October 20, 2021

DealBook: S.E.C. Ends Scrutiny of Former Top Aide to Buffett

David Sokol was once chairman of MidAmerican Holdings, a part of Berkshire Hathaway.Lucas Jackson/ReutersDavid Sokol was once chairman of MidAmerican Holdings, a part of Berkshire Hathaway.

The Securities and Exchange Commission has decided not to file insider trading charges against David L. Sokol, a onetime top lieutenant at Berkshire Hathaway, Mr. Sokol’s lawyer said Thursday.

Mr. Sokol came under scrutiny in 2011 after abruptly resigning as chairman of Berkshire’s MidAmerican Energy Holdings, one of the many holdings of the investment conglomerate run by the billionaire Warren E. Buffett. At the time, Berkshire revealed that Mr. Sokol bought shares in Lubrizol, a maker of lubricants that he wanted Mr. Buffett to buy. Mr. Sokol bought the shares about two months before Berkshire announced a $9 billion acquisition of the company. After the deal was announced, the value of his Lubrizol stake rose by $3 million.

But Mr. Sokol’s lawyer, Barry Wm. Levine, said that the S.E.C. informed his client on Thursday that it had completed its inquiry and decided not to pursue a civil enforcement action.

Mr. Levine said he was happy that his client was “exonerated” and that Mr. Sokol never acted improperly in the trades. “He is the paragon of rectitude,” said Mr. Levine, a partner at the law firm Dickstein Shapiro in Washington.

John Nester, a spokesman for the S.E.C., declined to comment on Thursday. The agency typically does not comment when it decides not to pursue action in such cases. The news was first reported online by The Wall Street Journal.

Mr. Sokol’s resignation in 2011 was a rare black eye for Berkshire. A star manager, Mr. Sokol had run several Berkshire subsidiaries, including MidAmerican Energy and NetJets, which sells fractional ownerships of private jets. He was long considered to be a leading candidate to succeed Mr. Buffett, 82.

Mr. Sokol, now 56, had also become a crucial player in the conglomerate’s frequent deal-making, earning the nickname “Mr. Fix-it.” He served as a point man for Mr. Buffett on a number of potential transactions, particularly during the financial crisis.

His sudden resignation caught Berkshire by surprise. Mr. Buffett said he did not ask for Mr. Sokol’s resignation, suggesting at the time that it was a personal decision by Mr. Sokol.

Mr. Buffett initially defended his protégé’s trading. “Neither Dave nor I feel his Lubrizol purchases were in any way unlawful,” Mr. Buffett said at the time.

But additional information surfaced after the Berkshire board investigated Mr. Sokol’s trading record. Berkshire directors ultimately accused Mr. Sokol of misleading the company about his personal stake in Lubrizol.

Mr. Sokol bought $10 million worth of stock in Lubrizol shortly before bringing the company to Mr. Buffett’s attention, according to the board. While Mr. Sokol made a “passing remark” to Mr. Buffett about his trading, the board said that Mr. Sokol did not tell Mr. Buffett that he had bought his stake in Lubrizol after Citigroup bankers had pitched the company as a potential takeover target. He also bought some of the shares, according to the Berkshire directors, after learning that Lubrizol might entertain a takeover offer.

“His misleadingly incomplete disclosures to Berkshire Hathaway senior management concerning those purchases violated the duty of candor he owed the company,” the board’s report in 2011 says. It adds that Mr. Sokol may have failed his fiduciary duty under the law of Delaware, where Berkshire is incorporated.

At the time, Mr. Levine said that Mr. Sokol was considering a personal investment in Lubrizol since summer 2010, before meeting with bankers to discuss the company as a potential takeover target.

Still, Mr. Buffett said the trades violated company trading policy and called Mr. Sokol’s actions “inexplicable and inexcusable.”

He also provided testimony to S.E.C. investigators. Meanwhile, Berkshire continued to pay Mr. Sokol’s legal bills. Last spring, Mr. Buffett claimed those bills reached nearly $200,000 a month.

Mr. Buffett could not be immediately reached for comment on Thursday night.

But later in 2012, S.E.C. lawyers decided that there was insufficient evidence to mount a case against Mr. Sokol. The evidence was circumstantial, S.E.C. officials concluded, and it was unclear whether Mr. Sokol had a true window into the Lubrizol deal-making process. He also had no indication at the time of his stock trades that Mr. Buffett would be interested in acquiring the company.

Since resigning from Berkshire, Mr. Sokol has been managing his own portfolio, Mr. Levine said.

Pradnya Joshi contributed reporting.


This post has been revised to reflect the following correction:

Correction: January 4, 2013

A summary with an earlier version of this post misspelled the surname of the billionaire investor. He is Warren E. Buffett, not Bufett.

Article source: http://dealbook.nytimes.com/2013/01/03/s-e-c-ends-scrutiny-of-former-top-aide-to-buffett/?partner=rss&emc=rss

DealBook: Berkshire Fires Back Against Sokol’s Lawyer

Berkshire Hathaway has escalated its war of words with its former executive, David L. Sokol, who resigned last month after buying shares in a specialty chemicals manufacturer while orchestrating a potential takeover of the company.

A Berkshire director and lawyer, Ronald L. Olson, released a statement on Wednesday night saying that the company’s board had sought to interview Mr. Sokol about his $10 million stake in Lubrizol, contradicting earlier remarks made by Mr. Sokol’s lawyer.

Mr. Sokol declined that interview request, Mr. Olson said.

On Wednesday afternoon, the board released a scathing report accusing Mr. Sokol of misleading Berkshire about his Lubrizol trades and violating the company’s ethics and insider trading policies.

Mr. Sokol, once seen as a leading contender to succeed Warren E. Buffett atop the Berkshire empire, never told Mr. Buffett that he had bought his stake in Lubrizol after Citigroup bankers had pitched the company as a potential takeover target, the report said.

In response, Mr. Sokol’s lawyer complained that the directors had failed to question his client, the former chairman of MidAmerican Energy and NetJets, for the report.

“I am profoundly disappointed that the audit committee of Berkshire Hathaway would authorize the issuance of its report to the public without the care and decency to ask even a single question of Mr. Sokol,” said the lawyer, Barry W. Levine, of Dickstein Shapiro.

A few hours later on Wednesday, Mr. Olson disputed Mr. Levine’s statement.

“Mr. Sokol was interviewed at least three times regarding his Lubrizol trading activity and contacts with Citi bankers,” Mr. Olson, a partner at Munger Tolles Olson, said in the statement. “In connection with the preparation of the audit committee report, a request for a further interview with Mr. Sokol was made to his attorney. Mr. Sokol was not made available.”

Munger Tolles Olson, Berkshire’s longtime outside law firm, helped prepare the audit committee report, which was presented to Berkshire’s board on Tuesday night.

Mr. Levine did not immediately return a request for comment on Thursday.

On Wednesday, Mr. Levine disputed the audit committee report, saying that Mr. Sokol’s trading was above board. Mr. Sokol, his lawyer said, had been considering a personal investment in Lubrizol since summer 2010, before meeting with Citigroup in December to discuss the company.

Mr. Sokol, 54, resigned from Berkshire Hathaway after it emerged that he had personally bought about 100,000 Lubrizol shares shortly before bringing the company to Mr. Buffett’s attention in January. Berkshire later agreed to buy Lubrizol for $9 billion, causing Lubrizol’s shares to surge and increasing the value of Mr. Sokol’s holding by about $3 million.

Article source: http://feeds.nytimes.com/click.phdo?i=9eb3d26f3585d38748ab54abc4b5497b

A Conspicuous Absence at Berkshire Meeting

Mr. Sokol will not attend Berkshire’s meeting this weekend. He announced his resignation abruptly last month after reports emerged that he had made a profit by buying the stock of a company in his own account shortly before Mr. Buffett announced he was buying the company.

The sudden downfall came as a surprise to outsiders who had watched Mr. Sokol rise in the business world. He helped build a small Omaha energy business into a multibillion-dollar corporation, sold it to Berkshire Hathaway and by all appearances became one of his boss’s favorite executives. Mr. Sokol served as Mr. Buffett’s Mr. Fix-it, a turnaround artist trusted to tackle difficult jobs.

But people who worked for Mr. Sokol saw a side of him that Mr. Buffett perhaps did not. His brass-knuckled approach alienated some Berkshire employees, as when he suggested that people with an illness or other personal problems were problematic and when he unceremoniously fired a top executive and made him leave the office that day.

Flashes of his management style can be found in some earlier litigation as well. In one civil case, a judge rebuked Mr. Sokol for tampering with his company’s numbers so that a joint-venture partner would get a smaller payout. In another case, Mr. Sokol sued to find out which employees at a Berkshire unit were disparaging him.

And he irritated colleagues at two of Berkshire’s subsidiaries, Johns Manville and NetJets, by frequently invoking Mr. Buffett’s name to burnish his own image inside the company.

Some people at Berkshire were puzzled over why Mr. Buffett favored him so much, as when he credited Mr. Sokol for a turnaround of Johns Manville even though the unit’s profits fell sharply after he took over.

Now, Mr. Sokol’s trading is under investigation by the Securities and Exchange Commission, according to two people close to the inquiry who would speak only on the condition of anonymity because they were not authorized to speak publicly. So the question of just what Mr. Buffett saw in Mr. Sokol — and why he has supported him publicly — will surely be a persistent topic of conversation this weekend in Omaha, at the usually jubilant occasion known as the Woodstock of Capitalism.

Shareholders’ questions may cast a pall over the peppy affair as they consider the conduct of Mr. Sokol, who was already wealthy and was on the cusp of running one of America’s most respected companies. “The reasons behind Sokol’s actions are a mystery,” said Whitney Tilson, a fund manager and longtime Berkshire shareholder.

“At the very least, he exercised very poor judgment.”

Mr. Sokol has said that he resigned to focus on family investments and that the stocks were a good investment for his family that he would do again. He did not respond to questions sent by e-mail or to phone messages for this article.

In some ways, Mr. Buffett and Mr. Sokol seem to share many similarities, suggesting an easy familiarity.

They were both born and raised in Omaha, Neb., and still reside there. Each man credits their early jobs as newspaper delivery boys and grocery store clerks, with instilling a strong work ethic. Their business writings are filled with homespun aphorisms.

But there are marked differences as well.

Mr. Buffett, one of America’s richest men according to Forbes magazine, owns one home, which he bought in 1958 for $31,500.

Mr. Sokol collects houses, including one near Jackson Hole, Wyo., the upscale ski resort town, and a waterfront home in Fort Lauderdale, Fla., where he docks his yacht.

While Mr. Buffett is a homebody whose favorite leisure pursuit is playing bridge on his computer, Mr. Sokol’s passion is hunting. Last month he went on a hunting trip to New Zealand.

They also have different views of investment bankers. Mr. Buffett takes frequent potshots at them and boasts about striking multibillion-dollar deals without using advisers.

While at Berkshire, Mr. Sokol relished his dealings with Wall Street. He flew frequently to New York for rounds of meetings with bankers pitching deals.

Late last year, one of those discussions bore fruit. A meeting with Citigroup bankers led to Berkshire’s $9 billion acquisition of Lubrizol, a chemicals company.

Article source: http://feeds.nytimes.com/click.phdo?i=b344ccf5b29edd714feacf29d80a65fc

DealBook: S.E.C. Said to Weigh Inquiry of Sokol’s Lubrizol Trades

David L. SokolMario Anzuoni/ReutersDavid L. Sokol and Warren E. Buffett say he has done nothing wrong.

David L. Sokol said he thought he did nothing illegal when, as a top lieutenant of Warren E. Buffett, he bought shares of a company while orchestrating Berkshire Hathaway’s acquisition of it.

Mr. Buffett agrees.

But neither is the ultimate arbiter.

The Securities and Exchange Commission is weighing whether to formally investigate Mr. Sokol’s purchases of stock in the company, Lubrizol, according to a person briefed on the matter who was not authorized to speak publicly.

Securities lawyers say rules surrounding insider trading are murky, making it difficult to handicap whether Mr. Sokol could face legal liability.

“The decision whether to bring a case against Sokol will turn on a close analysis of the facts,” said Richard L. Scheff, a lawyer at Montgomery, McCracken, Walker Rhoads. “It will also turn on his state of mind as to why he was trading in Lubrizol when he was.”

A spokesman for the S.E.C. declined to comment. Mr. Sokol did not return requests for comment.

Mr. Buffett disclosed the trading in a press release on Wednesday announcing Mr. Sokol’s resignation from Berkshire. Mr. Sokol accumulated about $10 million shares of Lubrizol, a chemical maker, in January, just days before he suggested an acquisition of the company.

Two months later, Berkshire agreed to buy Lubrizol for $9 billion. The announcement of the deal increased the value of Mr. Sokol’s stock by $3 million.

The news of Mr. Sokol’s trading in Lubrizol comes at time when federal authorities have cracked down on insider trading. The hedge fund manager Raj Rajaratnam is on trial in Federal District Court in Manhattan in the biggest insider trading case in a generation. Earlier this week, the Justice Department brought criminal charges against a longtime Food and Drug Administration employee, accusing him of trading on confidential drug information.

Central to the regulators’ decision to bring a case is whether Mr. Sokol traded stock on material nonpublic information in violation of a duty of trust or confidence owed to the company or its shareholders — the legal definition of insider trading.

Did Mr. Sokol trade on information that was nonpublic?

In December, Mr. Sokol asked bankers at Citigroup to reach out to Lubrizol about a possible acquisition by Berkshire. Citigroup relayed his interest to the Lubrizol chief executive, who “indicated that he would inform his board of Berkshire’s possible interest,” according to a Lubrizol securities filing.

A few weeks later, Mr. Sokol bought about $10 million worth of Lubrizol stock.

Securities lawyers say regulators could take the view that such information — that is, investment bankers approaching Lubrizol about a potential deal with Berkshire — was confidential, or nonpublic.

Did Mr. Sokol trade on nonpublic information that was material?

This is a close call, say legal experts.

The Supreme Court recently said that information was material if it would have “significantly altered the total mix of information made available” to a “reasonable investor.”

An average investor would probably have viewed the news that Berkshire had approached Lubrizol as relevant in a decision to buy shares in the company. News of potential acquisitions — particularly those by Mr. Buffett — move stocks.

But Mr. Sokol, securities lawyers say, has a defense on this point. Even though he bought Lubrizol stock after initiating a potential transaction, the possibility of a deal actually happening was remote.

“Dave’s purchases were made before he had discussed Lubrizol with me and with no knowledge of how I might react to his idea,” Mr. Buffett said in his release. “In addition, of course, he did not know what Lubrizol’s reaction would be if I developed an interest.”

Mr. Buffett added: “Furthermore, he knew he would have no voice in Berkshire’s decision once he suggested the idea; it would be up to me and Charlie Munger, subject to ratification by the Berkshire board, of which Dave is not a member.”

Did Mr. Sokol violate a duty to Berkshire or its shareholders?

Mr. Buffett said in his release that he felt that Mr. Sokol’s purchases were in no way unlawful. When Mr. Sokol approached Mr. Buffett about Lubrizol, he said that he owned stock in the company.

“It was a passing remark and I did not ask him about the date of his purchase or the extent of his holdings,” Mr. Buffett said in his letter.

But a regulator could argue that Mr. Sokol had violated his duty to Berkshire by breaching the company’s insider trading policy, said Steven M. Davidoff, a securities law professor and a columnist for The New York Times.

Berkshire’s insider trading policy states that executives “who have access to confidential information are not permitted to use or share that information for stock trading purposes or for any other purpose except the conduct of the company’s business. All nonpublic information about the company should be considered confidential information.”

Did Mr. Sokol know that his actions were unlawful, or that there was a high likelihood they were unlawful?

The legal term scienter — or having knowledge of wrongdoing — is a critical element of any insider trading case.

A crucial question is whether Mr. Sokol bought Lubrizol knowing he was going to suggest the deal to Mr. Buffett.

“I don’t believe that I did anything wrong,” Mr. Sokol told CNBC in an interview on Thursday. “I can understand the appearance issue, and that’s why we made it public.”

Article source: http://feeds.nytimes.com/click.phdo?i=83a4cd60f94755a9fae6078906fbd315