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Shareholder Sues Berkshire, Buffett And Sokol (And Munger) Over Alleged Lubrizol Frontrunning

Tyler Durden's picture




 

Despite attempts by virtually everyone to bury the Sokol alleged frontrunning scandal due to the ongoing embarrassment it presents to some of the most revered "institutions" within America's crony capitalist system, it just refuses to do so. The latest development comes from Delaware Chancery Court, where we find that Mason Kirby, a shareholder of Berkshire has just sued Berkshire Hathaway and Warren Buffett, David Sokol among other BRK directors, over the purported frontrunning Lubrizol frontrunning by David Sokol. As summarized in the pleading, the complaint is no surprise: "David L Sokol (“Sokol”), a former Berkshire employee and key lieutenant to Warren E. Buffett (“Buffett”), Berkshire CEO, used his position of influence to profit for himself at the expense of Berkshire. As a result of Sokol’s unethical behavior Berkshire suffered significant reputational losses and other damages....Buffett and Sokol, working in concert, breached their duties to Berkshire and its shareholders through these actions and put the Company at risk for a potential adverse SEC action and negative credit rating – events which would be detrimental to the Company. Once the Sokol trades were disclosed, and Sokol resigned from Berkshire, Berkshire’s stock price fell. This immediate stock drop evidences the reputational impairment that Berkshire took as a result of this conduct." As a result of this alleged breach, the plaintiff is suing the Berkshire Board who "violated and breached their fiduciary duties of care, loyalty, reasonable inquiry, oversight, and supervision." Kirby also "seeks restitution from Sokol, and seeks an order of this Court directing disgorgment of all profits, benefits and other compensation obtained by Sokol from Berkshire, including any profit he  made or will make in relation to his Lurizol holdings, based on his wrongful conduct and fiduciary breaches."

While it is admirable for someone to believe that the legal standard in America is equal for both normal people and multi-billionaire, we are confident this lawsuit will be burried shortly (and absolutely nothing will come out of any SEC investigation into BRK). Regardless, Kirby does bring up a valid point, indicating that Sokol most certainly acted in breach of Berkshire's Insiders' Trading Policies and Procedures, which states:

It is important to understand that this restriction applies not only to material nonpublic information relevant to securities issued by Berkshire Hathaway Inc. but also to material nonpublic information relevant to any other publicly-traded securities. This latter category would include securities of other public companies in which Berkshire has invested or may in the future invest. (emphasis added)

***

For purposes of this policy, material information is defined as any information that a reasonable investor would consider important in making a decision to buy, hold or sell securities. In short, it includes any information that could be expected to effect (sic) the price of securities. All actual and anticipated securities transactions of Berkshire and its subsidiaries that have not been publicly disclosed should be considered material.

Other public companies to which this prohibition is applicable include those that may be involved in a significant transaction with Berkshire as well as those for which Berkshire may have access to material nonpublic information through Berkshire’s status as a significant investor or through participation by Berkshire personnel on the board of directors. (Emphasis added.)

***

If a Director or Covered Employee is aware that Berkshire has taken or altered a position in a public company’s securities or that Berkshire is actively considering such action, trading in any securities of such public company by such Director or Covered Employee or any of his or her Family Members is expressly prohibited prior to the public disclosure by Berkshire of its actions with respect to such public company’s securities (or until the Director or Covered Employee becomes aware that Berkshire did not take and is no longer actively considering such action). (Emphasis added.)

The preceding leads the lawsuit to conclude:

Sokol was trading based on material information as defined by Berkshire, as an average investor would consider Sokol meeting with Lubrizol about a transaction with Berkshire, and Lubrizol meeting to consider that transaction, material  information. Sokol knew Berkshire “may be involved in a significant transaction” with Lubrizol and traded based on that information. This is precisely the type of trade that is “expressly prohibited” by the Policy.

Of course it is. But, alas poor Mason, the "prohibition" refers to ordinary people like you, and not to such titans of moral unturpitude as Buffett and his even older henchman.

That said: best of luck. You will need it in attempting to extract justice in this corrupt system.

kirby v sokol

 

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Tue, 04/19/2011 - 13:55 | 1184863 knukles
knukles's picture

LOL

Tue, 04/19/2011 - 14:08 | 1184912 Ahmeexnal
Ahmeexnal's picture

Mr. Mason Kirby is about to suffer an "accident".

Tue, 04/19/2011 - 14:20 | 1184949 nope-1004
nope-1004's picture

Further proof that "the root of all evil" can affect even the worlds' largest philanthropist.

 

 

Tue, 04/19/2011 - 14:30 | 1185005 egdeh orez
egdeh orez's picture

I can't believe no one has said this yet:

Suck it up, boys!

Tue, 04/19/2011 - 14:36 | 1185026 Mae Kadoodie
Mae Kadoodie's picture

It's: "suck it in and cope".

Tue, 04/19/2011 - 14:44 | 1185065 slaughterer
slaughterer's picture

"It takes a lifetime to earn a reputation, and 5 minutes to lose it." (WB)

Tue, 04/19/2011 - 13:58 | 1184867 savagegoose
savagegoose's picture

dont this guy know you dont fuck with made men?

Tue, 04/19/2011 - 14:54 | 1185088 long juan silver
long juan silver's picture

Even made men make like Johnny Roselli take the trip and end up in a 9 pieces floating in a barrel off Santa Monica or like Jimmy Hoffa in a barrel that dont float.

Tue, 04/19/2011 - 13:56 | 1184871 Dr. No
Dr. No's picture

Didnt they hear?  Warren Buffet wrote in his press release upon the resignation of Sokol, he was not going to speak of this anymore and anyone who has questions should see the press release.

Tue, 04/19/2011 - 14:11 | 1184931 Id fight Gandhi
Id fight Gandhi's picture

Yeah and his credibility will suffer every time he defers to that.

He lives in the wannabes and kiss asses attention. Oh savings and wise investments get you rich like him? No, just the same Ol fuck em over fraud.

Put him in with madoff and let them be poker buddies, in both ways

Tue, 04/19/2011 - 17:14 | 1185735 cramers_tears
cramers_tears's picture

Yeah, Warren and Charlie are just going to send the Memo to court - no attorneys, no company representatives, no defendants...  Yeah, the Memo appears before the judge and the case gets dismissed on demurrer.  The Memo doesn't say or do anything - just sits there, propped up on the defendant's table.  The judge grants the defendant's  demurrer with the exclamation, "The defendant is Warren Buffet, dammit! - CASE DISMISSED! Get this shit out of my courtroom!!!!"  Then as he leaves the bench he shoots the Memo with the hand-pistol gesture and mouths the words, "good job - you da man! - Thus another day of Justice in Gov Inc f/k/a the USA is fulfilled.

 

 

Wed, 04/20/2011 - 01:00 | 1187013 TemporalFlashback
TemporalFlashback's picture

Awesome.

Wed, 04/20/2011 - 14:42 | 1189304 Monday1929
Monday1929's picture

Who plays the Memo in the movie?

Tue, 04/19/2011 - 13:56 | 1184872 3.7.77
3.7.77's picture

Good for him, hopefully it goes somewhere.

Tue, 04/19/2011 - 14:00 | 1184884 BrobamaReds
BrobamaReds's picture

I think Warren knows Brobama....and Becky Quick's throat.

Tue, 04/19/2011 - 14:06 | 1184896 American idle
American idle's picture

My heart pumps piss for all of those involved.
The lawyers, the litigants, the whole fucking lot of 'em.
Fuck them all.

Tue, 04/19/2011 - 14:04 | 1184897 Greater Fool
Greater Fool's picture

Guess this means he should spend roughly 100 times as long in jail as Martha Stewart did.

Tue, 04/19/2011 - 14:04 | 1184898 spekulatn
spekulatn's picture

Shakedown, bitchez!

 

(Sorry)

Tue, 04/19/2011 - 14:06 | 1184900 tslv50
tslv50's picture

Yeah don't forget about Munger, I distrust that man more than the whole rest of the Berkshire crew. And remember even if buying gold works, your a jerk!

Tue, 04/19/2011 - 14:07 | 1184904 nontaxpayer
nontaxpayer's picture

Buffett...survivorship bias. (the math in CAPTCHA is getting easier)

Tue, 04/19/2011 - 14:19 | 1184929 Mercury
Mercury's picture

...more like Ben Graham long term value investing (the only free lunch) + the float (free money).

Tue, 04/19/2011 - 14:26 | 1184981 knukles
knukles's picture

All of his investments are either closely regulated (how do you spell regulatory capture) oligopolies or live in the financial theft-o-sphere.

Fuck that Graham and Dodd bullshit, it's a con. 
He's a top money boy in banksterdom.

Tue, 04/19/2011 - 14:48 | 1185046 Mercury
Mercury's picture

Maybe, but for the most part it's nothing you couldn't have owned too (what's your 40yr record?) and G&D is, empirically, not bullshit:  

http://blog.empiricalfinancellc.com/2011/04/backtesting-ben-graham/

Tue, 04/19/2011 - 14:48 | 1184907 Mercury
Mercury's picture

Good luck with that lawsuit.

I think Buffett is unnecessarily making himself look like a sleazeball here but it's likely that Sokol acted within the letter of the law.

Insider trading laws are pretty screwy and apply differently to transactions in different types of securities.  And enforcement is pretty much a joke anyway. Be interesting to see what the Raj actually gets slapped with.

Tue, 04/19/2011 - 15:50 | 1185399 MarketTruth
MarketTruth's picture

Enforcement IS a joke. Besides, the regulators are too busy looking at porn, while everyone knows that the White House/Pentagon prefer child porn.

Tue, 04/19/2011 - 14:08 | 1184910 lsbumblebee
lsbumblebee's picture

And to think all this started just because Becky asked for some lubricant.

Tue, 04/19/2011 - 14:12 | 1184927 Extremist Tan
Extremist Tan's picture

Mercury's right.  Break up BRK.  Parts stronger than whole.  

 

Buffett peaked just after The Who, Rolling Stones, or Pink Floyd.  

Tue, 04/19/2011 - 14:13 | 1184937 anonnn
anonnn's picture

Stop The Presses! Radical shift disclosed by Reuters:

Fed Unveils Proposal on Mortgage Standards- Reuters

Lenders would be required to make sure prospective borrowers have the ability to repay their mortgages before giving them a loan, under a proposal released by the Federal Reserve on Tuesday.

Tue, 04/19/2011 - 14:20 | 1184962 SheepDog-One
SheepDog-One's picture

Guaranteed risk-free for the banks 30 year mortgages? So bottom line you need to put up collateral worth at least as much as the loan. Allrightey then!

Tue, 04/19/2011 - 15:20 | 1185188 Mercury
Mercury's picture

The government can have that or residential mortgage portfolios that "look like America" but not both.

Tue, 04/19/2011 - 16:36 | 1185604 NotApplicable
NotApplicable's picture

Ha! This from the same Fed that buys all of the Treasury's debt on settlement day from the PDs, but isn't monetizing it.

I really need to drink more.

Tue, 04/19/2011 - 14:13 | 1184939 Just Observing
Just Observing's picture

Case to be dismissed, because little guys don't count.

Tue, 04/19/2011 - 14:18 | 1184955 Dick Darlington
Dick Darlington's picture

OT: What i'm going to eat if this is true?

04-19 14:11: Apple (AAPL) iPad shipments for March may be weak - Business Insider
Tue, 04/19/2011 - 14:20 | 1184956 BrobamaReds
BrobamaReds's picture

What's the difference between pink and purple?

 

The grip.

Tue, 04/19/2011 - 14:20 | 1184961 HonestJohn
HonestJohn's picture

Janet Tavakoli discusses this with Max on the latest Keiser Report, starts at 12:30 min mark

http://maxkeiser.com/2011/04/19/kr139-keiser-report-murderers-martyrs/

She really rips Buffet and the SEC, good stuff.

 

Tue, 04/19/2011 - 14:27 | 1184996 LawsofPhysics
LawsofPhysics's picture

Ah yes, let the serpents eat one another.

Tue, 04/19/2011 - 14:36 | 1185022 Cdad
Cdad's picture

OT

Anyone know how Brent Wilsey has a job in financial services?  Literally, this guy said yesterday, about S&P making the end of the world call on US debt, "I don't care about that...just look at the companies."  And that is a direct quote.

So how does a guy who is supposed to be a money manager keep his gig when he does not care about...anything, apparently?  Seriously, I could do his job.  Really, I could.

I could do UnicornDew analysis as convincing as his investment theories.

Bueller...Bueller...

Tue, 04/19/2011 - 14:46 | 1185068 The Axe
The Axe's picture

Market completely BROKEN  VXX and TVIX  products to blame...totally ETF world fucked. 

Tue, 04/19/2011 - 14:46 | 1185071 uno
uno's picture

Is Buffet sending his plane for his personal fluffer Becky?

Tue, 04/19/2011 - 15:02 | 1185120 buzzsaw99
buzzsaw99's picture

Sell your BRK stock and be done with it. Bitchez.

Tue, 04/19/2011 - 15:04 | 1185125 UnRealized Reality
UnRealized Reality's picture

Judges on the SEC haven't ruled in favor of a plaintiff in 20 years. Does this guy know what he is up against. I guess there is sheep amongst the rich too.

Tue, 04/19/2011 - 15:17 | 1185176 Richard Head
Richard Head's picture

SEC? Read the article buddy.

Tue, 04/19/2011 - 16:25 | 1185539 UnRealized Reality
UnRealized Reality's picture

Yea, and reading and comprehending are two different things.

While it is admirable for someone to believe that the legal standard in America is equal for both normal people and multi-billionaire, we are confident this lawsuit will be burried shortly (and absolutely nothing will come out of any SEC investigation into BRK). Regardless, Kirby does bring up a valid point, indicating that Sokol most certainly acted in breach of Berkshire's Insiders' Trading Policies and Procedures, which states:

Tue, 04/19/2011 - 16:48 | 1185658 NotApplicable
NotApplicable's picture

The lawsuit was filed in a Delaware Court. An SEC investigation is a totally different event.

Tue, 04/19/2011 - 15:45 | 1185339 FishHockers
FishHockers's picture

They are getting down and dirty, just like they live, in the gutter.

Tue, 04/19/2011 - 16:01 | 1185450 the not so migh...
the not so mighty maximiza's picture

What a jackass,  read the fine print

Investing involves risk, including the risk of loss.

Tue, 04/19/2011 - 19:09 | 1186076 bugs_
bugs_'s picture

depose those bitches.  what else will be found!  imagine.

Tue, 04/19/2011 - 19:46 | 1186225 AldousHuxley
AldousHuxley's picture

Nothing like decades of adulation wiped away by minor infraction. Buffett needs to spend the rest of his fortune to fix the corrupt system. That would ensure his immortality.

Tue, 04/19/2011 - 22:02 | 1186569 PulauHantu29
PulauHantu29's picture

Not surprising to me. The Fraudsters are Blantant since they know no one will indict or even investigate.

Wed, 04/20/2011 - 09:12 | 1187618 fallst
fallst's picture

Can somebody help me with this?

Was this not insider trading? Buying Lubrizol ahead of BH buyout?

This guy then goes on CNBC bragging about it?

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