
MTB(M$T Bank)
USB (USBancorp)
The largest private insurance portfolio in the world.

The whinings pleas:
The crying plea for govt bailouts and then when the market got whoopassed:
the famous plea for Americans to Buy, Buy, Buy
---3 months early

The courious politics:
Having an a-political history and nature, Buffett surprises the world with a much trumpeted endorsement of Obama. Where did this come from?(Did I mention his GE position? The Washington Post and Gannett positions?)

The 45 billion cash position as/of late 2008:
You could make a case that he created the blowout in order to buy cheap.

Warren buffet is a thief in my view and If he don't like it I'll give him my address and see if he's man enough to come over.

We dont drink soda either.

wisefool's picture

Caffinated soda is bad. If you want to admit you drank diet soda, then you probably should not have a secretary in the 35% tax bracket.

And no, WB could not beat you at checkers, much less show up at your house for fisticuffs.

TPTB! Opening Day. Go MLB.

wawawiwaa's picture

He would trounce (spelling) just about everybody.

wawawiwaa's picture

Some peops may be missing the point. The issue has nothing to do w/ Berkshire. The issue has to do w/ the fact that SOKOL was talking to Lubrizol management. About what? Suppossedly "culture and policies" that I find hard to believe. Culture and policies, that is a bunch of BULL@#$%^&*(). If ones follows the "mosaic" method of investing it would be interesting to find out why so many peops lost so much money on the LZ CDS trade. Answer... cause people expected an LBO..... why? Conversations about culture and policy with management I bet. And putting two and two together here is the most likely scenario.... SOKOL was told by management "We are thinking of taking this sucker private. Sokol buys some and tells Warren. Warren says screw that. I'll just buy it. 

And that is how the "mosaic" method of investing works.. See how it all fits nicely together?

Atomizer's picture

Snowballed sequel edition

buzzsaw99's picture

Buffett is getting front-run on every deal these days.

OutLookingIn's picture


My, oh my, oh my! Hand in jam jar as the camera goes off!

"What jam he exclaimed?" Standing there with it dripping off his chin!

When asked again he responded, "I didn't know it was jam." Ya right.

Ruffcut's picture

Buffy the asswipe slayer, likes the buy of coke.

NOt the coke drink, the stuff that snookie snoots.

To be considered elite, and such a shill of propaganda. What a another ameerika embareassment.

oogs66's picture

On cnbc, not a single question about average stock holding size? Is this a big position even for him? How many other stocks did he even own? They did ask a bit about past names which he half dodged. Maybe tomorrow Raj Raj can be guest host of squak.

buzzsaw99's picture

I wonder if the Lloyd Thy Blankfein testified under oath at that trial or if the judge allowed him an "informal chat"? I would love to ask Gollum a few questions under oath.

web bot's picture

No... he was allowed an informal oath.

wisefool's picture

It was only 2900 shares in a sea of trillians.

RobotTrader's picture

Looks like she pretty much shut the door on Warren.

No more "cheap feels" on the NetJets flights.

Internet Tough Guy's picture

Crude oil pole-axed on inventory "glut"
RobotTrader - Wed, Mar 30, 2011 - 10:34 AM

Once again, the Peak Oilers were foiled again.

Looks like the long specs are finally running for the hills.

RobotTrader's picture

Like I said yesterday, commodities were destroyed early on, but there was no follow through.

So bears needed to take note and be ready for another leg up in commodities and stocks today.

Gotta be quick on your feet, man....LOL....

That Peak Oil Guy's picture

Riiight... Because the concept of peak oil is invalidated by short-term market volatility.


Bastiat's picture

Right now I'm seeing WTIC at $107.44  -- not looking too "poleaxed" to me.

Hephasteus's picture

Hard for some to tell the difference between a glaive and a nave.

TexDenim's picture

Becky and Warren deserve one another. They can watch Leave It To Beaver re-runs till the cows come home.

cosmictrainwreck's picture

those are on TV-Land channel, right?

DoChenRollingBearing's picture

Years ago, long before ZH, I decided to try and make some money ¨the easy way¨.  I went and bought some Berkshire B at $4800.  I got antsy at $7200 and so cashed it in.  This was in the days, you know, that Buffett was considered such a hero and Oracle.

I am very glad I got out when I did.  And it is really too bad that he turned out to be yet another moocher.


Too bad he just took out perhaps the best railroad, BNSF...  Anyone care to comment on the best railroad to buy now?  For buy and hold (if that still works anymore).  Anyone?

bob_dabolina's picture

The one that takes out George Soros. I'll buy that one.

DoChenRollingBearing's picture

Only in our minds, only in our minds...

Dagny Taggart's picture

No trains ran after the looters destroyed the Taggart Tunnel.

Ben Fleeced's picture

He was raised a moocher by his father, Sen. Howard.

One_Eyed_Pony's picture

Reading Railroad... It was my favorite on the MONOPOLY game, plus they use the same money as the FEDERAL RESERVE (counterfeited toilet paper).



long juan silver's picture

So if Alice Schroeder is Buffet's Ida Tarbell, is Becky Quick (not with me pal) his Ruby Rubacuori?

Jay Gould Esq.'s picture

Karima el-Quick.



Cdad's picture

Buffett and Sokol both say that nothing “unlawful” was going on

Just like true criminal syndicate Wall Street banker members...if you simply say it, it is true.  Never mind about laws, the SEC, the people you rip off, ethics...nothing.  Just say nothing happened...and then nothing will have happened.

No longer a nation of laws, bitchez!!



long juan silver's picture

If you did that off the desk at a BD you'd be BARRED FOR LIFE!!

Rockfish's picture

Buffet knew Sokol had bought shares, that is SOP at The Berk. No foul.

Quinvarius's picture

Actually it makes Buffet look bad too.  Two fouls.  Buffet's lax attitude indicates it was commonplace to front run shareholder money.

Slicyman's picture

Couple of observations having worked on Wall Street for 20 yrs: 1) I would be fired for doing what Sokol did and it would only take a minute to do. 2) His comments point to more of a interest in his own personal investment interests vs Berkshire by saying if I liked Lubrizol so much and I couldn't take a personal interest then I wouldn't take it to Warren. Huh? Isn't he a fiduciary for Berkshire shareholders first. Why doesn't Warrne have a interest in commenting on that. And  Munger held a 3% stake in BYD before bringing it to Warren? Sounds like Berkshire is the Omaaha version of SAC.

cossack55's picture

Don't you mean FEDuciary?

Widowmaker's picture

The excuses by the mobster from omaha and his filthy scum executives is the sad old adage:  It's okay if everyone does it, which many, many people view as true.

Every person i know in the finance biz does this shit (fronting trades on inside information), and does it as often as they can get their greedy hands on easy money.

My other favorite adage used by the filthy is justifying filthy behavior by pointing at worse.

These guys need handcuffs, and so does everyone who touches their scum stock.